Summary
Full Decision
ARBITRATION DECISION
Carla Castelo Trindade, Arbitrator appointed by the Deontological Board of the Centre for Administrative Arbitration to form this arbitral tribunal renders the following:
ARBITRATION DECISION
I – REPORT
On 25 July 2017, A…, LDA., a company with registered office at Rua …, …, …, …-… Vila Nova de Gaia, legal entity number … (hereinafter "Claimant"), filed a petition for the constitution of a single-member arbitral tribunal, in accordance with the terms and for the purposes of Articles 2 and 10 of the Legal Framework for Arbitration in Tax Matters, approved by Decree-Law 10/2011, of 20 January (RJAT).
By means of the petition for constitution of the arbitral tribunal and for an arbitral ruling, the Claimant seeks the annulment of the Stamp Tax assessment act no. 2017…, issued under item 28.1 of the TGIS, relating to the year 2012, in the amount of €18,527.20 (eighteen thousand, five hundred and twenty-seven euros and twenty cents).
In fact, not accepting the Stamp Tax assessment identified above, the Claimant requested the constitution of this arbitral tribunal, submitting a petition for a declaration of illegality and consequent annulment of the Stamp Tax assessment act relating to the year 2012 identified above, on the grounds of:
- Statute of limitations for the right to assess the tax;
- Defect of violation of law to the extent that it is a plot of land for construction, not covered by the scope of Item 28 of the TGIS;
- Lack of substantiation of the assessment act; and
With the petition for an arbitral ruling, the Claimant submitted 2 documents.
As the Claimant opted not to appoint an arbitrator, in accordance with the terms of Article 6(2)(a) and Article 11(1)(b) of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Board appointed Dr. Carla Castelo Trindade as arbitrator of the single-member arbitral tribunal, who communicated acceptance of the assignment within the applicable period.
The parties were notified of this appointment, and no request for recusal of Dr. Carla Castelo Trindade as arbitrator was submitted.
Thus, in accordance with Article 11(1)(c) of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the single-member arbitral tribunal was constituted on 28 September 2017.
On 23 October 2017, the Tax and Customs Authority (hereinafter "Respondent") submitted a response in which it defended the maintenance of the Stamp Tax assessment act on the grounds that its application constituted a correct interpretation of the provisions of Item 28 of the TGIS.
Given that, in the present case, none of the objectives legally entrusted to the meeting referred to in Article 18 of the RJAT were verified, and taking into account the position taken by the parties in the pleadings, under Articles 16(c) and 19 of the RJAT, as well as the principles of procedural economy and prohibition of futile acts, the holding of this meeting was dispensed with, and the parties were notified to submit arguments.
In its arguments, the Claimant emphasized the arguments raised in the petition for an arbitral ruling. It further added that "it cannot but be concluded that the Stamp Tax assessments are illegal under Item 28.1 of the TGIS, by violation of the principle of legality enshrined in Article 13 of the CRP, as well as for their illegality by violation of the principle of contributive capacity".
For its part, the Respondent maintained its defense, with the entire content of its Response being considered as fully reproduced.
II. CASE MANAGEMENT
The arbitral tribunal was properly constituted and is materially competent.
The proceedings do not suffer from nullities and no issues have been raised that may prevent the tribunal from ruling on the merits of the case.
The parties have legal personality and capacity and are legitimate.
All matters having been reviewed, a decision must be rendered.
III. FACTS
III.1. ESTABLISHED FACTS
With regard to the factual matters, it is important to note first of all that the tribunal is not required to rule on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish proven facts from unproven facts. All in accordance with Article 123(2) of the Code of Tax Procedure and Process and Articles 607(2), (3) and (4) of the Civil Procedure Code, applicable by virtue of Article 29(1)(a) and (e) of the RJAT. In this manner, the facts relevant to the judgment of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see Article 596 of the Civil Procedure Code applicable by virtue of Article 29(1)(e) of the RJAT).
Now, given the positions assumed by the parties, the documentary evidence and the Administrative File attached to the record, the following facts with relevance to the decision are considered established:
1. The Claimant is the sole owner of a property located at Rua …, …-… Vila Nova de Gaia, described in the Land Registry of Vila Nova de Gaia under registration number … and registered in the real estate matrix of the parish of …, municipality of Vila Nova de Gaia, district of Porto under article … .
2. The aforementioned property originated from the property registered in the real estate matrix of that parish under article … .
3. The property is described in the urban real estate register as a plot of land for construction;
4. The plot of land for construction was appraised in 2008, and a tax patrimonial value of €1,852,720.00 (one million, eight hundred and fifty-two thousand, seven hundred and twenty euros) was determined;
5. The aforementioned property is a plot of land for construction on which a constructed property was built in three phases;
6. The first and second phases are completed, and a model 1 declaration of the Property Tax (IMI) was filed on 11 September 2008, for fractions A through V, AA, AB, AI, AJ, AQ and AR of a new property, constituted under the horizontal property scheme, located in the parish of …, with origin in the matricular article … of the same parish, giving rise to matricular article … of the parish of …, municipality of Vila Nova de Gaia, effective as of 10 September 2008;
7. With the registration of article…, article … which gave rise to it (to which now corresponds the remaining part of the plot of land for construction) was deleted from the real estate matrix;
8. On 10 January 2017, the Claimant requested the reactivation of matricular article…, which was reactivated according to the order of the Head of Finances dated 12-04-2017;
9. On 3 March 2017, the Stamp Tax assessment no. 2017… was issued, relating to the year 2012, made under Item 28 of the TGIS, in the total amount of €18,527.20 (eighteen thousand, five hundred and twenty-seven euros and twenty cents), with payment deadline of 30 April 2017;
10. The assessment act no. 2017 … was regularly notified to the Claimant.
III.2. UNPROVEN FACTS
As stated, with respect to the factual matters taken as established, the tribunal is not required to rule on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to discriminate proven facts from unproven facts, as provided in Article 123(2) of the CPPT applicable by virtue of Article 29(1)(a) and (e) of the RJAT. In this manner, the facts relevant to the judgment of the case were, as stated above, selected and defined according to their legal relevance, and there are no other factual allegations that are relevant for the proper resolution of the procedural dispute.
IV. LEGAL MATTERS
Given the positions of the parties assumed in the pleadings submitted, the central issue to be resolved by this arbitral tribunal is to assess the legality of the Stamp Tax assessment act relating to the year 2012.
As the Claimant has imputed various defects to the tax acts being challenged, it is necessary to determine the order in which these shall be considered, and the order provided in Article 124 of the CPPT must be observed, applicable by virtue of Article 29(1)(a) of the RJAT[1].
The success of any of the defects invoked by the Claimant will result in the annulment of the tax acts.
The Claimant invokes, first and foremost, the statute of limitations for the right to assess the tax, under Article 45 of the General Tax Law (LGT), stating in this regard that "[t]he tax event occurred on 31 December 2012 (see Article 113(1) of the Property Tax Code by virtue of item u) of Article 5 of the Stamp Tax Code in effect at the time of the facts)" and, consequently, "in light of the applicable rules, the four-year period for the Tax Authority to assess the Stamp Tax began on 1 January 2013 (…) and ended on 1 January 2017". It further contends that no cause of suspension of the statute of limitations has occurred, and therefore, in its view, the assessment act in question was issued after the applicable statute of limitations had expired.
In this regard, and in light of the administrative file presented by the Respondent attached to the record, and the facts established above, the Claimant's allegation cannot be upheld, and accordingly, the petition for an arbitral ruling is without merit in this respect.
With regard to the other defects invoked by the Claimant, the defect of violation of law due to error regarding the prerequisites will be analyzed first, as it is the defect that will result in the "most stable or effective protection of the injured interests" in that its potential success will prevent renewal of the act, which does not occur with the annulment resulting from the other defects.
Defect of Violation of Law
The issue here is to determine whether there was a violation of law in the application of the Stamp Tax incidence norm to the plot of land for construction identified above and of which the Claimant is the owner.
However, as item 28.1 of the TGIS was the subject of a substantial alteration upon the entry into force of the State Budget for 2014 (approved by Law no. 83-C/2013, of 31 December), it is first necessary to determine the law applicable to the present case.
Law no. 55-A/2012, of 29 October, amended Article 1 of the Stamp Tax Code (CIS), adding to the General Table of this tax (TGIS) item 28, which provided that Stamp Tax also applied to:
"28 – Ownership, usufruct or surface right of urban properties whose tax patrimonial value contained in the matrix, in accordance with the Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value used for the purposes of Property Tax:
28-1 – For properties with residential use – 1%;
28-2 – For properties, when the taxpayers who are not natural persons are residents of a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%."
Thus, upon the entry into force of item 28.1, properties with residential use with a tax patrimonial value (TPV) equal to or greater than €1,000,000.00 (one million euros) became subject to Stamp Tax at the rate of 1%.
Accordingly, in the original wording of item 28.1, this incidence norm covered only urban properties with residential use with TPV equal to or greater than €1,000,000.00, and not plots of land for construction of equal value.
In other words, in the original wording of item 28.1, plots of land for urban construction, whether or not they had TPV equal to or greater than €1,000,000.00, were excluded from taxation.
However, upon the entry into force of the State Budget for 2014, through Law no. 83-C/2013, of 31 December, item 28.1 came to provide that Stamp Tax applies to:
"28.1 For residential properties or for plots of land for construction, whose authorized or planned construction is for housing purposes, in accordance with the provisions of the Property Tax Code – 1%"
Thus, with regard to the "plots of land for construction" at issue here, it is essential to take into account this legislative evolution, in that, as must be stressed, until the entry into force of the State Budget for 2014, the legislator provided in the Stamp Tax incidence norm only urban properties with residential use. With the new wording of item 28.1, following the entry into force of the State Budget for 2014, the legislator came to expressly provide for the taxation of plots of land for construction "whose authorized or planned construction is for housing purposes, in accordance with the provisions of the Property Tax Code" (emphasis added).
With respect to the application of tax law in time, Article 12(1) of the General Tax Law (LGT) provides that "tax norms apply to facts subsequent to their entry into force", and no retroactive taxes may be created".
Thus, as decided by the Administrative Supreme Court, in a decision of 09.04.2014, in the context of case no. 1870/13 (available at http://www.dgsi.pt/):
"This amendment – to which the legislator did not attribute an interpretive character, nor does it seem to us that it did – only makes it unambiguous for the future that plots of land for construction whose authorized or planned construction is for housing purposes are covered by the scope of item 28.1 of the General Table of Stamp Tax (provided that their respective tax patrimonial value is equal to or greater than 1 million euros), but clarifies nothing with respect to prior situations (assessments of 2013), such as the one at issue in the present proceedings." (underlining added)
In the case sub judice, the legality of the Stamp Tax assessment act relating to the year 2012 is disputed, and therefore the new wording of item 28.1 of the TGIS, provided by Law no. 83-C/2013, of 31 December, cannot be applied.
Law no. 55-A/2012, of 29 October, entered into force on the day following its publication, that is, on 30 October 2012. In that regard, Article 6 of that diploma established the transitional provisions to be observed in assessments made in 2012, as follows:
- The tax event occurs on 31 October 2012;
- The taxpayer is the one mentioned in Article 2(4) of the Stamp Tax Code on the date referred to in the preceding item;
- The tax patrimonial value to be used in the tax assessment corresponds to that resulting from the rules provided in the Property Tax Code by reference to the year 2011;
- The tax assessment by the Tax and Customs Authority must be made by the end of November 2012;
- The tax shall be paid in a single installment by the taxpayers by 20 December 2012;
- The applicable rates are as follows:
- Properties with residential use valued in accordance with the Property Tax Code: 0.5%;
- Properties with residential use not yet valued in accordance with the Property Tax Code: 0.8%;
- Urban properties when the taxpayers who are not natural persons are residents of a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance: 7.5%.
In light of the above, there is no doubt that the law applicable to the present case is that contained in the original wording of item 28.1 of the TGIS, introduced by Law no. 55-A/2012, of 29 October, with respect for the transitional provisions contained in Article 6 of that diploma.
Regarding the (In)Existence of Factual and Legal Prerequisites for Application of the Incidence Norm Contained in Item 28.1 of the TGIS
As stated above, the issue now at hand is to determine whether there was a violation of law with the application of the Stamp Tax incidence norm to the plot of land for construction identified above, of which the Claimant is the owner.
Specifically, it is necessary to determine whether plots of land for construction with value equal to or greater than €1,000,000.00, whose construction is authorized for residential purposes, are or are not subject to Stamp Tax, in light of the original wording of item 28.1, which provided only for the subjection of "properties with residential use".
Thus, the answer to the question posed will depend on the definition of the concept of "property with residential use".
Articles 2 to 6 of the Property Tax Code (CIMI) contain the definitions of "property" and the various species of properties provided for. Let us examine the relevant provisions for the solution of the case at hand:
"Article 2 – Definition of Property
1 – For the purposes of this Code, property is any portion of territory, encompassing waters, plantations, buildings and constructions of any kind incorporated in or situated on it, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, under 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 on which they are situated, although located in a portion of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature.
2 – Buildings or constructions, even if mobile by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.
3 – The character of permanence is presumed when buildings or constructions are situated in the same place for a period exceeding one year.
4 – For the purposes of this tax, each autonomous fraction, under the horizontal property scheme, is deemed to constitute a property.
Article 4 – Urban Properties
Urban properties are all those that should not 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 principal part.
2 – If neither part can be classified as principal, 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 for services;
c) Plots of land for construction;
d) Other.
2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes, or, in the absence of a license, which have as their normal use each of these purposes.
3 – Plots of land for construction are considered to be lands situated within or outside an urban agglomeration, for which a license or authorization for a subdivision or construction operation has been granted, a prior communication has been made, or a favorable prior information notice has been issued, and also those that have been declared as such in the acquisition deed, excepting lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning plans, are devoted to public spaces, infrastructure or facilities.
[underlining added]
As can be clearly seen, the CIMI does not resort, in its classification of urban properties, to the concept of "property with residential use". In fact, this concept was not defined by the legislator, neither in the CIMI nor in any other legislative diploma.
Thus, it is necessary to interpret the concept, following the rules, both tax and general, on the interpretation of laws, namely Article 11 of the General Tax Law (LGT) and Article 9 of the Civil Code (CC):
"Article 11 – Interpretation (LGT)
1. 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.
2. Whenever tax norms use terms specific to other branches of law, they must be interpreted in the same sense they have there, unless otherwise directly provided by law.
3. If doubt persists as to the meaning of the applicable incidence norms, the economic substance of the tax facts must be considered.
4. Gaps resulting from tax norms covered by the reservation of law to the Parliament are not subject to analogical integration".
"Article 9 – Interpretation of Law
1. Interpretation should not be limited to the letter of the law, but should reconstitute from the texts the legislative thought, taking into account above all the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.
2. However, the interpreter cannot consider legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.
3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express his thought in adequate terms".
Now, regarding the concept of "residential use", the Claimant contends that it is not an autonomous concept in relation to the CIMI classification, and must be interpreted in light of those rules, and therefore "Residential use necessarily means 'buildings and constructions licensed for such purposes', or in the absence of a license, those that have housing as their normal purpose"" (see Articles 49-51 of the petition for an arbitral ruling).
For its part, the Respondent argues that "item no. 28 of the TGIS, by referring to the expression 'properties with residential use', calls for a qualification that overlies the species provided for in Article 6(1) of the CIMI, and should be understood broadly, 'encompassing both constructed residential properties and plots of land for construction', and 'whose meaning must be found in the need to integrate other realities beyond those identified in Article 6(1), no. 1 of the CIMI"" (see Article 22 of the Response).
For the Respondent, "tax law considers the intended use as an element for the purposes of evaluating plots of land for construction, the value of the area of implantation (…) making it possible to determine the use of the plot of land for construction before actual construction of the property", hence "although not expressly provided for in law, plots of land for construction, as urban properties, in accordance with Article 2(1) of the CIMI and Article 6(1) of the same diploma, to which Article 67(2) of the CIS refers, were equally subject to Stamp Tax under item 28.1 of the General Table" (see Articles 23 and 24 of the Response).
In defining the concept of "property with residential use", we follow closely the decision rendered in the context of cases no. 42/2013-T and no. 215/2016-T (both available at www.caad.org.pt). Thus,
"The expression 'residential use' does not seem to be able to have any meaning other than residential use, that is, urban properties that have an actual use for residential purposes, either because they are licensed for such purposes, or because they have that normal use.
And we cannot confuse a 'residential use' that implies an actual dedication of an urban property to that purpose, with the expectation, or potentiality, of an urban property being able to come to have a 'residential use'.
Plots of land for construction, not being built, do not by themselves satisfy any condition to be considered as properties with residential use, since, on the one hand, they do not have a license for residential use, and, on the other hand, they are not habitable (because quite simply they are not built).
Therefore, it does not appear to us to be sufficient for the property to be framed in the objective incidence norm in question that there be an expectation of an urban property coming to have a residential use, or of having the potentiality of coming to have a residential use." (underlining added)
In fact, the concept of residential use must be understood as something that is capable of being inhabited.
Thus, with respect specifically to plots of land for construction, what we find is a mere expectation that they, after construction, will come to have a residential use. Therefore, only after the realization of that use – that is, only after the construction of the property intended for residential purposes – can we consider that that urban property is covered by the scope of Item 28 of the TGIS.
By the foregoing, notwithstanding that a residential property may result, in the future, from that plot of land for construction, as long as it maintains its classification as a plot of land for construction, it cannot be included in the scope of application of Item 28 of the TGIS, in the wording in force at the time of the facts.
On the other hand, the Respondent's thesis that plots of land for construction should be framed as properties with residential use by virtue of the provisions of Article 45 of the CIMI cannot proceed.
Now, the Respondent argues that:
"[t]he notion of the intended use of the property (suitability or purpose) is a coefficient that contributes to the valuation of the property in determining the tax patrimonial value, and the use coefficient is equally applicable in the valuation of plots of land for construction, as provided in Article 41 and in Article 45(2), both of the CIMI, 'whereby its consideration for the purposes of application of item 28 of the General Table of Stamp Tax cannot be ignored'".
We do not, however, agree with the Respondent's understanding that the notion of the intended use of the urban property also results from the provisions of those articles. In fact, one thing is for the legislator to determine that the TPV of plots of land for construction is determined in a specific manner, and another is to extract from the norms that fix the calculation of the TPV a definition of residential use.
On the contrary, and strictly speaking, the definition of the concept of residential use must be prior to the determination of the TPV, in that that concept is integrated into the provision of the norm itself.
However, it cannot be overlooked that Article 45 of the CIMI provides for the valuation of plots of land for construction, considering as one of its elements the authorized or possible purpose, depending on urbanistic conditions. Nevertheless, and as decided in the context of case no. 42/2013-T:
"Once again we are only in the field of potentialities, of expectations, and that is not sufficient to change the nature of the property, which continues to be considered as a plot of land for construction, nor to sustain that the property in question comes to have a 'residential use' for the purposes of the objective incidence of item 28.1 of the TGIS."
Thus, this tribunal understands that, on the date of the tax event, the concept of property with residential use, in the meaning of Item 28 of the TGIS, was equivalent, exclusively, to the concept of residential urban property, defined in Article 6(1)(a) of the CIMI.
By the foregoing, the urban property under discussion in these proceedings, being a plot of land for construction, cannot be covered by the concept of property with residential use, in the meaning of Item 28 of the TGIS, in the wording in force at the time of the tax event, and therefore there is no legal basis for its incidence.
In summary, it is concluded that the Stamp Tax assessment is illegal, due to a defect of violation of law due to error regarding the legal prerequisites, which justifies its annulment under Article 163 of the Administrative Procedure Code, applicable in accordance with Article 29(1)(d) of the RJAT and Article 2(c) of the LGT.
The petition for an arbitral ruling is thus entirely successful.
Lack of Substantiation and Unconstitutionality of the Provisions of Item No. 28 of the TGIS
As previously decided in arbitral proceedings in case no. 91/2012-T: "The complete success of defects of violation of law prejudices the consideration of defects of form and procedural defects, as follows from the order of consideration of defects provided in Article 124(2) of the CPPT, subsidiarily applicable by virtue of the provisions of Article 29(1)(a) of the Legal Framework for Tax Arbitration".
In fact, the establishment of an order of consideration of defects is only justified by the circumstance that the possible success of the defects of priority consideration makes the consideration of the remaining defects unnecessary, since, if it were always necessary to consider all defects, the order of their consideration would be irrelevant.
By the foregoing, with the success of the defects of violation of law, the consideration of the defects of lack of substantiation and the defect of unconstitutionality is prejudiced.
V. DECISION
For these reasons, this arbitral tribunal decides as follows:
a) To uphold the petition for an arbitral ruling;
b) To declare the illegality of the Stamp Tax assessment act no. 2017 … with the total value of €18,527.20;
c) To annul the Stamp Tax assessment referred to above.
VI. VALUE OF THE PROCEEDINGS
The value of the proceedings is set at €18,527.20, in accordance with Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Articles 29(1)(a) and (b) of the Legal Framework for Tax Arbitration and Article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings.
VII. COSTS
The arbitration fee is set at €1,224.00 in accordance with Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the petition was entirely successful, in accordance with Articles 12(2) and 22(4), both of the Legal Framework for Tax Arbitration, and Article 4(4) of the aforementioned Regulation.
Notice to be served.
Lisbon, 27 March 2018
The Arbitrator
(Carla Castelo Trindade)
Text prepared by computer, in accordance with Article 138(5) of the Civil Procedure Code (CPC), applicable by referral to Article 29(1)(e) of the Tax Arbitration Framework.
The wording of this decision follows the pre-1990 spelling convention.
[1] Jorge Lopes de Sousa, Commentary on the Legal Framework for Tax Arbitration, in Guide to Tax Arbitration, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, p. 202
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