Stamp Tax on Building Land (Verba 28.1 TGIS): Constitutionality Challenge at CAAD

ARBITRATION DECISION

ARBITRATION DECISION, delivered as a result of the ruling of the Constitutional Court of 9 January 2019, by which the arbitration decision delivered on 17 April 2017 is reformed

I - REPORT

A..., Lda., taxpayer no. ..., with registered office at ..., no. ..., ..., ...–... Lisbon, hereinafter referred to as the Claimant, filed on 28/07/2016 a request for arbitration in which it petitions for the annulment of the Stamp Duty assessment for the year 2015, in the amount of € 32,345.44.

The Honourable President of the Ethical Council of the Administrative Arbitration Centre (CAAD), appointed on 03/10/2016 Francisco Nicolau Domingos as arbitrator.

On 19/10/2016 the arbitral tribunal was constituted.

In compliance with the provision of Article 17, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 21/10/2016 to, if it so wished, submit a reply, request the production of additional evidence and remit the administrative file (PA).

On 23/11/2016 the Respondent submitted its reply.

On 14/03/2017, the tribunal decided to dispense with the holding of the meeting to which Article 18, no. 1 of the RJAT refers, on the basis of the principle of the tribunal's autonomy in conducting the proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable period, a substantive decision on the claims made, cf. Article 16, paragraph c) of the RJAT, granted a period for the parties, if they so wished, to submit final written arguments and designated 19/04/2017 as the deadline for delivering the arbitration decision.

The parties submitted final written arguments on 23/03/2017 in which they maintained their initial positions.

POSITIONS OF THE PARTIES

In the first place, the Claimant argues that the Stamp Duty assessment is null or alternatively voidable, given that item 28.1 of the General Table of Stamp Duty (TGIS), in the wording in force at the time of the taxable event, is unconstitutional.

In this way, it begins by arguing that companies engaged in the purchase for resale of "land for construction" or engaged in the construction of buildings would be negatively discriminated against in relation to others that do not engage in such activity, given that "land for construction" constitutes raw materials in inventory for companies with such corporate scope. Arguments which it uses to argue that item 28.1 of the TGIS, in the wording given by Law no. 83-C/2013, of 31 December is unconstitutional, for violation of the constitutional principles of legality, justice, equality and impartiality, described in Articles 266, no. 2, 13 and 104, no. 3, all of the Constitution of the Portuguese Republic (CRP).

In the second place, the Claimant also perceives another unconstitutionality in item 28.1 of the TGIS, when it institutes taxation of the ownership of land intended for housing, whose taxable patrimonial value (VPT) is greater than € 1,000,000 and the non-taxation of the ownership of another piece of land intended for a purpose other than housing, with an identical or even higher VPT, creating a discrimination without any foundation whatsoever. And, as such, it violates the principle of tax equality and the principle of contributive capacity which flows from it. To support such conclusion it further argues that there is an absolute equality of circumstances, on the tax plane, between the position of taxpayers who hold "land for construction" whose building will have a residential purpose and the position of taxpayers who are owners of "land for construction" whose building will have a purpose for services or industry.

It further adds that the incidence of item 28.1 of the TGIS deviates from the principles of strengthening social equity, of effective sharing of burdens and equality, given that nothing justifies that "...to the owner of a property with residential purpose with a VPT of one million euros a charge of € 10,000 is levied by way of Stamp Duty, and to the owner of a set of properties whose total VPT amounts to fifty million euros nothing whatsoever is charged, for the sole reason that none of the properties making up that total VPT..." has, individually, a VPT equal to or exceeding € 1,000,000.

It concludes by petitioning for the reimbursement of the tax paid and the payment of compensatory interest, as a result of error attributable to the services at the moment of assessment.

The Respondent, in its reply defends itself by objection and begins by stating that what is at issue in these proceedings is an assessment which results from the direct application of the legal norm and which is translated into objective elements, without any subjective or discretionary assessment.

With regard to the issue of the breach of item 28.1 of the TGIS with the constitutional text, it argues that the tribunal should not assess or discuss the merits of the legislative measure and its scope, but should limit itself to assessing its conformity with the constitutional text.

As to the violation of the principle of equality in the strict sense and its manifestation in the principle of contributive capacity it states that the legislator defined an economic prerequisite, constitutionally valid, as a manifestation of contributive capacity – whose recipients have effectively a special contributive capacity in light of the criterion adopted for the payment of this tax. Specifically, with the provision of item 28.1 in the TGIS the legislator sought to distribute among all the burdens imposed by austerity, allowing discrimination of patrimonies without such offending the constitutional principles under analysis, given that no unjustified differences in treatment result among taxpayers.

It further adds that it is a rule of general and abstract character, applicable in an undifferentiated manner to all cases in which the respective factual and legal prerequisites are met. The fact that the legislator established a value of € 1,000,000 as the delimiting criterion for the tax incidence, below which the provision of the tax norm is not met, constitutes a legitimate choice as to the fixing of the "material scope of luxury residential properties" which it is intended to tax more heavily.

Moreover, the different valuation and taxation of a property with residential purpose compared to a property intended for commerce, industry or services results from the different aptness of the properties in question, which supports the different treatment given by the legislator which, for economic and social reasons, decided, within its margin of appreciation, to exclude from the tax incidence properties intended for purposes other than residential.

It further states in this regard that, although it is not incumbent upon the Tax Authority, in the exercise of its functions, to make comments on the alleged unconstitutionality of item 28.1 of the TGIS, the same does not violate the principles of proportionality, legality, citizens' confidence and contributive capacity.

It concludes by arguing that the assessment under scrutiny does not result from any error by the services, but flows from the application of the law, and therefore, in its view, there is no entitlement to compensatory interest.

QUESTIONS TO BE DECIDED

In this sequence, the Claimant requests that:

a) The illegality of the tax act of Stamp Duty assessment sub judice be declared, because based on unconstitutional norms, and that it be annulled;

b) The Tax Authority be condemned to reimburse the Claimant the amount of Stamp Duty paid;

c) The Tax Authority be condemned to pay to the Claimant compensatory interest, at the legal rate, until full reimbursement of the amount due and calculated on the tax paid.

SANATION

The proceedings do not suffer from any nullities, no issues have been raised that prevent the assessment of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claim, and consequently the conditions are met for the final decision to be delivered.

II - GROUNDS

MATTERS OF FACT

1. Facts considered proved

1.1. The Claimant is the owner of the property registered in the urban property register under article ..., parish of ..., municipality of Loulé, registered as "land for construction".

1.2. Such property had a VPT of € 3,234,544.42 on 31 December 2015.

1.3. The Claimant engages in the purchase of properties for construction.

1.4. The Claimant was notified of the Stamp Duty assessment of the property described in 4.1.1., relating to the year 2015, in the total amount of € 32,345.44.

1.5. The Tax Authority notified, in particular, the Claimant to pay such amount as follows: 1st instalment in the amount of € 10,781.82 and 2nd instalment in the amount of € 10,781.81.

1.6. The Claimant paid the 1st instalment on 27/05/2016 and the 2nd on 25/07/2016.

1.7. The property described in 4.1.1. was at the time of the taxable event registered in the property register as "land for construction".

1. Facts not considered proved

There are no facts with relevance to the arbitration decision that have not been considered proved.

1. Grounds for the factual matters considered proved

The factual matters considered proved have their origin in the documents submitted by the Claimant and those contained in the PA, the authenticity of which was not questioned.

MATTERS OF LAW

1. Historical framework of item 28.1 of the TGIS

In the first place, it is necessary to trace the chronology of item 28.1 of the TGIS. In fact, in 2012, through Law no. 55-A/2012, of 29 October the legislator decided to add a taxable fact subject to Stamp Duty, with a view to taxing properties of high patrimonial value and with the objective of increasing State revenue in the context of absolute economic recession.

To that end the initial wording of the above-mentioned item was as follows:

"28 – Ownership, usufruct or surface right of urban properties whose taxable patrimonial value shown in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 – on the taxable patrimonial value used for the purposes of IMI:

28.1 – For property with residential purpose...".

In this way, properties which: i) were urban and ii) held a taxable patrimonial value greater than € 1,000,000 became subject to Stamp Duty.

However, even while that wording was in force, the interpretation promoted by the Tax Authority pointed to the fact that constructed properties used for housing and also land already classified as land for construction in areas in which the type of construction envisaged is housing would be subject to taxation.

It so happens that this interpretation was repeatedly and systematically rejected by case law of the administrative courts and arbitral tribunals, as evidenced by, for example, the rulings of the Supreme Administrative Court delivered in case 1870/13, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA served as reporter, case 46/14, of 14/05/2014, in which Counsellor ASCENSÃO LOPES served as reporter and case 0272/2014, of 23/04/2014, in which Counsellor PEDRO DELGADO served as reporter.

The truth is that the legislator, through the State Budget Law of 2014 (Law no. 83-C/2013, of 31 December), amended the wording of the Stamp Duty item under analysis, broadening the incidence in order to expressly include "land for construction" where construction for residential purposes is planned or approved, always on condition that such land has a VPT greater than € 1,000,000. For this reason, at the time of the taxable event, "land for construction" whose authorized or planned building is for residential purposes is subject to the taxation provided for in item 28.1 of the TGIS, the incidence rule requiring that it be proved that the right to construction has already been determined by action of a public entity, since such right is only constituted when that entity authorizes the owner to build or subdivide.

In summary, the incidence of Stamp Duty on "land for construction" requires not only mere ownership but also the issuance of an administrative title that authorizes, in particular, such owner to build or subdivide.

Nevertheless, the item provides that the tax is levied on "...the taxable patrimonial value used for the purposes of IMI..." and on such matter a rate of 1% must be levied "...for land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the IMI Code...", however even when the construction authorized or planned for the land is not exclusively residential it is the VPT, the only one that exists prior to building. That is, even though the construction authorized or planned for the land is in units susceptible to independent use, which are considered autonomously for IMI purposes, as provided in Article 12, no. 3 of the CIMI and the VPT of the land computes the value of authorized or planned buildings, it is the VPT which the incidence rule designates as being used to determine the scope of the tax.

For which reason, item 28.1 of the TGIS determines that what must be taken into consideration, in the scope of the tax incidence, is the VPT of the land.

1. Issue of the divergence of item 28.1 of the TGIS with the constitutional principle of equality and contributive capacity, in the segment relating to "land for construction", due to negative tax discrimination: i) of companies engaged in the purchase of land for construction and resale and ii) of land with residential purpose, as compared to land with different purpose (commercial, industrial and services)

In this respect it is necessary first to determine whether there exists incompatibility of item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", due to negative discrimination of companies which habitually carry on the activity of purchase and sale of land for construction and resale.

In this regard the Claimant argues that the economic activity of companies engaged in the construction of buildings for residential purposes and thus holding "land for construction", that is to say, raw materials in inventory, would be clearly negatively discriminated against. That is to say, in its view, the taxation under item 28.1 of the TGIS of urban residential properties and "land for construction" whose building is for residential purposes of value equal to or exceeding € 1,000,000, even when it is not a manifestation of luxury on the part of their owners, but a development of their social purpose would be unconstitutional, for violation of the principle of equality.

The question of constitutionality at issue in these proceedings was judged by the Constitutional Court through ruling no. 22/2019, of 4 July, in the following terms:

"And as to the second rule, relating to the applicability of the tax provided for in item 28.1 of the TGIS to situations in which land for construction belongs to companies engaged in commercialization for resale - real estate entrepreneurs – the same Ruling responds in the following terms:

'It must, however, be emphasized that the tax provided for in Item 28.1, as is proper for taxes on property, delimits its scope of incidence by reference solely to the ownership of certain patrimonial values, 'regardless of the function performed by such assets (productive capital, application of funds or savings or durable consumption)' (Summary Decision no. 214/2017). On the other hand, being a tax on property, it also does not individualize or distinguish the respective taxpayers by recourse to any criterion other than precisely the ownership of those patrimonial values. Thus, it applies indiscriminately to natural persons and legal persons and, within this category, to associations, foundations and commercial companies, regardless of the branch of economic activity in which the latter operate and of the specific commercial risks existing in the respective sectors of activity, which are moreover inherent to any and every commercial activity.

Now, as we have seen, the choice for such a model of taxation is constitutionally legitimate, being virtually apt, with such a configuration, to pursue the program that the Constitution associates with it of contributing to equality between citizens, nor does there result from the argumentation expended in the decision under appeal a well-founded demonstration that indeed 'intolerable arbitrariness' occurs in the normative choice of broadening the incidence of the said tax to land for construction.

Indeed, if it is certain that the mere ownership of land for construction of residential buildings of value equal to or exceeding €1,000,000.00 does not, by itself, allow determination of the concrete and complete economic-financial situation in which the taxpayer subject to the tax finds himself – which, it is repeated, is not constitutionally required – it also does not authorize extrapolative judgments about the type of taxpayers affected by such incidence rule, the branch of activity in which they operate and the conjunctural vicissitudes, in particular of the market, to which they may be subject.

As mentioned, the rule in question is based on the consideration of concrete legal-patrimonial situations, delimited according to the taxable patrimonial value of the property and its normal social purpose, integrating in its subjective scope of application an indeterminate set of taxpayers in accordance with a uniform criterion: the ownership of land for construction of buildings for residential purposes of high taxable patrimonial value. In relation to none of them is their concrete economic-financial situation (income or profits), their nature (individual or collective), organizational structure (commercial or non-commercial enterprise), concrete legal form assumed (commercial company or other) and, much less, the various sectors of activity in which the merchants covered may possibly operate and the specific risks inherent to each of those branches of activity, valued.

The mere statistical probability of being affected by the rule in question of commercial companies dedicated to real estate development, associated with the consideration of economic variables of uncertain verification, such as the economic impact of the tax on that particular branch of commercial activity – the value of which, furthermore, will not cease to be considered as a cost of the activity – does not constitute a sufficiently solid reason to support a judgment of unconstitutionality of the rule in question, in the specific hypothesis under consideration, considering, moreover, the negative character of constitutional review dictated by the principle of equality'.

1. In the present case, the normative dimension impugned corresponds to this latter, and which has already been assessed in Rulings nos. 378/18 and 605/18: application of item 28.1 of the TGIS to situations in which land for construction belongs to companies engaged in the commercialization of land for resale. In this aspect, in application of that first Ruling and its respective grounds - in its nos. 11, 12 and 13 – it must equally be concluded in the sense of non-unconstitutionality.

Beyond not discerning that the distinction made in the appealed decision, attaching to the residential and non-residential destination of land for construction, is shown to be devoid of rational foundation and to exceed the legislator's margin of appreciation in the fiscal domain, in accordance with the scope, structure and nature of the rule in question, there must be considered that, just like the IMI, the stamp duty on urban properties of high value is a tax of real nature, which is levied only on the taxable patrimonial value of each property individually considered, without regard to the taxpayer's social situation and without aggregating even the value of the properties of which he is the owner. As Cardoso da Costa states, a real tax is one "which affects the matière imposed objectively determined, that is to say, apart from the economic conditionality in which the person obliged to pay the tax finds himself" (Course in Fiscal Law, 2nd ed. Almedina, 1972, p. 41).

Now, in the taxation provided for in item 28.1 of the TGIS, in accordance with the very ratio that presided over its creation, the objective element of its incidence stands out: "taxable patrimonial value shown in the register, in accordance with the Municipal Property Tax Code". So it was intended to tax wealth according to itself, without special reference to the personal conditions of its owner. Thus, the taxable fact defined in the incidence rule of item 28.1 of the TGIS – taxable patrimonial value equal to or exceeding one million euros of urban properties of residential purpose – reveals the same contributive capacity of the taxpayer whether he engages in the purchase and sale of land for construction and resale or commercializes them for other purposes.

Therefore, contributive capacity is measured in this type of tax by ownership of an urban residential property of high patrimonial value. The political-legislative option to tax this particular manifestation of wealth has as its limit the measure of the taxpayer's economic strength. Notwithstanding the legislator enjoys broad freedom in choosing taxable facts, it cannot fail to heed a situation that expresses the contributive capacity of citizens. For this reason, an urban property with the characteristics defined in item 28.1 of the TGIS constitutes an index of contributive capacity, in that, in its substance, it reflects increased economic strength of its owner, whether the same engages in the purchase and sale of land for construction or destines them to other purposes'.

In summary, the circumstance that commercial companies whose social purpose is real estate development are covered by the incidence or the economic impact on this sector of activity are not sufficient to support a judgment of unconstitutionality.

Equally, item 28.1 of the TGIS applies to all without exception (general); it treats equally those who find themselves in the same situation and differently those who find themselves in different situations, to the extent of the difference, to be assessed by contributive capacity (uniformity) and forbids discrimination between taxpayers without rational foundation (non-arbitrary).

As also the taxation by item 28.1 of the TGIS is not manifestly excessive, as the legislator:

"...intended, as has been seen, to broaden the taxable base to the wealth externalized in the ownership of urban properties intended for housing of high value and, from a perspective of promoting budgetary consolidation, as an instrument for obtaining more revenue and, correspondingly, for relieving the burden that might come to fall on other sources of revenue or on the reduction of public spending, with a view to meeting public deficit targets, it is beyond doubt that the sums of Stamp Duty collected by virtue of the incidence provided for in item no. 28, whatever their amount, are apt and suitable to achieve the aims of widened distribution of effort in a period of additional fiscal and financial burdens which the legislator sought to achieve. As, as a fiscal measure directed to affect more intensely the holders of real rights of enjoyment over urban properties of residential vocation and of greater value, within reach only of those possessing elevated economic strength, no reasons are discerned for concluding for the disrespect of the dimensions of necessity or just measure, contained in the principle of proportionality";

and

"The claimant argues, in essence, that the grounds embodied in Ruling no. 590/2015 are not applicable to the assessment of the constitutionality of the rule erected as the object of the appeal, in particular as to the violation of the principle of equality, with no difference being discerned in contributive capacity between the holders of real rights over land with construction authorized or planned for residential purposes and the holders of the same rights over land with construction authorized or planned for commerce, industry or services.

She is not, however, correct.

As was already concluded in the context of Ruling no. 568/2016 (available at www.tribunalconstitucional.pt, where the remaining rulings hereinafter cited may be found), of this 2nd Section, '[n]otwithstanding the change in wording already noted [relating to the rule here under scrutiny, whose support provision was altered as compared to the wording assessed in the context of Ruling no. 590/2015,] the argumentation which was then adopted [in Ruling no. 590/2015] is entirely applicable in situations in which the issue is the levying of Stamp Duty on land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the IMI Code, and whose taxable patrimonial value is equal to or greater than (euro) 1,000,000'.

In this way, the Stamp Duty assessment does not suffer from error as to the legal prerequisites and, as such, remain in the legal order.

III – DECISION

In these terms it is decided to judge totally unfounded the request for arbitration regarding the annulment of the assessment under scrutiny, with all legal consequences.

VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 32,345.44, in accordance with Article 97-A of the Tax Procedure and Process Code (CPPT), applicable by virtue of the provision of Article 29, no. 1, paragraph a) of the RJAT and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

COSTS

Costs to be borne by the Claimant, in the amount of € 1,836, cf. Article 22, no. 4 of the RJAT and Table I attached to the RCPAT.

Notify.

Lisbon, 2 December 2019

The arbitrator,

(Francisco Nicolau Domingos)

ARBITRATION DECISION

REPORT

A..., Lda., taxpayer no. ..., with registered office at ..., no. ..., ..., ...–...Lisbon, hereinafter referred to as the Claimant, filed on 28/07/2016 a request for arbitration in which it petitions for the annulment of the Stamp Duty assessment for the year 2015, in the amount of € 32,345.44.

The Honourable President of the Ethical Council of the Administrative Arbitration Centre (CAAD), appointed on 03/10/2016 Francisco Nicolau Domingos as arbitrator.

On 19/10/2016 the arbitral tribunal was constituted.

In compliance with the provision of Article 17, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT) the Respondent was notified on 21/10/2016 to, if it so wished, submit a reply, request the production of additional evidence and remit the administrative file (PA).

On 23/11/2016 the Respondent submitted its reply.

On 14/03/2017, the tribunal decided to dispense with the holding of the meeting to which Article 18, no. 1 of the RJAT refers, on the basis of the principle of the tribunal's autonomy in conducting the proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable period, a substantive decision on the claims made, cf. Article 16, paragraph c) of the RJAT, granted a period for the parties, if they so wished, to submit final written arguments and designated 19/04/2017 as the deadline for delivering the arbitration decision.

The parties submitted final written arguments on 23/03/2017 in which they maintained their initial positions.

POSITIONS OF THE PARTIES

In the first place, the Claimant argues that the Stamp Duty assessment is null or alternatively voidable, given that item 28.1 of the General Table of Stamp Duty (TGIS), in the wording in force at the time of the taxable event, is unconstitutional.

In this way, it begins by arguing that companies engaged in the purchase for resale of "land for construction" or engaged in the construction of buildings would be negatively discriminated against in relation to others that do not engage in such activity, given that "land for construction" constitutes raw materials in inventory for companies with such corporate scope. Arguments which it uses to argue that item 28.1 of the TGIS, in the wording given by Law no. 83-C/2013, of 31 December is unconstitutional, for violation of the constitutional principles of legality, justice, equality and impartiality, described in Articles 266, no. 2, 13 and 104, no. 3, all of the Constitution of the Portuguese Republic (CRP).

In the second place, the Claimant also perceives another unconstitutionality in item 28.1 of the TGIS, when it institutes taxation of the ownership of land intended for housing, whose taxable patrimonial value (VPT) is greater than € 1,000,000 and the non-taxation of the ownership of another piece of land intended for a purpose other than housing, with an identical or even higher VPT, creating a discrimination without any foundation whatsoever. And, as such, it violates the principle of tax equality and the principle of contributive capacity which flows from it. To support such conclusion it further argues that there is an absolute equality of circumstances, on the tax plane, between the position of taxpayers who hold "land for construction" whose building will have a residential purpose and the position of taxpayers who are owners of "land for construction" whose building will have a purpose for services or industry.

It further adds that the incidence of item 28.1 of the TGIS deviates from the principles of strengthening social equity, of effective sharing of burdens and equality, given that nothing justifies that "...to the owner of a property with residential purpose with a VPT of one million euros a charge of € 10,000 is levied by way of Stamp Duty, and to the owner of a set of properties whose total VPT amounts to fifty million euros nothing whatsoever is charged, for the sole reason that none of the properties making up that total VPT..." has, individually, a VPT equal to or exceeding € 1,000,000.

It concludes by petitioning for the reimbursement of the tax paid and the payment of compensatory interest, as a result of error attributable to the services at the moment of assessment.

The Respondent, in its reply defends itself by objection and begins by stating that what is at issue in these proceedings is an assessment which results from the direct application of the legal norm and which is translated into objective elements, without any subjective or discretionary assessment.

With regard to the issue of the breach of item 28.1 of the TGIS with the constitutional text, it argues that the tribunal should not assess or discuss the merits of the legislative measure and its scope, but should limit itself to assessing its conformity with the constitutional text.

As to the violation of the principle of equality in the strict sense and its manifestation in the principle of contributive capacity it states that the legislator defined an economic prerequisite, constitutionally valid, as a manifestation of contributive capacity – whose recipients have effectively a special contributive capacity in light of the criterion adopted for the payment of this tax. Specifically, with the provision of item 28.1 in the TGIS the legislator sought to distribute among all the burdens imposed by austerity, allowing discrimination of patrimonies without such offending the constitutional principles under analysis, given that no unjustified differences in treatment result among taxpayers.

It further adds that it is a rule of general and abstract character, applicable in an undifferentiated manner to all cases in which the respective factual and legal prerequisites are met. The fact that the legislator established a value of € 1,000,000 as the delimiting criterion for the tax incidence, below which the provision of the tax norm is not met, constitutes a legitimate choice as to the fixing of the "material scope of luxury residential properties" which it is intended to tax more heavily.

Moreover, the different valuation and taxation of a property with residential purpose compared to a property intended for commerce, industry or services results from the different aptness of the properties in question, which supports the different treatment given by the legislator which, for economic and social reasons, decided, within its margin of appreciation, to exclude from the tax incidence properties intended for purposes other than residential.

It further states in this regard that, although it is not incumbent upon the Tax Authority, in the exercise of its functions, to make comments on the alleged unconstitutionality of item 28.1 of the TGIS, the same does not violate the principles of proportionality, legality, citizens' confidence and contributive capacity.

It concludes by arguing that the assessment under scrutiny does not result from any error by the services, but flows from the application of the law, and therefore, in its view, there is no entitlement to compensatory interest.

In this sequence, the Claimant requests that:

a) The illegality of the tax act of Stamp Duty assessment sub judice be declared, because based on unconstitutional norms, and that it be annulled;

b) The Tax Authority be condemned to reimburse the Claimant the amount of Stamp Duty paid;

c) The Tax Authority be condemned to pay to the Claimant compensatory interest, at the legal rate, until full reimbursement of the amount due and calculated on the tax paid.

SANATION

The proceedings do not suffer from any nullities, no issues have been raised that prevent the assessment of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claim, and consequently the conditions are met for the final decision to be delivered.

1. MATTERS OF FACT

4.1. Facts considered proved

4.1.1. The Claimant is the owner of the property registered in the urban property register under article ..., parish of ..., municipality of Loulé, registered as "land for construction".

4.1.2. Such property had a VPT of € 3,234,544.42 on 31 December 2015.

4.1.3. The Claimant engages in the purchase of properties for construction.

4.1.4. The Claimant was notified of the Stamp Duty assessment of the property described in 4.1.1., relating to the year 2015, in the total amount of € 32,345.44.

4.1.5. The Tax Authority notified, in particular, the Claimant to pay such amount as follows: 1st instalment in the amount of € 10,781.82 and 2nd instalment in the amount of € 10,781.81.

4.1.6. The Claimant paid the 1st instalment on 27/05/2016 and the 2nd on 25/07/2016.

4.1.7. The property described in 4.1.1. was at the time of the taxable event registered in the property register as "land for construction".

4.2. Facts not considered proved

There are no facts with relevance to the arbitration decision that have not been considered proved.

4.3. Grounds for the factual matters considered proved

The factual matters considered proved have their origin in the documents used for each of the alleged facts and the authenticity of which was not questioned.

1. MATTERS OF LAW

5.1. Historical framework of item 28.1 of the TGIS

In the first place, it is necessary to trace the chronology of item 28.1 of the TGIS. In fact, in 2012, through Law no. 55-A/2012, of 29 October the legislator decided to add a taxable fact subject to Stamp Duty, with a view to taxing properties of high patrimonial value and with the objective of increasing State revenue in the context of absolute economic recession.

To that end the initial wording of the above-mentioned item was as follows:

"28 – Ownership, usufruct or surface right of urban properties whose taxable patrimonial value shown in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 – on the taxable patrimonial value used for the purposes of IMI:

28.1 – For property with residential purpose...".

In this way, properties which: i) were urban and ii) held a taxable patrimonial value greater than € 1,000,000 became subject to Stamp Duty.

However, even while that wording was in force, the interpretation promoted by the Tax Authority pointed to the fact that constructed properties used for housing and also land already classified as land for construction in areas in which the type of construction envisaged is housing would be subject to taxation.

It so happens that this interpretation was repeatedly and systematically rejected by case law of the administrative courts and arbitral tribunals, as evidenced by, for example, the rulings of the Supreme Administrative Court delivered in case 1870/13, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA served as reporter, case 46/14, of 14/05/2014, in which Counsellor ASCENSÃO LOPES served as reporter and case 0272/2014, of 23/04/2014, in which Counsellor PEDRO DELGADO served as reporter.

The truth is that the legislator, through the State Budget Law of 2014 (Law no. 83-C/2013, of 31 December), amended the wording of the Stamp Duty item under analysis, broadening the incidence in order to expressly include "land for construction" where construction for residential purposes is planned or approved, always on condition that such land has a VPT greater than € 1,000,000. For this reason, at the time of the taxable event, "land for construction" whose authorized or planned building is for residential purposes is subject to the taxation provided for in item 28.1 of the TGIS, the incidence rule requiring that it be proved that the right to construction has already been determined by action of a public entity, since such right is only constituted when that entity authorizes the owner to build or subdivide.[1]

In summary, the incidence of Stamp Duty on "land for construction" requires not only mere ownership but also the issuance of an administrative title that authorizes, in particular, such owner to build or subdivide.

Nevertheless, the item provides that the tax is levied on "...the taxable patrimonial value used for the purposes of IMI..." and on such matter a rate of 1% must be levied "...for land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the IMI Code...", however even when the construction authorized or planned for the land is not exclusively residential it is the VPT, the only one that exists prior to building. That is, even though the construction authorized or planned for the land is in units susceptible to independent use, which are considered autonomously for IMI purposes, as provided in Article 12, no. 3 of the CIMI and the VPT of the land computes the value of authorized or planned buildings, it is the VPT which the incidence rule designates as being used to determine the scope of the tax.

For which reason, item 28.1 of the TGIS determines that what must be taken into consideration, in the scope of the tax incidence, is the VPT of the land.

5.2. Issue of the divergence of item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", due to negative tax discrimination of companies engaged in the purchase of land for construction and resale

In this respect it is necessary first to determine whether there exists incompatibility of item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", due to negative discrimination of companies which habitually carry on the activity of purchase and sale of land for construction and resale.

In this regard the Claimant argues that the economic activity of companies engaged in the construction of buildings for residential purposes and thus holding "land for construction", that is to say, raw materials in inventory, would be clearly negatively discriminated against. That is to say, in its view, the taxation under item 28.1 of the TGIS of urban residential properties and "land for construction" whose building is for residential purposes of value equal to or exceeding € 1,000,000, even when it is not a manifestation of luxury on the part of their owners, but a development of their social purpose would be unconstitutional, for violation of the principle of equality.

We state in advance, with reason.[3] In fact, companies with this social scope necessarily must acquire "land for construction" to carry out their social purpose, and therefore it is not possible to argue that they reveal additional contributive capacity. Moreover, the taxation has no connection with the actual income of the commercial activity of these companies and remains even in those fiscal years in which there are losses, intensifying in its intensity. In this way, we find no reasons for imposing this additional taxation on companies engaged in the purchase and sale of land for construction and resale.

In this line, no grounds are found to differentiate companies engaged in the sale of land for construction of residential buildings and those that sell them for other purposes. Consequently, item 28.1 of the TGIS embodies an unfounded negative discrimination of companies engaged in the purchase and sale of land for construction and resale, violating the principle of equality and, as such, materially unconstitutional.

Consequently, item 28.1 of the TGIS in the wording at the time of the taxable event is materially unconstitutional, given that it subjects to Stamp Duty taxation the ownership of "land for construction" whose VPT is greater than € 1,000,000, to the extent that it applies in situations in which "land for construction" belongs to companies engaged in the purchase and sale of land for construction and resale.

Thus, the assessment which is the object of the present claim suffers from the vice of violation of law, by manifesting error in the legal prerequisites in applying a materially unconstitutional norm, which grounds its annulment.

5.3. Reimbursement of Stamp Duty paid and compensatory interest

The Claimant requests reimbursement of the amount of € 21,563.63 relating to the Stamp Duty assessment for 2015 and the payment of compensatory interest.

In this regard, Article 100 of the General Tax Law, applicable by reference to Article 29, no. 1, paragraph a) of the RJAT, provides that: "The tax authority is obliged, in case of total or partial success of administrative complaints or appeals, or of judicial proceedings in favour of the taxpayer, to the immediate and complete reconstitution of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided by law". That is to say, the judicial annulment of the act implies the destruction of its effects ex tunc, that is to say, everything must happen as if the act had not been performed.

Now, the reconstitution of the present hypothetical situation grounds the obligation to reimburse the tax that was paid. For which reason, in the present case, faced with the illegality of the assessment, there is undoubtedly entitlement to reimbursement of the amount of Stamp Duty paid by the Claimant.

But it is legitimate to pose the following question: will the taxpayer have the right to compensatory interest?

Article 43, no. 1 of the General Tax Law provides that: "Compensatory interest is due when it is determined, in a gracious administrative complaint or judicial challenge, that there was error attributable to the services which resulted in payment of the tax debt in an amount greater than that legally owed". In other words, there are three requirements for the right to said interest: i) the existence of an error in a tax assessment act attributable to the services; ii) the determination of such error in a process of gracious administrative complaint or judicial challenge and iii) payment of tax debt in an amount greater than that legally owed.

And the payment of compensatory interest can be determined in a tax arbitration process as Article 24, no. 5 of the RJAT admits, provided that, naturally, the above-described requirements are met.

But will there be an error attributable to the Tax Authority services when the only vice that is discerned consists in the application of an unconstitutional norm?

To the question the jurisprudence responds,[4] in a uniform and reiterated manner, that: "... unless the matter concerns the breach of constitutional norms directly applicable and binding, such as those which refer to rights, liberties and guarantees (cf. Article 18, no. 1, of the CRP, the Tax Authority cannot refuse to apply the norm on the grounds of unconstitutionality (Of interest on the question, see the opinions of the Legal Advisory Council of the Office of the Attorney General referred to in the Collection of Opinions of the Office of the Attorney General, volume V, points 10, 3, 3.2 – respectively, with the headings 'Review of constitutionality', 'Subsequent review' and '(Non)application of unconstitutional norm (powers and duties of the Public Administration)' – whose doctrine we follow.). As the Administration in general is subject to the principle of legality, enshrined constitutionally and the Tax Authority is so by force of the provision of Article 55 of the General Tax Law. In our view, the Tax Authority should await the declaration of unconstitutionality with general binding force, to be issued by the Constitutional Court (TC), in accordance with Article 281 of the CRP.

For, as VIEIRA DE ANDRADE says, 'This conflict [between constitutionality and the principle of legality] cannot be resolved through the automatic prevalence of constitutional law over statutory law. That is not what is at stake, because what is in question is not the constitutionality of the law, but the judgment which the administrative organs may make on that constitutionality. On the one hand, the Administration is not a body for reviewing constitutionality; on the other hand, the subjection of the Administration to law is aimed not only at the protection of the rights of private persons, but also at the defence and pursuit of public interests [...]. The granting to administrative power of unlimited powers for controlling the unconstitutionality of the laws to be applied would lead to an administrative anarchy, would invert the Law-Administration relationship and would directly violate the principle of separation of powers, as enshrined in our Constitution' (Constitutional Law, Almedina, 1977, p. 270.).

In the same sense, JOÃO CAUPERS states that 'the Administration does not, in principle, have competence to decide the non-application of norms whose constitutionality gives it doubts, contrary to the courts, to whom falls the diffuse and concrete scrutiny of constitutional conformity, as demonstrated by the differences between Articles 207 [now, 204] and 266, no. 2, of the Constitution. Whereas the first prevents the courts from applying unconstitutional norms, the second stipulates the subordination of administrative organs and agents to the Constitution and the law.

It is clear that the essential difference between the two provisions results exactly from the fact that it was not intended to entrust the Administration with the task of reviewing the constitutionality of laws. The performance of such a function, by that body, must be seen as exceptional' (The Fundamental Rights of Workers and the Constitution, Almedina, 1985, p. 157.).

We thus conclude that under Portuguese Constitutional Law there is no possibility of the Administration refusing to obey a norm which it considers unconstitutional, substituting itself for the organs of review of constitutionality, unless the matter concerns the violation of rights, liberties and guarantees constitutionally enshrined, which is manifestly not the case when the matter is the application of a norm possibly violating the principle of non-retroactivity of tax law...".

Consequently, when an assessment is annulled due to a vice with its source in the application of an unconstitutional norm, there is no error attributable to the Tax Authority services and, as such, the claim for compensatory interest is dismissed.

1. DECISION

In these terms it is decided:

i) to judge founded the request for arbitration regarding the annulment of the assessment under scrutiny;

ii) to judge founded the request for reimbursement of the amount of € 21,563.63, condemning the Tax Authority to its full reimbursement;

iii) to judge unfounded the request for payment of compensatory interest and, consequently, to absolve the Tax Authority of such claim.

1. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 32,345.44, in accordance with Article 97-A of the Tax Procedure and Process Code (CPPT), applicable by virtue of the provision of Article 29, no. 1, paragraph a) of the RJAT and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

1. COSTS

Costs to be borne by the Respondent, in the amount of € 1,836, cf. Article 22, no. 4 of the RJAT and Table I attached to the RCPAT.

Notify.

Lisbon, 17 April 2017

The arbitrator,

(Francisco Nicolau Domingos)

ARBITRATION DECISION

REPORT

A..., Lda., taxpayer no. ..., with registered office at ..., no. ..., ..., ...–...Lisbon, hereinafter referred to as the Claimant, filed on 28/07/2016 a request for arbitration in which it petitions for the annulment of the Stamp Duty assessment for the year 2015, in the amount of € 32,345.44.

The Honourable President of the Ethical Council of the Administrative Arbitration Centre (CAAD), appointed on 03/10/2016 Francisco Nicolau Domingos as arbitrator.

On 19/10/2016 the arbitral tribunal was constituted.

In compliance with the provision of Article 17, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT) the Respondent was notified on 21/10/2016 to, if it so wished, submit a reply, request the production of additional evidence and remit the administrative file (PA).

On 23/11/2016 the Respondent submitted its reply.

On 14/03/2017, the tribunal decided to dispense with the holding of the meeting to which Article 18, no. 1 of the RJAT refers, on the basis of the principle of the tribunal's autonomy in conducting the proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable period, a substantive decision on the claims made, cf. Article 16, paragraph c) of the RJAT, granted a period for the parties, if they so wished, to submit final written arguments and designated 19/04/2017 as the deadline for delivering the arbitration decision.

The parties submitted final written arguments on 23/03/2017 in which they maintained their initial positions.

POSITIONS OF THE PARTIES

In the first place, the Claimant argues that the Stamp Duty assessment is null or alternatively voidable, given that item 28.1 of the General Table of Stamp Duty (TGIS), in the wording in force at the time of the taxable event, is unconstitutional.

In this way, it begins by arguing that companies engaged in the purchase for resale of "land for construction" or engaged in the construction of buildings would be negatively discriminated against in relation to others that do not engage in such activity, given that "land for construction" constitutes raw materials in inventory for companies with such corporate scope. Arguments which it uses to argue that item 28.1 of the TGIS, in the wording given by Law no. 83-C/2013, of 31 December is unconstitutional, for violation of the constitutional principles of legality, justice, equality and impartiality, described in Articles 266, no. 2, 13 and 104, no. 3, all of the Constitution of the Portuguese Republic (CRP).

In the second place, the Claimant also perceives another unconstitutionality in item 28.1 of the TGIS, when it institutes taxation of the ownership of land intended for housing, whose taxable patrimonial value (VPT) is greater than € 1,000,000 and the non-taxation of the ownership of another piece of land intended for a purpose other than housing, with an identical or even higher VPT, creating a discrimination without any foundation whatsoever. And, as such, it violates the principle of tax equality and the principle of contributive capacity which flows from it. To support such conclusion it further argues that there is an absolute equality of circumstances, on the tax plane, between the position of taxpayers who hold "land for construction" whose building will have a residential purpose and the position of taxpayers who are owners of "land for construction" whose building will have a purpose for services or industry.

It further adds that the incidence of item 28.1 of the TGIS deviates from the principles of strengthening social equity, of effective sharing of burdens and equality, given that nothing justifies that "...to the owner of a property with residential purpose with a VPT of one million euros a charge of € 10,000 is levied by way of Stamp Duty, and to the owner of a set of properties whose total VPT amounts to fifty million euros nothing whatsoever is charged, for the sole reason that none of the properties making up that total VPT..." has, individually, a VPT equal to or exceeding € 1,000,000.

It concludes by petitioning for the reimbursement of the tax paid and the payment of compensatory interest, as a result of error attributable to the services at the moment of assessment.

The Respondent, in its reply defends itself by objection and begins by stating that what is at issue in these proceedings is an assessment which results from the direct application of the legal norm and which is translated into objective elements, without any subjective or discretionary assessment.

With regard to the issue of the breach of item 28.1 of the TGIS with the constitutional text, it argues that the tribunal should not assess or discuss the merits of the legislative measure and its scope, but should limit itself to assessing its conformity with the constitutional text.

As to the violation of the principle of equality in the strict sense and its manifestation in the principle of contributive capacity it states that the legislator defined an economic prerequisite, constitutionally valid, as a manifestation of contributive capacity – whose recipients have effectively a special contributive capacity in light of the criterion adopted for the payment of this tax. Specifically, with the provision of item 28.1 in the TGIS the legislator sought to distribute among all the burdens imposed by austerity, allowing discrimination of patrimonies without such offending the constitutional principles under analysis, given that no unjustified differences in treatment result among taxpayers.

It further adds that it is a rule of general and abstract character, applicable in an undifferentiated manner to all cases in which the respective factual and legal prerequisites are met. The fact that the legislator established a value of € 1,000,000 as the delimiting criterion for the tax incidence, below which the provision of the tax norm is not met, constitutes a legitimate choice as to the fixing of the "material scope of luxury residential properties" which it is intended to tax more heavily.

Moreover, the different valuation and taxation of a property with residential purpose compared to a property intended for commerce, industry or services results from the different aptness of the properties in question, which supports the different treatment given by the legislator which, for economic and social reasons, decided, within its margin of appreciation, to exclude from the tax incidence properties intended for purposes other than residential.

It further states in this regard that, although it is not incumbent upon the Tax Authority, in the exercise of its functions, to make comments on the alleged unconstitutionality of item 28.1 of the TGIS, the same does not violate the principles of proportionality, legality, citizens' confidence and contributive capacity.

It concludes by arguing that the assessment under scrutiny does not result from any error by the services, but flows from the application of the law, and therefore, in its view, there is no entitlement to compensatory interest.

In this sequence, the Claimant requests that:

a) The illegality of the tax act of Stamp Duty assessment sub judice be declared, because based on unconstitutional norms, and that it be annulled;

b) The Tax Authority be condemned to reimburse the Claimant the amount of Stamp Duty paid;

c) The Tax Authority be condemned to pay to the Claimant compensatory interest, at the legal rate, until full reimbursement of the amount due and calculated on the tax paid.

SANATION

The proceedings do not suffer from any nullities, no issues have been raised that prevent the assessment of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claim, and consequently the conditions are met for the final decision to be delivered.

1. MATTERS OF FACT

4.1. Facts considered proved

4.1.1. The Claimant is the owner of the property registered in the urban property register under article ..., parish of ..., municipality of Loulé, registered as "land for construction".

4.1.2. Such property had a VPT of € 3,234,544.42 on 31 December 2015.

4.1.3. The Claimant engages in the purchase of properties for construction.

4.1.4. The Claimant was notified of the Stamp Duty assessment of the property described in 4.1.1., relating to the year 2015, in the total amount of € 32,345.44.

4.1.5. The Tax Authority notified, in particular, the Claimant to pay such amount as follows: 1st instalment in the amount of € 10,781.82 and 2nd instalment in the amount of € 10,781.81.

4.1.6. The Claimant paid the 1st instalment on 27/05/2016 and the 2nd on 25/07/2016.

4.1.7. The property described in 4.1.1. was at the time of the taxable event registered in the property register as "land for construction".

4.2. Facts not considered proved

There are no facts with relevance to the arbitration decision that have not been considered proved.

4.3. Grounds for the factual matters considered proved

The factual matters considered proved have their origin in the documents used for each of the alleged facts and the authenticity of which was not questioned.

1. MATTERS OF LAW

5.1. Historical framework of item 28.1 of the TGIS

In the first place, it is necessary to trace the chronology of item 28.1 of the TGIS. In fact, in 2012, through Law no. 55-A/2012, of 29 October the legislator decided to add a taxable fact subject to Stamp Duty, with a view to taxing properties of high patrimonial value and with the objective of increasing State revenue in the context of absolute economic recession.

To that end the initial wording of the above-mentioned item was as follows:

"28 – Ownership, usufruct or surface right of urban properties whose taxable patrimonial value shown in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 – on the taxable patrimonial value used for the purposes of IMI:

28.1 – For property with residential purpose...".

In this way, properties which: i) were urban and ii) held a taxable patrimonial value greater than € 1,000,000 became subject to Stamp Duty.

However, even while that wording was in force, the interpretation promoted by the Tax Authority pointed to the fact that constructed properties used for housing and also land already classified as land for construction in areas in which the type of construction envisaged is housing would be subject to taxation.

It so happens that this interpretation was repeatedly and systematically rejected by case law of the administrative courts and arbitral tribunals, as evidenced by, for example, the rulings of the Supreme Administrative Court delivered in case 1870/13, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA served as reporter, case 46/14, of 14/05/2014, in which Counsellor ASCENSÃO LOPES served as reporter and case 0272/2014, of 23/04/2014, in which Counsellor PEDRO DELGADO served as reporter.

The truth is that the legislator, through the State Budget Law of 2014 (Law no. 83-C/2013, of 31 December), amended the wording of the Stamp Duty item under analysis, broadening the incidence in order to expressly include "land for construction" where construction for residential purposes is planned or approved, always on condition that such land has a VPT greater than € 1,000,000. For this reason, at the time of the taxable event, "land for construction" whose authorized or planned building is for residential purposes is subject to the taxation provided for in item 28.1 of the TGIS,[1] the incidence rule requiring that it be proved that the right to construction has already been determined by action of a public entity, since such right is only constituted when that entity authorizes the owner to build or subdivide.[2]

In summary, the incidence of Stamp Duty on "land for construction" requires not only mere ownership but also the issuance of an administrative title that authorizes, in particular, such owner to build or subdivide.

Nevertheless, the item provides that the tax is levied on "...the taxable patrimonial value used for the purposes of IMI..." and on such matter a rate of 1% must be levied "...for land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the IMI Code...", however even when the construction authorized or planned for the land is not exclusively residential it is the VPT, the only one that exists prior to building. That is, even though the construction authorized or planned for the land is in units susceptible to independent use, which are considered autonomously for IMI purposes, as provided in Article 12, no. 3 of the CIMI and the VPT of the land computes the value of authorized or planned buildings, it is the VPT which the incidence rule designates as being used to determine the scope of the tax.

For which reason, item 28.1 of the TGIS determines that what must be taken into consideration, in the scope of the tax incidence, is the VPT of the land.

5.2. Issue of the divergence of item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", due to negative tax discrimination of companies engaged in the purchase of land for construction and resale

In this respect it is necessary first to determine whether there exists incompatibility of item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", due to negative discrimination of companies which habitually carry on the activity of purchase and sale of land for construction and resale.

In this regard the Claimant argues that the economic activity of companies engaged in the construction of buildings for residential purposes and thus holding "land for construction", that is to say, raw materials in inventory, would be clearly negatively discriminated against. That is to say, in its view, the taxation under item 28.1 of the TGIS of urban residential properties and "land for construction" whose building is for residential purposes of value equal to or exceeding € 1,000,000, even when it is not a manifestation of luxury on the part of their owners, but a development of their social purpose would be unconstitutional, for violation of the principle of equality.

We state in advance, with reason.[3] In fact, companies with this social scope necessarily must acquire "land for construction" to carry out their social purpose, and therefore it is not possible to argue that they reveal additional contributive capacity. Moreover, the taxation has no connection with the actual income of the commercial activity of these companies and remains even in those fiscal years in which there are losses, intensifying in its intensity. In this way, we find no reasons for imposing this additional taxation on companies engaged in the purchase and sale of land for construction and resale.

In this line, no grounds are found to differentiate companies engaged in the sale of land for construction of residential buildings and those that sell them for other purposes. Consequently, item 28.1 of the TGIS embodies an unfounded negative discrimination of companies engaged in the purchase and sale of land for construction and resale, violating the principle of equality and, as such, materially unconstitutional.

Consequently, item 28.1 of the TGIS in the wording at the time of the taxable event is materially unconstitutional, given that it subjects to Stamp Duty taxation the ownership of "land for construction" whose VPT is greater than € 1,000,000, to the extent that it applies in situations in which "land for construction" belongs to companies engaged in the purchase and sale of land for construction and resale.

Thus, the assessment which is the object of the present claim suffers from the vice of violation of law, by manifesting error in the legal prerequisites in applying a materially unconstitutional norm, which grounds its annulment.

5.3. Reimbursement of Stamp Duty paid and compensatory interest

The Claimant requests reimbursement of the amount of € 21,563.63 relating to the Stamp Duty assessment for 2015 and the payment of compensatory interest.

In this regard, Article 100 of the General Tax Law, applicable by reference to Article 29, no. 1, paragraph a) of the RJAT, provides that: "The tax authority is obliged, in case of total or partial success of administrative complaints or appeals, or of judicial proceedings in favour of the taxpayer, to the immediate and complete reconstitution of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided by law". That is to say, the judicial annulment of the act implies the destruction of its effects ex tunc, that is to say, everything must happen as if the act had not been performed.

Now, the reconstitution of the present hypothetical situation grounds the obligation to reimburse the tax that was paid. For which reason, in the present case, faced with the illegality of the assessment, there is undoubtedly entitlement to reimbursement of the amount of Stamp Duty paid by the Claimant.

But it is legitimate to pose the following question: will the taxpayer have the right to compensatory interest?

Article 43, no. 1 of the General Tax Law provides that: "Compensatory interest is due when it is determined, in a gracious administrative complaint or judicial challenge, that there was error attributable to the services which resulted in payment of the tax debt in an amount greater than that legally owed". In other words, there are three requirements for the right to said interest: i) the existence of an error in a tax assessment act attributable to the services; ii) the determination of such error in a process of gracious administrative complaint or judicial challenge and iii) payment of tax debt in an amount greater than that legally owed.

And the payment of compensatory interest can be determined in a tax arbitration process as Article 24, no. 5 of the RJAT admits, provided that, naturally, the above-described requirements are met.

But will there be an error attributable to the Tax Authority services when the only vice that is discerned consists in the application of an unconstitutional norm?

To the question the jurisprudence responds,[4] in a uniform and reiterated manner, that: "... unless the matter concerns the breach of constitutional norms directly applicable and binding, such as those which refer to rights, liberties and guarantees (cf. Article 18, no. 1, of the CRP, the Tax Authority cannot refuse to apply the norm on the grounds of unconstitutionality (Of interest on the question, see the opinions of the Legal Advisory Council of the Office of the Attorney General referred to in the Collection of Opinions of the Office of the Attorney General, volume V, points 10, 3, 3.2 – respectively, with the headings 'Review of constitutionality', 'Subsequent review' and '(Non)application of unconstitutional norm (powers and duties of the Public Administration)' – whose doctrine we follow.). As the Administration in general is subject to the principle of legality, enshrined constitutionally and the Tax Authority is so by force of the provision of Article 55 of the General Tax Law. In our view, the Tax Authority should await the declaration of unconstitutionality with general binding force, to be issued by the Constitutional Court (TC), in accordance with Article 281 of the CRP.

For, as VIEIRA DE ANDRADE says, 'This conflict [between constitutionality and the principle of legality] cannot be resolved through the automatic prevalence of constitutional law over statutory law. That is not what is at stake, because what is in question is not the constitutionality of the law, but the judgment which the administrative organs may make on that constitutionality. On the one hand, the Administration is not a body for reviewing constitutionality; on the other hand, the subjection of the Administration to law is aimed not only at the protection of the rights of private persons, but also at the defence and pursuit of public interests [...]. The granting to administrative power of unlimited powers for controlling the unconstitutionality of the laws to be applied would lead to an administrative anarchy, would invert the Law-Administration relationship and would directly violate the principle of separation of powers, as enshrined in our Constitution' (Constitutional Law, Almedina, 1977, p. 270.).

In the same sense, JOÃO CAUPERS states that 'the Administration does not, in principle, have competence to decide the non-application of norms whose constitutionality gives it doubts, contrary to the courts, to whom falls the diffuse and concrete scrutiny of constitutional conformity, as demonstrated by the differences between Articles 207 [now, 204] and 266, no. 2, of the Constitution. Whereas the first prevents the courts from applying unconstitutional norms, the second stipulates the subordination of administrative organs and agents to the Constitution and the law.

It is clear that the essential difference between the two provisions results exactly from the fact that it was not intended to entrust the Administration with the task of reviewing the constitutionality of laws. The performance of such a function, by that body, must be seen as exceptional' (The Fundamental Rights of Workers and the Constitution, Almedina, 1985, p. 157.).

We thus conclude that under Portuguese Constitutional Law there is no possibility of the Administration refusing to obey a norm which it considers unconstitutional, substituting itself for the organs of review of constitutionality, unless the matter concerns the violation of rights, liberties and guarantees constitutionally enshrined, which is manifestly not the case when the matter is the application of a norm possibly violating the principle of non-retroactivity of tax law...".

Consequently, when an assessment is annulled due to a vice with its source in the application of an unconstitutional norm, there is no error attributable to the Tax Authority services and, as such, the claim for compensatory interest is dismissed.

1. DECISION

In these terms it is decided:

i) to judge founded the request for arbitration regarding the annulment of the assessment under scrutiny;

ii) to judge founded the request for reimbursement of the amount of € 21,563.63, condemning the Tax Authority to its full reimbursement;

iii) to judge unfounded the request for payment of compensatory interest and, consequently, to absolve the Tax Authority of such claim.

1. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 32,345.44, in accordance with Article 97-A of the Tax Procedure and Process Code (CPPT), applicable by virtue of the provision of Article 29, no. 1, paragraph a) of the RJAT and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

1. COSTS

Costs to be borne by the Respondent, in the amount of € 1,836, cf. Article 22, no. 4 of the RJAT and Table I attached to the RCPAT.

Notify.

Lisbon, 17 April 2017

The arbitrator,

(Francisco Nicolau Domingos)

[1] In this sense v. arbitration decision no. 507/2015-T, of 17/03/2016 and in which Counsellor JORGE LOPES DE SOUSA served in the capacity of president.

[2] In this sense, v. the arbitration decision no. 467/2015-T, 04/02/2016 and in which Counsellor FERNANDA MAÇÃS served in the capacity of president.

[3] We will follow closely the grounds contained in arbitration decision no. 507/2015-T, of 17/03/2016 and in which Counsellor JORGE LOPES DE SOUSA served in the capacity of president and no. 529/2015, of 29/06/2016 in which we served in the capacity of arbitrator.

[4] Ruling of the Supreme Administrative Court delivered in the context of case no. 0703/14, of 21/01/2015, in which Counsellor ARAGÃO SEIA served as reporter, ruling of the Supreme Administrative Court delivered in the context of case no. 0704/14, of 11/05/2016, in which Counsellor ASCENSÃO LOPES served as reporter and ruling of the Supreme Administrative Court delivered in the context of case no. 01529/14, of 04/03/2015, in which Counsellor CASIMIRO GONÇALVES served as reporter.