Process: 451/2017-T

Date: February 14, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 451/2017-T addressed the application of Stamp Tax (Imposto do Selo) under item 28.1 of the General Stamp Tax Table (TGIS) to urban building land. The taxpayer, A..., S.A., challenged a stamp tax assessment of €21,636.65 for 2014 on a construction plot in the municipality. The central dispute concerned whether the property qualified as 'terrenos para construção' with authorized or planned residential construction as of December 31, 2014. The claimant argued the assessment was illegal on three grounds: defective reasoning, violation of law and error regarding factual/legal presuppositions, and breach of constitutional principles of tax equality and ability to contribute. The taxpayer contended that at the taxable event date, the land lacked authorized or planned residential construction, thus failing to meet item 28.1 requirements. The Tax Authority maintained that urban properties classified as building plots with residential designation in their property valuations and registers are subject to stamp tax regardless. After rejecting both the administrative complaint and hierarchical appeal, the case proceeded to CAAD arbitration where the Single Arbitral Tribunal was constituted on October 19, 2017. The tribunal dispensed with the hearing, proceeding based on written submissions from both parties. The case exemplifies the complexity of applying stamp tax to building land and the importance of proper classification and documentation in property valuations for tax purposes.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. A..., S.A., with tax identification number ..., and registered office at ..., no. ..., ..., ...-... ... (hereinafter referred to as the Claimant or Taxpayer), filed on 2017-07-28 a request for constitution of a Single Arbitral Tribunal, in accordance with the provisions of paragraph a) of Article 2, no. 1 and Article 10, nos. 1 and 2, both of Decree Law no. 10/2011, of 20 January (hereinafter referred to as RJAT) in which the Tax and Customs Authority (hereinafter referred to as AT or Respondent) is required, with a view to: (i) the declaration of illegality and annulment of the stamp tax assessment act no. ..., with reference to the year 2014 in the amount of €21,636.65, relating to the property registered in the urban property register no. ..., of the Union of Parishes of ... and ..., in the municipality of ..., also petitioning for the declaration of illegality and consequent annulment of the act of rejection of the hierarchical appeal to which the number ... 2015... fell.

  2. The request for constitution of a Single Arbitral Tribunal was accepted by His Excellency the President of CAAD, and notified to the Respondent on 2017-07-31.

  3. In accordance with the provisions of paragraph a) of Article 6, no. 2 of RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties, within the prescribed periods, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Center (CAAD) the acceptance of the appointment within the period stipulated in Article 4 of the Deontological Code of Administrative Arbitration.

  4. On 2017-09-28, the parties were notified of this appointment, and did not manifest any intention to refuse it, in accordance with the combined provisions of Articles 11, no. 1, paragraphs a) and b) of RJAT, and Articles 6 and 7 of the Deontological Code.

  5. The Single Arbitral Tribunal was constituted on 2017-10-19, in accordance with the provision of paragraph c) of Article 11, no. 1 of RJAT, in the wording given by Article 228 of Law no. 66-B/2012, of 31 December.

  6. As a result of an order dated 2017-10-22, the AT submitted its reply and the administrative file on 2017-11-22.

  7. By order dated 2017-11-22, and for the reasons stated therein, the Claimant was notified to rule on the Tribunal's intention to dispense with the hearing referred to in Article 18 of RJAT and consequently, the waiver of the production of testimonial evidence and the presentation of written submissions, with 15 February 2018 being indicated as the deadline for issuing the decision and notifying it to the parties.

  8. By means of a request dated 2017-11-30, the Claimant came to inform that it did not object to the Tribunal's intention (as a result, in the same sense expressed by the AT in its reply) but manifesting its intention to submit written submissions, and requesting for that purpose a period of no less than twenty days.

  9. Such period was granted to it, as appears from the order issued on the same date, and the Claimant submitted its submissions on 2018-01-09.

  10. The AT on 2018-01-29 submitted its submissions which fundamentally refer to the content of its reply.

  11. To substantiate its request, the Claimant presented grounds of fact and law, the latter in three different aspects, namely: A. Defect of Lack of Reasoning, B. Defect of Violation of Law and Error regarding the Factual and Legal Presuppositions, and C. Violation of the Constitutional Principle of Tax Equality and Capacity to Contribute.

  12. With regard to the grounds of fact, and insofar as relevant here, it invoked in summary the following (which is mentioned mostly by transcription):

12.1. (...) is the owner of an urban property, specifically a plot of land for construction, registered in the urban property register under article no. ..., located in the Union of Parishes of ... and ..., municipality of ... (see article 1 of the request for arbitral decision),

12.2 With reference to the year 2014 (....) was notified of the assessment relating to stamp tax (...) with a collection of €21,636.65 (...) by the application of item 28.1 of the General Table of the Stamp Tax Code (see article 2 of the request for arbitral decision),

[the following are] the collection notes that it paid:

  • €7,212.23 (1st instalment) no. 2015...
  • €7,212.21 (2nd instalment) no. 2015...
  • €7,212.22 (3rd instalment) no. 2015...

(see article 3 of the request for arbitral decision and documents nos. 1, 2 and 3 attached thereto),

12.3. The property, although a plot of land, was not at the date of the taxable event (31/12/2014) a plot of land for construction whose construction, authorized or planned, was for residential purposes, (see article 5 of the request for arbitral decision),

12.4. Not being in agreement with the assessment, on 04/08/2015 (...) submitted an administrative complaint (see article 6 of the request for arbitral decision and document no. 6 attached thereto),

12.5. In the course of that procedure, to which the number ... 2015... was assigned, was notified of the draft decision and, on 07/10/2015, notified of the decision to reject the administrative complaint (see article 7 of the request and arbitral decision and documents nos. 7 and 8 attached thereto),

12.6. Not being in agreement equally with that decision, on 26/10/2015 [...] appealed it by means of a hierarchical appeal addressed to the Minister of Finance (see article 8 of the request for arbitral decision),

12.7. In the course of this hierarchical appeal procedure, to which the process number ...2015... was assigned, [...] submitted supplementary documents, specifically, attached a certificate issued by the Municipal Council of ... on 03/02/2015 (see article 9 of the request for arbitral decision and document no. 11 attached thereto),

12.8. (...) on 03/07/2017 [...] was notified of the order issued regarding said hierarchical appeal, through office no. ... of 30/06/2017, which rejected it entirely (see article 10 of the request for arbitral decision),

  1. In sum, and insofar as this particular segment is concerned, the Claimant contends for the non-existence, in the plot of land for construction in question, of the qualification and characteristics necessary for the application of the stamp tax rate provided for in item 28.1 of TGIS, since, in its view, at the date of the assessments in question the property did not have construction authorized or planned for residential purposes.

13.1. It concluded its request to the effect that "the tribunal declare the illegality and annulment of the stamp tax assessment act of the year 2014, with the collection of €21,636.65, made on 20/03/2015, with the assessment number ..., embodied in the collection notes no. 2015..., no. 2015... and no. 2015... (for it should also be judged illegal the decision to reject the hierarchical appeal)"

  1. As already noted in paragraph 6, the AT proceeded to attach the administrative file with the submission of its reply, having, by exception, questioned the material incompetence of the Arbitral Tribunal to examine the request for declaration of the material unconstitutionality of item 28.1 of TGIS, also ruling on the lack of reasoning, questions raised by the Claimant, having, fundamentally, with interest for what is relevant here, and in the briefest summary:

14.1. Arguing for the maintenance of the assessments in question here, essentially reiterating what had already been stated in the acts of rejection that fell on both the administrative complaint and the hierarchical appeal, which boils down to the following:

14.2. Urban properties that are plots of land for construction and to which residential designation has been assigned in the context of their respective valuations, such designation being recorded in their respective registers, are subject to stamp tax (see article 25 of the reply);

14.3. The fact that, in the rule of incidence – item 28.1 of TGIS – the property with residential designation was posited in detriment to the residential property, appeals to the designation coefficient, see article 41 of CIMI, which applies, indiscriminately, to all urban properties (see article 26 of the reply);

14.4. The legislator chose to determine the application of the methodology for evaluating properties in general to the valuation of "plots of land for construction", as results from the expression "value of authorized constructions" referred to in Article 45, no. 2 of CIMI and applying to it consequently the designation coefficient provided for in Article 41 of CIMI (see article 33 of the reply);

14.5. (...) in the valuation of plots of land for construction the legislator intended the methodology of valuation of urban properties in general to be applied. Thus it should be taken into account all the coefficients, identified above, namely the designation coefficient provided for in Article 41 of CIMI, further resulting such legal imposition from no. 2 of Article 45 of CIMI, by referring to the value of constructions authorized or planned on the same plot of land for construction (see article 35 of the reply);

14.6. The respondent concludes its submission as follows:

"In these terms and in all respects of law (...) the action should be judged unfounded, absolving the Tax Authority of the claim, with the legal consequences"

  1. The Single Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, no. 1, paragraph a), 5 and 6 of RJAT.

  2. The parties have legal personality and capacity, are legitimate and are duly and legally represented (Article 3, 6 and 15 of the Code of Tax Procedure and Process, as provided in Article 29, no. 1, paragraph a) of RJAT).

  3. The proceedings do not suffer from nullities.

  4. The AT raised the exception of material incompetence of the Arbitral Tribunal to examine the request for declaration of the material unconstitutionality of item no. 28 of TGIS.

II - GROUNDS

A.1. Facts established as proven

  1. The Claimant is the owner of the urban property registered in the urban property register no. ..., of the Union of Parishes of ... and ..., municipality of ...

  2. The property is described in the register as "plot of land for construction".

  3. The property had at the date of the stamp tax assessment in question (2014), the tax patrimonial value of €2,163,664.75.

  4. On 20/03/2015, the Tax and Customs Authority proceeded to assess stamp tax – item 28.1 no. 2014..., with reference to the property identified above, in the amount of €21,636.65, issuing the collection notes relating to the three instalments.

  5. On 04/08/2015, the Claimant submitted an administrative complaint to which the number ... 2015... was assigned, against the stamp tax assessments, with reference to the year 2014.

  6. Through office no. ... of 27/08/2015, the Claimant was notified of the draft rejection of the administrative complaint.

  7. Such rejection was consolidated by order issued on 01/10/2015 by the Head of Finance of ... ... (as substitute), having been notified to the Claimant on 07/10/2015, through office no. ...

  8. The Claimant on 27/10/2015 filed a hierarchical appeal to which the number ...2015... was assigned which was rejected on 30/06/2017, with communication to the Claimant.

  9. The Claimant proceeded to pay the stamp tax assessments identified above.

  10. On file and as an integral part of the attached administrative process, is a certificate issued on 03 February 2016 by the Municipal Council of ..., whose content is as follows:

"B..., Head of the Urban Management Division, of the Department of Urban Planning, under the powers that were sub-delegated to him by the Department Director and which appear in order no. 42/2015, certifies, narratively and in accordance with the order issued in the request of A..., S.A., with registered office..., ...AR-..., registered in this Council under the number ... that, with regard to plot no. 1 of the subdivision licence no. .../83, described in the Land Registry of ... under no. .../... of the ..., detached from no. .../... and registered in the register under article no. ... of the respective parish, the following information was provided:

"This plot has been the subject of successive adjustments, in order to make compatible the proposed construction with the intervention designed by C..., S.A, for the construction above the metro, preventing the realization of the current plans for it.

In accordance with the addendum no. ... of 2009 to the subdivision licence, for plot 1 the construction of a residential building with 106 units is planned.

However, this solution has not yet been realized, as it does not adjust to the latest proposal for the metro line, as regards the alignment of the construction and the implementation heights.

Faced with this situation the claimant submitted a request for preliminary information – Proc. .../14GU - in order to be informed of the viability of altering the subdivision. The intended alteration aims at making compatible with the study of C..., SA and the provision of a commercial area in the building, which ceases to be exclusively intended for residential purposes.

This proposal has not yet received a decision from CNN, despite the fact that after several meetings and contacts with C..., SA, the location and implementation heights of the construction have been conclusively defined.

After obtaining the favorable information it will be necessary to request the alteration to the subdivision licence, which will define the new urban parameters for the plot".

  1. In the opinion issued by the AT following the administrative complaint submitted, it ruled as follows:

"Consulting the property management information system, namely the urban property registration card of the cited article, it can be verified from the registration description of the property that it is a plot of land for construction and from the consultation of the valuation sheet, it can be noted that it was valued with residential designation in the location coefficient type (in accordance with Article 41 of CIMI), there being reference that the description of the valuation was prepared with data from the subdivision licence no. .../83"

  1. On 28/07/2017, the Claimant filed with the CAAD a request for arbitral decision which gave rise to the present proceedings. (see information management system of CAAD).

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning regarding the facts established as proven and not proven

Regarding factual matters the Tribunal does not need to rule on everything that was alleged by the parties, but rather has the duty to select the facts that matter to the decision, to distinguish the proven from the unproven matters [(see Article 123, no. 2 of CPPT and no. 3 of Article 607 of the Code of Civil Procedure, applicable as provided in Article 29, no. 1, paragraphs a) and d) of RJAT)].

Thus, the facts pertinent to the judgment of the cause are chosen and selected according to their legal relevance which is established in light of the various solutions of the question(s) of law. (see Article 596 of CPC, applicable as provided in Article 29, no. 1, paragraph e) of RJAT).

Accordingly, taking into account the positions assumed by the parties, in light of Article 110, no. 7 of CPPT, the documentary evidence attached to the file and the attached administrative file, the facts listed above are considered proven, with relevance to the decision.

B. THE LAW

Preliminary note

As was signalled, in the reply, and by exception, the AT raised "[the] material incompetence of the Arbitral Tribunal to examine the request for declaration of the material unconstitutionality of item no. 28 of TGIS" as a result of the Claimant in its request for arbitral decision, and more specifically under articles 94 to 110 having expounded arguments on the "violation of the constitutional principle of tax equality and capacity to contribute" to conclude there (Article 108 of the request for arbitral decision) that "(...) item 28.1 General Table of Stamp Tax when interpreted in the sense that "plots of land for construction whose construction, authorized or planned, is for residential purposes" should be taxed must be judged unconstitutional - and, to that extent, should be disapplied – for violation of the principle of tax equality (...)"

The AT came to argue, regarding this segment, that the material competence of the Arbitral Tribunal, as it is designed in Article 2, no. 1 of RJAT does not include the declaration of unconstitutionality of item 28 of the General Table of Stamp Tax, here under examination.

Notwithstanding the Claimant not having been notified to rule on the raised exception, the truth is that, in the course of its submissions, it had the opportunity to elaborate this particular argument of its request for arbitral decision, concluding that "it does not intend for this Tribunal to declare any unconstitutionality by itself, substituting itself for the Constitutional Court for that purpose"; "what is intended is that Article 204 of the Constitution is complied with, namely, that the Tribunal refuse to apply norms that are unconstitutional"

Given this;

Regardless of whether to analyze the need for procedural impulse of the Tribunal materialized in the notification to the party to rule on the raised exceptions, the truth is that the Claimant came to reply to it, in a submission that is legitimate to present (submissions).

The exercise of the principle of contradiction being one of the foundational principles of the arbitral process (Article 16, paragraph a) of RJAT), "it should be understood that, despite the lack of an explicit reference in that paragraph a) of Article 16 of RJAT, also in the arbitral process the observance of this principle can be dispensed with in case of manifest lack of necessity".[1]

It being appropriate here to share and subscribe to the understanding that the submissions also contain the power for the party to rule "on the exceptions that may be invoked by the representative of the Public Treasury (...)"[2], which indeed occurred, having ensured the exercise of the principle of contradiction.

In any case, and as will be concluded below, the more detailed examination of the competence of the Arbitral Tribunal to examine the request for declaration of the material unconstitutionality of item no. 28 of TGIS will be prejudiced by the order of examination of defects to which this Arbitral Tribunal intends to proceed in light of the provision of Article 124 of the Code of Tax Procedure and Process (CPPT) as provided in Article 29, no. 1, paragraph a) of RJAT.

Nevertheless, it cannot fail to note in brief, that this Tribunal holds a position divergent from that which emerges from the position of the AT, the exception of material incompetence of the Arbitral Tribunal being improper in the manner in which it is raised by the AT.

By striking similarity to the present case, we refer with due respect to what was decided in the course of process no. 385/2015-T issued on 2015-11-30, within CAAD to which we adhere without any objections or reservations;

"In the view of this tribunal, there was some misunderstanding by the Respondent regarding the claim made by the Claimant. Indeed, what the Claimant intends is the declaration of illegality of the contested assessment act, based on the unconstitutionality of the norm that sustains it. And this conclusion regarding the object of the present case results evident from the claim made finally by the Claimant: "Therefore the assessment act for stamp tax for the year 2014 on the property identified in article 2 of this petition should be annulled, with all legal consequences."

Contrary to what the Respondent seems to have interpreted from the claim and submissions of the Claimant, it is not intended for this tribunal to substitute itself for the Constitutional Court and declare item 28.1 of TGIS unconstitutional; intending, rather, that this tribunal, within the scope of the powers legally recognized to it, judge the norm unconstitutional, thus refusing its application to the specific case. As the norm cannot be applied in concreto, the tax act that results from the execution of the same will be, consequently, illegal and, as such, voidable.

What is at issue in the present case is, thus, the legality of the assessment act, and in order to decide, this tribunal will necessarily have to, and by constitutional imperative (art. 204 of the Constitution), evaluate the constitutional conformity of the norms that legally sustain it."

Questions to be decided:

(i) whether, for purposes of the application of item 28.1 of TGIS, the underlying property, being a plot of land for construction, is covered by and subject to its scope,

(ii) whether item 28.1 of TGIS, in the wording introduced by Law no. 83-C/2013, of 13 December, is unconstitutional for violation of the constitutional principles of tax equality and capacity to contribute and should, in that case, be refused application.

The normative framework and its evolution

The subjection to stamp tax on properties with residential designation has its origin in the addition of item 28 to the General Table of Stamp Tax, carried out by Article 4 of Law no. 55-A/2012, of 29 October, with the following wording:

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

28.1 – Per property with residential designation – 1%;

28.2 – Per property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in an order approved by the Minister of Finance – 7.5%".

Article 194 of Law no. 83-C/2013, of 31 December (Budget Law 2014), amended the wording of item 28.1 of TGIS as follows:

"28.1 - Per residential property or per plot of land for construction whose construction, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Estate Municipal Tax Code – 1%".

No. 2 of Article 210 of Law no. 42/2016, of 28 December (Budget Law 2017) repealed item 28 of the General Table of Stamp Tax.

On the other hand,

Article 67, no. 2 of the Stamp Tax Code, added by Law no. 55-A/2012, of 29 October, provides that "to matters not regulated in the present Code relating to item no. 28 of the General Table the provisions of the Real Estate Municipal Tax Code apply, subsidiarily".

Being that in accordance with the provision of Article 6, no. 1 of the Real Estate Municipal Tax Code, urban properties are divided into residential, commercial or for services, plots of land for construction and others.

Elaborating and defining no. 3 of Article 6 of the said law the plots of land for construction as "(...) plots of land located within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted or favorable preliminary information issued for subdivision or construction operations, and also those which have been declared as such in the acquisition title, excepting plots of land in which the competent entities prohibit any of such operations, namely those located in green areas, protected areas or which, in accordance with municipal planning plans, are allocated to spaces, public infrastructure or equipment".

In light of the alteration produced by Law no. 83-C/2013 of 31 December (Budget Law 2014) it appears to be lawful to conclude that the taxable event of stamp tax, concerning item 28.1 of the respective table consists of three requirements:

  • the ownership of a real right over the property in question,
  • tax patrimonial value equal to or greater than one million euros,
  • that the "construction authorized or planned be for residential purposes".

The parties do not disagree on the qualification of the property in question as "plot of land for construction", a circumstance which immediately results from the respective property registration card and from the comparison with Articles 2, 4 and 6 of the Real Estate Tax Code, applicable in light of the norm of incidence in question, it is important, rather, to analyze whether on the same a legitimate and lawful assessment is: "28.1. Per residential property or per plot of land for construction whose construction, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Estate Municipal Tax Code."

It will therefore be important, in light of what has just been said, to examine the relevance of the fact that in the register, the property is qualified as "plot of land for construction".

With due respect, we subscribe and adopt without any objection what is stated, in this segment, in the decision issued within CAAD in process no. 150/2017-T of 27/10/2017, which was seconded in other arbitral decisions:

"It is not the mere registration in the register as "plot of land for construction" that entails the inevitable application of item 28.1 of TGIS, since it does not, by itself, constitute conclusive proof that a particular property has planned construction for residential purposes.

See in this regard JOSÉ MANUEL FERNANDES PIRES, (Lessons on Taxes on Patrimony and Stamp Tax, Coimbra, Almedina, 3rd ed., 2015, pp. 110 to 112); "The right to build is not inherent in the right of ownership, but only arises ex novo in the patrimony of the owner when an administrative act of the competent public entity recognizes and authorizes the owner to build or subdivide. [...] only when this right is established in the legal sphere of the owner is that the Real Estate Municipal Tax Code establish that we are faced with a plot of land for construction".

Thus, it appears clear for the verification of the regulatory provision that the mere registration in the register of a property as a plot of land for construction allocated to residential purposes is not sufficient, since the delineation of the objective scope of incidence now under examination does not abandon the demonstration of an actual potential for construction, necessarily revealed by the existence of documentary supports that authorize it. This is to say that the incidence of the tax, for purposes of the provision in item 28.1 of TGIS is only materialized, and even then not in definitive or complete terms, with the verification of an "effective designation", to use the apt expression of JOSÉ MANUEL FERNANDES PIRES (op. cit., p. 507)."

Further withdrawing from the decision we have been following:

"Now, without the demonstration of such actual potential for construction, item 28.1 of TGIS does not appear applicable. However, for purposes of the application of item 28.1 of TGIS, it is not sufficient that such actual potential for construction exists. It is necessary to prove that the construction, authorized or planned, is for residential purposes. This is to say that it cannot be for a purpose other than residential, since, as it seems to us, construction for commerce or industry would not give rise to the application of the norm to which we have been referring."

Now, reverting to the specific case, notwithstanding the fact that we are faced with a property, registered in the register as being a "plot of land for residential purposes", from such fact does not automatically result its subjection to item 28.1 of TGIS.

First and foremost in light of the vicissitudes signalled by the Claimant involving the Metro Company of Porto and the Municipal Council itself it appears possible to conclude that notwithstanding the subdivision licence no. .../83, amended by Addendum no. .../09, of 04/06/2009, in 2014, no construction for residential purposes was authorized or planned, with reference to 31/12/2014.

Indeed, in the certificate issued by the Municipal Council of ... on 03 February 2016, where in addition to other matters it notes that the plot in question "has been the subject of successive adjustments, in order to make compatible the proposed construction with the intervention designed by the Metro Company, SA", it states that the "intended alteration aims at making compatible with the study of the Metro Company... SA and the provision of a commercial area in the building, which ceases to be exclusively intended for residential purposes".

In our view and as referred to above, the designation of the property to a purpose other than residential would, without more, preclude its subjection to item 28.1 of TGIS.

Therefore, without need for any other considerations under penalty of redundancy, we cannot fail to subscribe to the position of the Claimant in the segment in which it states "not knowing the effective possibility of construction and the concrete purpose that would be granted to the land, it cannot be considered a "plot of land for construction whose authorized or planned construction is for residential purposes, in the terms and for the purposes of the provision in item no. 28.1 of TGIS, in the wording applicable to the year 2014."

Given what has just been said, the request for arbitral decision submitted by the Claimant is well-founded on the clear ground of violation of law and error regarding the factual and legal presuppositions, the examination of the other defects pointed out by the Claimant being therefore prejudiced.

As impressively appears from the arbitral award of CAAD, issued in the course of Process no. 91/2012-T, of 2013-01-21, "the full substantiation of violation of law prejudices the examination of defects of form and procedure, as results from the order of examination of defects provided for in no. 2 of Article 124 of CPPT, subsidiarily applicable by virtue of the provision in paragraph a) of no. 1 of Article 29 of RJAT.

In fact, the establishment of an order of examination of defects is only justified by the eventual substantiation of the defects of priority examination making unnecessary the examination of the others, since, if it were always necessary to examine all defects, the order of their examination would be irrelevant."

In this light, with no reasons to disagree with the sense expressed in the above mentioned arbitral award, the examination of the defect of lack of reasoning and of violation of the constitutional principle of tax equality and capacity to contribute is prejudiced, as already noted, in addition to the brief reference, as to the latter for which a summary examination was done above, regarding the decision of the exception raised by the Respondent.

III - INDEMNITORY INTEREST

Absence of express request

It results from the provision of no. 1 of Article 108 of CPPT, applicable here by virtue of paragraph a) of no. 1 of RJAT, that the Claimant must formulate in its initial petition (here request for arbitral decision) "requests dependent on the main request, such as the request for condemnation of the Public Treasury to pay indemnitory interest, or indemnification for guarantee provided[3].

Now,

In the request it formulates, with which it closes its submission, the Claimant does not petition the payment of any indemnitory interest, the same occurring in the course of the submissions it presented.

The mention of "interest on arrears" is only found in the introductory part of its REQUEST FOR ARBITRAL DECISION, specifically under 3, in the following terms "That the Tax and Customs Authority be condemned to restore the situation that would exist if the tax acts which are the object of the arbitral decision had not been carried out, proceeding to return the amount of tax duly assessed and paid by the Claimant (€21,635.65), increased by interest on arrears, counted from the date of payment of the tax, calculated at the legal suppletive rate, in accordance with Article 24, no. 5 of RJAT, Articles 35, no. 10 and 43 of LGT and Article 61, no. 4 and 5 of CPPT".

Even admitting that the Claimant in the cited paragraph intended to refer to indemnitory interest and not arrears interest (which constitute a different reality), the truth is that in the request with which it concludes its petition there is no express mention of a request for interest, the same occurring, as referred, in the course of the submissions produced.

The question that arises here is whether, in the face of the absence of express petition for condemnation and payment of indemnitory interest, it is lawful for the tribunal to impose such condemnation.

Against such a possibility speaks, first of all, the possibility that we are faced with excess of jurisdiction determining, ultimately, the nullity of the decision, in view of the provision of Article 125 of CPPT applicable.

This Single Arbitral Tribunal is not unaware of the subsistence of divergences at the level of case law regarding the necessity of an express request in the payment of indemnitory interest, namely the one that results from the Administrative Supreme Court award of 18/05/2005, in the course of process no. 296/05, reported by His Excellency Counselor Baeta de Queiroz: "In the contentious appeal for annulment of an act of the Sub-Director-General of Taxes who failed to consider the hierarchical appeal of the decision which, in turn, had rejected the claim for administrative complaint against an assessment act, indemnitory interest not being expressly requested, the Administration cannot be condemned to payment thereof."

Equally recognizing, as is noted by Jorge Lopes de Sousa (work and location cited) that "the dominant case law of the Administrative Supreme Court had been to the effect of the necessity of formulation of a request for payment of indemnitory interest in the petition for impugning or administrative complaint"

The author further adds: "This case law, however, does not appear to need to be followed after the coming into force of the LGT (....)" concluding in an annotation to Article 61 of CPPT (work cited, I volume, page 568) the following: "On the other hand, it is certain that after the LGT, Article 61, no. 3 of CPPT, in its original wording, established that indemnitory interest will be counted from the date of payment of the unduly paid tax until the date of issuance of the respective credit note, but it is no less certain that neither from the LGT nor from the CPPT does it result that the attribution of indemnitory interest should be carried out ex officio by the tribunal".

On the other hand;

In harmony with the provision of paragraph b) of no. 1 of Article 24 of RJAT, the arbitral decision on the merits of the claim which cannot be appealed or contested binds the Tax Administration from the end of the period prescribed for appeal or contest, and this, in the exact terms of the substantiation of the arbitral decision in favor of the taxpayer and until the end of the period prescribed for the voluntary execution of the decisions of tax arbitral tribunals "restore the situation that would exist if the tax act which is the object of the arbitral decision had not been carried out, adopting the necessary acts and operations for that purpose", which is in harmony with the provision of Article 100 of LGT (applicable by virtue of the provision in paragraph a) of no. 1 of Article 29 of RJAT) which establishes that "the tax administration is obliged, in case of full or partial substantiation of a claim, judicial impugnation or appeal in favor of the taxpayer, to the immediate and complete restoration of the legality of the acts or situation which is the subject of the litigation, including the payment of indemnitory interest, if applicable, from the end of the period of execution of the decision".

Although Article 2, no. 1, paragraphs a) and b) of RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning within CAAD, making no reference to condemnatory decisions, it should be understood that the competencies thereof include the powers attributed to tax courts in judicial impugnation proceedings, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as the first guideline, that "the arbitral process must constitute an alternative procedural means to the judicial impugnation process and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial impugnation process, although essentially a process for annulment of tax acts, admits the condemnation of the Tax Administration to the payment of indemnitory interest, as is understood from Article 43, no. 1 of LGT, in which it is established that "indemnitory interest is due when it is determined, in administrative complaint or judicial impugnation, that there was error by the services resulting in the payment of the tax debt in an amount greater than that legally due" and Article 61, no. 4 of CPPT (in the wording given by Law no. 55-A/2010, of 32 December, to which corresponds no. 2 in the original wording), that "if the decision recognizing the right to indemnitory interest is judicial, the payment period is counted from the beginning of the period of its voluntary execution".

Indemnitory interest has a compensatory function for damages, damages that result from the fact that the taxpayer has been illegally deprived of a certain amount, for a certain period of time, aiming to place the taxpayer in the situation in which it would have been had it not made the payment that was illegally required of it.

Given what has been exposed, and in view of the sense of the decision on the merits of the cause already noted, this Single Arbitral Tribunal understands itself as obliged to condemn the Respondent to the payment of indemnitory interest.

IV - DECISION

In accordance with the foregoing, this Single Arbitral Tribunal decides as follows;

a. to judge well-founded the request formulated by the Claimant and in consequence to annul the stamp tax assessments in question, with the consequent declaration of illegality and annulment of the act rejecting the hierarchical appeal,

b. to judge well-founded the request also regarding the recognition of the right to indemnitory interest in favor of the Claimant,

c. to condemn the Respondent to the payment of the costs of proceedings.

V - VALUE OF THE CASE

In accordance with the provisions of Articles 296, nos. 1 and 2 of the Code of Civil Procedure, approved by Law no. 41/2013, of 26 June, 97-A, no. 1 paragraph a) of the Code of Tax Procedure and Process, and 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is fixed at €21,636.65.

VI. COSTS

In accordance with the provision of Articles 12, no. 2, 22, no. 4 of RJAT, and Articles 2 and 4 of the Regulation on Costs in Tax Arbitration Proceedings, and Table I attached thereto, the amount of costs is fixed at €1,224.00, charged to the Respondent.

LET IT BE NOTIFIED

Document prepared by computer, in accordance with the provision of Article 131 of the Code of Civil Procedure, applicable by reference in paragraph e) of no. 1 of Article 29 of the Legal Framework for Tax Arbitration, with blank verses, and reviewed by the arbitrator.

The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990, except as regards the transcriptions made.

Fourteenth of February of two thousand and eighteen.

The Arbitrator

(José Coutinho Pires)

[1] Guide to Tax Arbitration, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, Commentary by Jorge Lopes de Sousa, Edition CAAD, Almedina 2013.

[2] Jorge Lopes de Sousa, Code of Tax Procedure and Process, Annotated and Commented, II volume page 295, 6th Edition, 2011, Áreas Editora.

[3] Jorge Lopes de Sousa, Code of Tax Procedure and Process, Annotated and Commented, Volume II, page 208, Áreas Editora, 2011.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) applicable to building land under Verba 28.1 of the General Stamp Tax Table?
Yes, Stamp Tax is applicable to building land (terrenos para construção) under Verba 28.1 of the TGIS when the property is classified as urban building land with residential designation in its official property valuation and registration. The tax applies at a rate calculated on the property's taxable value, provided the land has authorized or planned construction for residential purposes at the taxable event date (typically December 31 of each year).
Can taxpayers challenge Stamp Tax assessments on urban building plots through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on urban building plots through CAAD (Centro de Arbitragem Administrativa) arbitration under Article 2(1)(a) and Articles 10(1) and (2) of Decree-Law 10/2011. The process involves filing a request for constitution of an arbitral tribunal after exhausting administrative remedies (administrative complaint and hierarchical appeal), as demonstrated in Process 451/2017-T.
What are the grounds for annulling a Stamp Tax assessment on terrenos para construção in Portugal?
Grounds for annulling a Stamp Tax assessment on terrenos para construção include: (1) defect of lack of reasoning in the assessment act; (2) violation of law and error regarding factual or legal presuppositions, particularly whether the land truly qualifies under item 28.1 TGIS as having authorized or planned residential construction; and (3) violation of constitutional principles, specifically the principle of tax equality and ability to contribute under the Portuguese Constitution.
How does the CAAD arbitral tribunal process work for contesting Stamp Tax on high-value real estate?
The CAAD arbitral tribunal process for contesting Stamp Tax on high-value real estate follows these steps: (1) taxpayer files administrative complaint and hierarchical appeal; (2) after rejection, taxpayer files request for constitution of arbitral tribunal; (3) CAAD President accepts the request and appoints an arbitrator; (4) parties are notified and may refuse appointment; (5) tribunal is constituted; (6) Tax Authority submits reply and administrative file; (7) tribunal may dispense with hearing; (8) parties submit written submissions; (9) tribunal issues decision within established deadline.
What was the outcome of CAAD Process 451/2017-T regarding Stamp Tax on building land?
The provided excerpt of CAAD Process 451/2017-T does not include the final decision or outcome. The document presents the procedural history, the taxpayer's arguments that the €21,636.65 stamp tax assessment was illegal because the land lacked authorized or planned residential construction at the taxable event date, and the Tax Authority's position that properties with residential designation in property registers are subject to stamp tax. The tribunal was constituted and received written submissions from both parties by January 2018, but the actual ruling is not included in this excerpt.