CAAD 451/2016-T: Stamp Tax on Building Land Under Verba 28.1 TGIS – Constitutional Reform of Arbitral Decision

ARBITRAL DECISION

Rendered as a result of the decision of the Constitutional Court of 24 April 2017, by which the reform of the arbitral decision rendered on 27 February 2017 is determined.

The arbitrators Counsellor Jorge Manuel Lopes de Sousa (arbitrator-president), (appointed by the other arbitrators), Dr. Rogério M. Fernandes Ferreira and Dr. João Menezes Leitão, appointed, respectively, by the Claimant and the Defendant, to form the Arbitral Tribunal, constituted on 11-11-2016, hereby agree as follows:

1. Report

A..., S.A., with registered office at Rua..., no..... in Lisbon, a legal entity registered in the Commercial Registry Office of Lisbon under no...., taxpayer with the same tax identification number (hereinafter, "A..." or "FIRST CLAIMANT");

B..., S.A., with registered office at Rua..., no......, in Lisbon, a legal entity registered in the Commercial Registry Office of Lisbon under no...., taxpayer with the same tax identification number (hereinafter, "B..." or "SECOND CLAIMANT"); and

C..., S.A., with registered office at Rua..., ......, in Lisbon, a legal entity registered in the Commercial Registry Office of Lisbon under no...., taxpayer with the same tax identification number (hereinafter, "C..." or "THIRD CLAIMANT"),

filed a request for constitution of a collective arbitral tribunal, articles 2, no. 1, a), 5, no. 3, a), 6, no. 2, b), 10, no. 1, a), of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), with a view to declaring the illegality of stamp duty assessments relating to the year 2014.

The TAXATION AND CUSTOMS AUTHORITY (AT) is the Defendant.

The Claimant appointed Dr. Rogério M. Fernandes Ferreira as Arbitrator, pursuant to the provisions of article 6, no. 2, paragraph b) of the RJAT.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Taxation and Customs Authority on 19-08-2016.

Pursuant to the provisions of paragraph b) of no. 2 of article 6 and no. 3 of article 11 of the RJAT, and within the time limit provided for in no. 1 of article 13 of the RJAT, the senior official of the Tax Administration appointed Dr. João Menezes Leitão as Arbitrator.

The arbitrators appointed by the parties agreed to appoint Counsellor Jorge Lopes de Sousa as arbitrator president, who accepted the appointment.

Pursuant to the provisions of no. 7 of article 11 of the RJAT, the President of the CAAD informed the parties of this appointment on 25-10-2016.

Thus, in accordance with the provisions of no. 7 of article 11 of the RJAT, after the time limit provided for in no. 1 of article 13 of the RJAT had elapsed without the parties raising any objection, the Collective Arbitral Tribunal was constituted on 11-11-2016.

The Taxation and Customs Authority filed a response in which it raised the exceptions of incompetence of the Arbitral Tribunal and/or impropriety of the procedural means, for a ruling on the unconstitutionality of Item 28.1 of the TGIS, contended that the claims should be dismissed and requested that "insofar as the grounds of the present request for arbitral ruling are essentially based on the (alleged) constitutional non-conformity of the aforementioned Item 28.1 of the CIS, should the Arbitral Tribunal come to accept the Claimants' claim and, inherently, refuse to apply this rule on the grounds of its unconstitutionality, it is requested, by appeal to the provisions of article 280, no. 3, of the CRP and article 72, no. 3, of the Constitutional Court Act, that the Attorney-General's Office be notified of the learned arbitral decision, in order that it may discharge its legal prerogatives".

By order of 07-12-2016, the holding of a hearing was dispensed with and it was decided that the proceedings would continue with written submissions.

The Arbitral Tribunal was duly constituted.

The parties possess legal personality and capacity and are legitimate (arts. 4 and 10, no. 2, of the same act and art. 1 of Ordinance no. 112-A/2011, of 22 March) and are duly represented.

No nullity is apparent.

2. Reform of Decision

By decision of 27-07-2017 the following was decided:

The request for arbitral ruling shall be upheld as to the requests for annulment of the following assessments, with the quantitative modifications arising from the acceptance of the correction requests submitted by the Claimants, indicated in paragraph SS) of the findings of fact:

a) Assessments relating to Claimant A...

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €18,678.20;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €24,838.40;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €89,789.00;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €25,023.65;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €132,805.10;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €44,911.85;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €33,260.74;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €22,086.80;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €37,957.10;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €15,247.60;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €22,852.00;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €22,767.40;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €22,767.40;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €11,431.40;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €29,131.90;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €28,738.20;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €22,852.20;

b) Assessments relating to Claimant B...

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €118,957.19;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €18,221.01;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €130,813.32;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €46,125.64;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €90,066.46;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €5,765.84;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €58,786.44;

c) Assessments relating to Claimant C...

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €20,349.70;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €29,419.70;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €59,936.06;

• Assessment no. 2016..., relating to the property with registry article U-..., in the amount of €36,686.62;

• Assessment no. 2016..., relating to the property with registry article U-..., in the corrected amount of €65,519.69;

The request for restitution to each of the Claimants of the tax paid by each and the Taxation and Customs Authority shall be condemned to make the respective payments, the amounts of which shall be determined in execution of this decision;

The requests for payment of damages and interest shall be dismissed and the Taxation and Customs Authority shall be absolved of these requests;

The applications for condemnation for bad faith litigation and for sending a certificate to the Bar Association shall be denied.

By decision of the Constitutional Court, which upheld it by Summary Decision no. 214/2017, of 24-04-2017, the following was decided:

It shall not be held that the rule contained in item 28.1 of the General Stamp Duty Table, as amended by Law no. 83-C/2013, of 31 December, is unconstitutional, insofar as it imposes annual taxation of the ownership of land for construction with a taxable net worth equal to or exceeding €1,000,000.00 for which the authorized or planned construction does not include any fraction capable of independent use with a value equal to or exceeding that amount;

It shall not be held that the rule contained in the aforementioned item 28.1 of the General Stamp Duty Table, with identical wording, is unconstitutional, insofar as it applies to situations in which the land for construction belongs to companies engaged in the commercialization of land for resale.

And, consequently,

The appeal shall be upheld and the decision appealed shall be reformed in accordance with the preceding negative judgments of unconstitutionality.

Since "decisions of the Constitutional Court are binding on all public and private entities and prevail over those of other courts and any other authorities" (article 2 of Law no. 28/82, of 15 November), the decision is reformed as follows.

3. Question of the Incompetence of the Arbitral Tribunal to Assess the Questions of Unconstitutionality Raised or the Impropriety of the Procedural Means Used

Article 204 of the Constitution establishes that "in cases submitted for judgment, courts cannot apply rules that infringe the provisions of the Constitution or the principles enshrined therein".

In the same line, article 2, no. 2, of the Administrative and Tax Court Statute (ETAF) of 2015, applicable to tax arbitration proceedings by virtue of the provisions of article 29, no. 1, paragraph c), of the RJAT, establishes that "in cases submitted for judgment, administrative and tax courts cannot apply rules that infringe the provisions of the Constitution or the principles enshrined therein".

From these rules it follows that all courts, including arbitral tribunals (provided for in article 209, no. 2, of the Constitution) are competent to assess the unconstitutionality of the rules that must be applied in their decisions.

"As guardians of the Constitution, courts are all equal and all have the same weight in the judicial review of constitutionality. Precisely for this reason, in the scope of judicial activity, they have, by reason of their jurisdiction, the duty to examine whether the rules relevant to the decision of the matter submitted to their consideration are or are not in conformity with constitutional rules and principles. In other words: the constitutional question or questions that arise in the decision of the case to be resolved by the courts must be known and answered by them". "A logical corollary of all these dimensions of the duty to examine normative acts that may be applicable in cases submitted for judgment is the guarantee of a judicial decision in accordance with the Constitution in the specific case ('matter'). The guarantee of this judicial decision can be obtained through various procedural schemes, but, in Portuguese constitutional law, it presupposes that the judge of the case examines and knows the question of unconstitutionality and decides the case in accordance with the judgment made on this question".

This is the concrete review of unconstitutionality, provided for in article 280 of the Constitution, of an incidental nature, to take place in the proceedings in which the questions are raised and with effects restricted to it, which differs from the abstract review, to which the Taxation and Customs Authority refers, which is the exclusive competence of the Constitutional Court, through its own procedural means, pursuant to article 281 of the Constitution.

On the other hand, the fact that the principle of legality prevents the Tax Administration from reviewing the unconstitutionality of the rules it applies and obliges it to apply unconstitutional rules "unless the Constitutional Court has already declared the unconstitutionality of the same with general binding force (cf. art. 281 of the Constitution) or if there is a violation of constitutional rules directly applicable and binding, such as those referring to rights, freedoms and guarantees (cf. art. 18, no. 1, of the Constitution)", which is a corollary of the principle of separation of powers, does not imply that courts have the same impediment to review the constitutionality of the rules that must be applied in their decisions, since it is the Constitution itself, in implementation of this same principle of separation of powers, that grants courts the power/duty to carry out such review of normative acts carried out by bodies with legislative power.

In the case at hand, as results from the literal tenor of the requests formulated, the questions of unconstitutionality and non-application of the rule in item 28.1 of the TGIS are raised with an incidental nature [request formulated in paragraph a) of the prayer for relief], as a prerequisite for the requests for annulment of the tax acts challenged [request b)] and for restitution of the amounts collected plus interest [request c)].

For this reason, this Arbitral Tribunal is not asked to carry out abstract constitutional review, which aims at declaring its illegality without connection to any administrative or tax act and which is only permitted to the Constitutional Court in its own proceedings, but rather an incidental pronouncement, connected with specific tax acts, which all courts must make, even ex officio, by virtue of article 204 of the Constitution, regarding all rules that must be applied and on whose constitutionality doubts are raised.

The violation of the Constitution by the rules applied in a tax act constitutes illegality and this Arbitral Tribunal, which has jurisdiction to assess all legality questions of assessment acts, pursuant to article 2, no. 1, paragraph a), of the RJAT, necessarily has jurisdiction to assess the questions of unconstitutionality raised, with effects restricted to the present proceedings.

In fact, the violation of the Constitution by an assessment act constitutes an illegality that generates a defect affecting it and, therefore, is capable of being assessed in arbitration proceedings, like any other, since article 2, no. 1, paragraph c), of the RJAT does not exclude from the jurisdiction of arbitral tribunals the declaration of such illegalities.

Furthermore, since it is clear that the judicial challenge procedure is an appropriate procedural means for assessing illegalities resulting from the application of unconstitutional rules and since, in principle, the arbitration procedure is an alternative means to the judicial challenge procedure (article 124, no. 2, of Law no. 3-B/2010, of 3 April), the assessment may also be carried out in the arbitration procedure when there is no special rule that restricts or excludes its jurisdiction.

These exceptions of incompetence and/or unsuitability of the procedural means are therefore unfounded.

4. Findings of Fact

4.1. Proved Facts

The following facts are considered proved:

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €26,116.50 (twenty-six thousand, one hundred and sixteen euros and fifty cents) (Document no. 1, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €34,614.70 (thirty-four thousand, six hundred and fourteen euros and seventy cents) (Document no. 2, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €96,990.90 (ninety-six thousand, nine hundred and ninety euros and ninety cents) (Document no. 3, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €142,577.30 (one hundred and forty-two thousand, five hundred and seventy-seven euros and thirty cents) (Document no. 4, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €33,260.74 (thirty-three thousand, two hundred and sixty euros and seventy-four cents) (Document no. 5, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €24,688.80 (twenty-four thousand, six hundred and eighty-eight euros and eighty cents) (Document no. 6, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €38,940.60 (thirty-eight thousand, nine hundred and forty euros and sixty cents) (Document no. 7, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €15,247.60 (fifteen thousand, two hundred and forty-seven euros and sixty cents) (Document no. 8, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €32,599.00 (thirty-two thousand, five hundred and ninety-nine euros) (Document no. 9, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €27,921.40 (twenty-seven thousand, nine hundred and twenty-one euros and forty cents) (Document no. 10, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €27,921.40 (twenty-seven thousand, nine hundred and twenty-one euros and forty cents) (Document no. 11, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €13,774.60 (thirteen thousand, seven hundred and seventy-four euros and sixty cents) (Document no. 12, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €29,131.90 (twenty-nine thousand, one hundred and thirty-one euros and ninety cents) (Document no. 13, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €40,433.70 (forty thousand, four hundred and thirty-three euros and seventy cents) (Document no. 14, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified A... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €32,599.00 (thirty-two thousand, five hundred and ninety-nine euros) (Document no. 15, attached to the request for arbitral ruling, the content of which is reproduced);

All assessments relating to A... invoked item 28.1 of the TGIS;

With regard to the assessments contained in documents nos. 1 to 4, 6, 7, 9 to 12, 14 and 15, A... submitted on 22-04-2016 a request in which it stated that, "in accordance with the principle of cooperation provided for in article 59 of the General Tax Law and reflected in article 48 of the Tax Procedure and Process Code", it requested "the issuance of new payment orders for stamp duty", on the grounds that stamp duty should not be levied on the non-residential portion of each of the properties;

On 28 June 2016, the Taxation and Customs Authority issued and notified A... of a new stamp duty assessment relating to the property with registry article U-..., referred to in document no. 3, in the amount of €25,023.65 (twenty-five thousand and twenty-three euros and sixty-five cents) (Assessment with no. 2016..., which is contained in document no. 16 attached to the request for arbitral ruling, the content of which is reproduced);

On 28 June 2016, the Taxation and Customs Authority issued and notified A... of a new stamp duty assessment relating to the property with registry article U-..., referred to in document no. 4, in the amount of €44,911.85 (forty-four thousand, nine hundred and eleven euros and eighty-five cents) (Assessment with no. 2016..., which is contained in document no. 17 attached to the request for arbitral ruling, the content of which is reproduced);

Until the date of 28-07-2016, when it filed the request for arbitral ruling, A... had not been notified of a decision on the request it had submitted regarding the remaining properties;

On 5 April 2016, the Taxation and Customs Authority notified B... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €130,150.10 (one hundred and thirty thousand, one hundred and fifty euros and ten cents) (Document no. 18, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified B... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €166,535.10 (one hundred and sixty-six thousand, five hundred and thirty-five euros and ten cents) (Document no. 19, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified B... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €51,267.80 (fifty-one thousand, two hundred and sixty-seven euros and eighty cents) (Document no. 20, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified B... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €99,411.10 (ninety-nine thousand, four hundred and eleven euros and ten cents) (Document no. 21, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified B... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €65,434.60 (sixty-five thousand, four hundred and thirty-four euros and sixty cents) (Document no. 22, attached to the request for arbitral ruling, the content of which is reproduced);

All assessments relating to B... invoked item 28.1 of the TGIS;

With regard to all assessments relating to B..., it submitted on 22-04-2016 a request in which it stated that, "in accordance with the principle of cooperation provided for in article 59 of the General Tax Law and reflected in article 48 of the Tax Procedure and Process Code", it requested "the issuance of new payment orders for stamp duty", on the grounds that stamp duty should not be levied on the non-residential portion of each of the properties;

On 28 June 2016, the Taxation and Customs Authority issued and notified B... of a new stamp duty assessment relating to the property with registry article U-..., in the amount of €18,221.01 (eighteen thousand, two hundred and twenty-one euros and one cent) (Assessment with no. 2016..., which is contained in document no. 23 attached to the request for arbitral ruling, the content of which is reproduced);

On 28 June 2016, the Taxation and Customs Authority issued and notified B... of a new stamp duty assessment relating to the property with registry article U-..., in the amount of €5,765.84 (five thousand, seven hundred and sixty-five euros and eighty-four cents) (Assessment with no. 2016..., which is contained in document no. 24 attached to the request for arbitral ruling, the content of which is reproduced);

Until the date of 28-07-2016, when it filed the request for arbitral ruling, B... had not been notified of a decision on the request it had submitted regarding the remaining properties;

On 5 April 2016, the Taxation and Customs Authority notified C... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €20,349.70 (twenty thousand, three hundred and forty-nine euros and seventy cents) (Document no. 25, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified C... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €33,516.40 (thirty-three thousand, five hundred and sixteen euros and forty cents) (Document no. 26, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified C... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €62,498.50 (sixty-two thousand, four hundred and ninety-eight euros and fifty cents) (Document no. 27, attached to the request for arbitral ruling, the content of which is reproduced);

On 5 April 2016, the Taxation and Customs Authority notified C... of the stamp duty assessment with no. 2016..., for the year 2015, relating to the property registered in the property matrix with registry article U-..., located in the parish of..., municipality of Lisbon, in the amount of €68,823.20 (sixty-eight thousand, eight hundred and twenty-three euros and twenty cents) (Document no. 28, attached to the request for arbitral ruling, the content of which is reproduced);

All assessments relating to C... invoked item 28.1 of the TGIS;

With regard to the assessments relating to properties with registry articles U-... and U-..., C... submitted on 22-04-2016 a request in which it stated that, "in accordance with the principle of cooperation provided for in article 59 of the General Tax Law and reflected in article 48 of the Tax Procedure and Process Code", it requested "the issuance of new payment orders for stamp duty", on the grounds that stamp duty should not be levied on the non-residential portion of each of the properties;

Also on 22-04-2016, C... submitted another request relating to the assessment concerning the property with registry article U-..., in which it stated that, "in accordance with the principle of cooperation provided for in article 59 of the General Tax Law and reflected in article 48 of the Tax Procedure and Process Code", it requested "the issuance of a new payment order for stamp duty", on the grounds that stamp duty should not be levied on the non-residential portion of the property;

On 28 June 2016, the Taxation and Customs Authority issued and notified C... of a new stamp duty assessment relating to the property with registry article U-..., in the amount of €36,686.62 (thirty-six thousand, six hundred and eighty-six euros and sixty-two cents) (Assessment with no. 2016..., which is contained in document no. 29 attached to the request for arbitral ruling, the content of which is reproduced);

Until the date of 28-07-2016, when it filed the request for arbitral ruling, C... had not been notified of decisions on the requests it had submitted regarding the properties with registry articles U-... and U-...;

The Claimants paid the amounts of the assessments that were not the subject of requests for issuance of new payment orders for stamp duty;

All the properties referred to are land for construction on which the construction of properties with a residential component is planned;

The Claimants are commercial companies that regularly carry on, as an activity included in their respective corporate purposes, the business of purchasing land for construction and for resale;

On 28-07-2016, the Claimants filed the request for constitution of the arbitral tribunal that gave rise to the present proceedings;

On 05-09-2016, information was issued by the Taxation and Customs Authority, which is contained on pages 4 to 8 of the administrative file, the content of which is reproduced, in which it states, among other things, the following:

III. DESCRIPTION OF FACTS AND OPINION

On 5-04-2016, Stamp Duty assessments were made in accordance with article 28 and 28.1 of the General Stamp Duty Table (TGIS) for the land parcels for construction belonging to the taxpayers identified above.

On 22-04-2016, the taxpayers A..., B... and C... SA delivered requests to this Tax Office in which they requested the correction of the assessment and respective collection notes for Stamp Duty item 28, so that they would reflect proportionally and in accordance with the evaluation carried out by the AT in accordance with the law, the different uses of the urban properties intended for construction.

By order of the Esteemed Head of Finance of 27-04-2016 and 14-06-2016, the exemption from Stamp Duty was inserted for the uses relating to Services and Commerce, which led the Financial Flow Management System to proceed with cancellations/refunds or issue of new collection notes, relating to the properties complained of.

(1) A new collection note for the 3rd installment/November was created, with a lower value than the 1st and 2nd installments, thus adjusting the Stamp Duty owed.

(2) The amounts paid in the 1st and 2nd installments were higher than those owed after the correction of the assessment. Thus, the 3rd installment/November was cancelled, and the amounts paid in excess were refunded.

(3) Residential taxable net worth below €1,000,000, collection notes cancelled, and amounts paid already refunded on the present date.

It is further reported that, regarding the urban properties in the parish of... with articles... and..., and in the parish of... with the article..., belonging to company A... SA, B... SA, and the article... in the parish of... and property of company C... SA, were not subject to alteration/correction to the amount payable for Stamp Duty, as no request/administrative complaint was submitted for the same.

The Claimants, with regard to the properties where there was a reduction in tax, paid the following amounts:

(i) As to the property registered in the property matrix with registry article U-..., €18,678.20;

(ii) As to the property registered in the property matrix with registry article U-..., €24,838.40;

(iii) As to the property registered in the property matrix with registry article U-..., €89,789.00;

(iv) As to the property registered in the property matrix with registry article U-..., €132,805.10;

(v) As to the property registered in the property matrix with registry article U-..., €22,086.80;

(vi) As to the property registered in the property matrix with registry article U-..., €37,957.10;

(vii) As to the property registered in the property matrix with registry article U-..., €22,852.00;

(viii) As to the property registered in the property matrix with registry article U-..., €22,767.40;

(ix) As to the property registered in the property matrix with registry article U-..., €22,767.40;

(x) As to the property registered in the property matrix with registry article U-..., €11,431.40;

(xi) As to the property registered in the property matrix with registry article U-..., €28,738.20;

(xii) As to the property registered in the property matrix with registry article U-..., €22,852.20;

(xiii) As to the property registered in the property matrix with registry article U-..., €118,957.19;

(xiv) As to the property registered in the property matrix with registry article U-..., €130,813.32;

(xv) As to the property registered in the property matrix with registry article U-..., €46,125.64;

(xvi) As to the property registered in the property matrix with registry article U-..., €90,066.46;

(xvii) As to the property registered in the property matrix with registry article U-..., €58,786.44;

(xviii) As to the property registered in the property matrix with registry article U-..., €29,419.70;

(xix) As to the property registered in the property matrix with registry article U-..., €59,936.06;

(xx) As to the property registered in the property matrix with registry article U-..., €65,519.69.

4.2. Substantiation of the Determination of Findings of Fact and Unproved Facts

The facts were given as proved based on the documents attached to the request for arbitral ruling and by the Taxation and Customs Authority and those forming part of the administrative file.

The proved fact concerning the activity of the Claimants is based on the statement made in article 87 of the request for arbitral ruling, which is not contested by the Taxation and Customs Authority.

With regard to the Claimants' assertion that they submitted administrative complaints, it was proved that they submitted requests pursuant to the principle of cooperation, in which they invoked the illegality of the assessments in the parts where item 28.1 of the TGIS had been applied to the values of non-residential parts of the said properties.

The facts given as proved are based on the statements made by the Claimants in point 10 of their pleading, which are not contested by the Taxation and Customs Authority, and on the information referred to above.

The Taxation and Customs Authority did not communicate to the Arbitral Tribunal the issuance of new assessments in substitution of those corrected, but there is no situation that falls within article 20, no. 1, of the RJAT, since this provision only provides for the objective modification of the instance when the substitution of the acts that are the subject of the request for arbitral decision is based on "new facts", which is not the case here, since all the relevant facts were already known to the Taxation and Customs Authority, as can be seen from the copies of the property records.

In these circumstances, the assessments indicated in the request for arbitral ruling continue to be the subject of the proceedings, so it is not necessary for the decision of the case to attach complementary elements of the administrative file, which were not found to exist and which were requested by the Claimants in their pleading.

However, consideration shall be given to the amount of Stamp Duty that the Claimants indicate they have paid with respect to each of the properties, as this is not contested by the Taxation and Customs Authority.

5. Legal Findings

5.1. Questions that are the Subject of the Proceedings

In the present proceedings, the assessments being challenged are attributed only defects based on the unconstitutionality of item 28.1 of the TGIS, defects which were not attributed in the requests submitted by the taxpayers to the Taxation and Customs Authority in which they asked for the correction of the assessments referred to in the findings of fact fixed.

The possibility of an assessment act being challenged in arbitration proceedings and, at the same time, through administrative or judicial means is admitted by article 13, no. 4, of the RJAT, provided that in the arbitration proceedings and in other means of challenge the same grounds are not invoked.

In fact, that provision establishes that "the submission of requests for constitution of an arbitral tribunal precludes the right to, on the same grounds, file a complaint, challenge, request a review, including of the taxable matter, or promote an ex officio review, or raise an arbitral ruling on the acts that are the subject of those requests or on the consequent assessment acts, except when the arbitration procedure terminates before the date of constitution of the arbitral tribunal or the arbitration proceedings terminate without a ruling on the merits of the case", which necessarily implies that on different grounds it is admissible for the arbitration proceedings and other means of challenge that have as their object the assessment of the legality of the same act to be pending simultaneously.

For this reason, it must be concluded from this special regime for arbitration proceedings that the regime provided for in article 111, nos. 3 and 4, of the Tax Procedure and Process Code (CPPT) is not applicable in cases of simultaneous administrative challenge with judicial challenge.

In the case at hand, there is a situation of this type, as the request for arbitral ruling was submitted while decisions on some of the requests submitted were still pending, but the defects of unconstitutionality that are attributed to the assessments in the present arbitration proceedings were not attributed to those requests.

It is a corollary of the possibility of simultaneous pendency of arbitration proceedings and other means of challenge on different grounds that in the arbitration proceedings the assessment of legality is restricted to the grounds invoked therein.

Thus, in the present proceedings, only the assessment of defects of application of an unconstitutional rule attributed by the Claimants to the assessments is at issue.

5.2. Decision of the Constitutional Court

As mentioned, the questions of unconstitutionality of item 28.1 of the TGIS raised by the Claimants have already been judged by a final decision of the Constitutional Court, which decided that that rule does not suffer from unconstitutionality.

Thus, since the decision by the Constitutional Court has binding force in the proceedings, it must be concluded that the assessments challenged, which applied that item 28.1 of the TGIS, do not suffer from the defects that the Claimants attribute to them.

The request for arbitral ruling is therefore unfounded.

6. Request for Restitution of Amounts Paid and Damages and Interest

The Claimants formulate requests for restitution of amounts collected by the Taxation and Customs Authority as well as for payment of damages and interest.

The requests for restitution of amounts and payment of damages and interest have as their prerequisite the illegality of the payments made by the Claimants, as concluded from articles 43, no. 1, and 100 of the General Tax Law (LGT) and 24, no. 1, of the RJAT.

In concluding that the assessments do not suffer from the illegalities attributed to them by the Claimants, the requests for restitution of amounts and for payment of damages and interest are unfounded.

7. Requests for Condemnation for Bad Faith Litigation

The Claimants request condemnation of the Taxation and Customs Authority for bad faith litigation.

In accordance with the provisions of article 542 of the Code of Civil Procedure (CPC):

"2. A party is deemed to be in bad faith who, with intent or gross negligence:

a) Has raised a claim or objection whose lack of foundation he could not ignore;

b) Has altered the truth of the facts or omitted facts relevant to the decision of the case;

c) Has committed a serious omission of the duty of cooperation;

d) Has made use of the proceedings or the procedural means in a manifestly reprehensible manner, with the aim of achieving an illegal objective, preventing the discovery of the truth, hindering the action of justice or delaying, without serious grounds, the finality of the decision."

The statement by the Taxation and Customs Authority that no administrative complaints were submitted, which the Claimants point to as grounds for the request for condemnation for bad faith litigation, is factually true, as the requests submitted were treated as if they were administrative complaints, but formally they were designated by the Claimants themselves as requests in accordance with the principle of cooperation.

Thus, none of the situations provided by law for condemnation for bad faith litigation is present, so the request is denied.

8. Extraction of Certificate for Submission to the Bar Association

The Taxation and Customs Authority requests the extraction of a certificate from the pleading of the Claimants on the grounds that they show a lack of integrity, courtesy and propriety of the counsel, in the part in which they refer to the question of the designation of the requests submitted with a view to the correction of assessments and which was grounds for the request for condemnation for bad faith litigation.

The Taxation and Customs Authority states that:

"The lawyers designated by the Defendant in this proceeding cannot fail to express their profound and complete repudiation of the disrespectful conduct of the Claimants' counsel towards their colleagues and, concurrently, towards the Tribunal in a clear lack of respect for the duties incumbent in the Bar Association Statute, namely integrity, courtesy and propriety, and that, if nothing else, the simplest rules of courtesy should have prevented them from making the considerations they permitted themselves in their learned pleadings".

"In fact, the conduct of the Claimants' counsel directly clashes with the duties of integrity, courtesy and propriety when repeatedly, arrogantly and tediously it refers to the now signatories – 'the designated lawyers' cited – in a disrespectful, pejorative and infamous manner".

The Claimants' counsel pronounced themselves on what was requested by the Taxation and Customs Authority, defending, in summary, that the use of the expression "designated lawyers" is correct, expressing no arrogance, and that, in accordance with the provisions of Article 545, extraction of a certificate to the Bar Association would only be justified if it were concluded that the Claimants' counsel had acted in bad faith.

The request for condemnation for bad faith litigation, while not courteous, does not exceed what is tolerable in the context of such a request, in which reprehensible conduct is imputed to the opposing party.

Furthermore, the expression "designated lawyers" cannot be considered offensive, especially in a context in which the representatives of the Director-General of the Taxation and Customs Authority themselves adopted that designation in the administrative proceedings to refer to themselves, as can be seen from the information they provided, which is contained on pages 5 to 9 of the digitized administrative file (document designated "PAG 1 A PAG 50").

There is also no ground to assert bad faith litigation by the Claimants' counsel.

In these terms, there is no justification for sending the requested certificate, so the request is denied.

9. Decision

In accordance with the above, the arbitrators agree to:

Dismiss all requests;

Absolve the Taxation and Customs Authority of all requests.

10. Value of the Proceedings

In determining the value of the proceedings in tax arbitration proceedings, the rules of the Tax Procedure and Process Code (CPPT) apply, by virtue of article 6, paragraph a), of the Regulation on Costs in Tax Arbitration Proceedings.

Thus, when assessments are challenged, the value of the proceedings is the amount whose annulment is sought [article 97-A, no. 1, paragraph a), of the CPPT].

The action is initiated by the presentation of the claim and this is deemed to be presented, brought or pending as soon as the initial pleading is received in the office [article 259, no. 1, of the Code of Civil Procedure, subsidiarily applicable by virtue of the provisions of article 29, no. 1, paragraph e), of the RJAT].

In determining the value of the proceedings, regard shall be had to the moment when the action is brought, except where there is a counterclaim or principal intervention (article 299, no. 1, of the Code of Civil Procedure).

Thus, any changes with an impact on the value of the proceedings subsequent to the presentation of the action are irrelevant.

The Claimants, in the request for constitution of the arbitral tribunal and in the request for arbitral ruling, indicated the following assessments as challenged acts:

The fact that decisions on administrative complaints have already been handed down regarding some of the assessments that were challenged, which could partially revoke them, does not detract from the reality that the Claimants requested the annulment of all of them, both the initial and those arising from administrative complaints, and that the maintenance of the requests for annulment of the initial ones maintains utility for the Claimants, as the decisions on administrative complaints could be revoked.

Moreover, in the case at hand, it is found that, with respect to all assessments issued as a result of administrative complaints, the amounts that the Claimants indicate they have paid finally and which they seek to have refunded are higher than those referred to in those assessments.

Thus:

– with respect to the property with article U-..., in which the initial assessment is in the amount of €96,990.90, following the assessment arising from the administrative complaint, an assessment was issued in the amount of €25,023.65, but the Claimants indicate that, in fact, they paid the corrected amount of €89,789.00;

– with respect to the property with article U-..., in which the initial assessment is in the amount of €142,577.30, following the assessment arising from the administrative complaint, an assessment was issued in the amount of €44,911.85, but the Claimants indicate that, in fact, they paid the corrected amount of €132,805.10;

– with respect to the property with article U-..., in which the initial assessment is in the amount of €130,150.10, following the assessment arising from the administrative complaint, an assessment was issued in the amount of €18,221.01, but the Claimants indicate that, in fact, they paid the corrected amount of €118,957.19;

– with respect to the property with article U-..., in which the initial assessment is in the amount of €99,411.10, following the assessment arising from the administrative complaint, an assessment was issued in the amount of €5,765.84, but the Claimants indicate that, in fact, they paid the corrected amount of €90,066.46;

– with respect to the property with article U-..., in which the initial assessment is in the amount of €62,498.50, following the assessment arising from the administrative complaint, an assessment was issued in the amount of €36,686.62, but the Claimants indicate that, in fact, they paid the corrected amount of €59,936.06.

For this reason, it must be concluded that, for the purposes of determining the value of the proceedings, regard must be had to the amount of all the initial assessments whose annulment the Claimants requested, regardless of acts that potentially revoke them, because such annulment was requested and the Claimants intend to obtain with the arbitral decision the useful effect that was not assured to them, as it was not, by the decisions on administrative complaints that had already been decided.

Moreover, it was certainly because they understood that they had an interest in the assessment of the legality of all the initial assessments, even those in which administrative complaints had already been decided, that the Claimants formulated the respective requests for annulment.

Thus, of the assessments whose annulment is initially requested, only the assessments resulting from administrative complaints will not be considered as having autonomous economic utility, as the amounts referred to therein are included in the values of the initial assessments and, therefore, these values should not be considered for the determination of the "amount whose annulment is sought", referred to in paragraph a) of no. 1 of article 97-A of the CPPT.

In accordance with the provisions of article 306, no. 2, of the Code of Civil Procedure of 2013, article 97-A, no. 1, paragraph a), of the CPPT and article 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €1,314,804.64.

Lisbon, 10-12-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Rogério Fernandes Ferreira)

(João Menezes Leitão)