Stamp Tax on High-Value Residential Properties: Verba 28.1 TGIS and Investment Funds (CAAD 465/2015-T)

ARBITRAL DECISION

1. STATEMENT OF CASE

A..., SA, with NIPC... and registered office at Avenida..., no...., in Lisbon (hereinafter Claimant), on behalf of F... (hereinafter F...), with NIPC... and F... II (hereinafter F... II), with NIC..., both with registered office at the aforementioned address, hereby requests the constitution of a singular arbitral tribunal, pursuant to articles 2, no. 1, paragraph a), 3, no. 1, 5, no. 2, paragraph a), and 10, nos. 1, paragraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters ("RJAT"), in which it requests the Tax and Customs Authority (AT) to pronounce upon the illegality and determine the annulment of Stamp Tax assessment acts for the year 2014, issued pursuant to Item 28.1, of the General Table of Stamp Tax (TGIS), relating to two residential urban properties owned by the Funds it represents.

The Claimant further requests the condemnation of the AT to refund the amounts paid or payable in relation to the contested assessments, as well as payment of compensatory interest at the legal rate, from the date of payment of the undue tax until the date of its actual restitution, assigning to the claim an economic value of € 22,718.65.

The grounds for the request for annulment of the Stamp Tax assessment acts for the year 2014 are as follows:

a. "The Funds represented hereby by the management company Claimant, in the course of their activity, are owners of several urban properties, including residential properties, commercial properties and building land";

b. "In this context, (…) they were notified of the Stamp Tax assessment acts for the year 2014 (…), issued pursuant to item 28.1 of the General Table of Stamp Tax, amended by article 4 of Law 55-A/2012, of 29 October";

c. (…) "The normative provision that is the origin of the assessment acts sub judice manifestly and intolerably contradicts the basic principles of Law, infringing the Constitution of the Portuguese Republic, namely against the principle of equality (…)";

d. (…) "Law no. 55-A/2012, of 29 October, promoted various amendments to the Personal Income Tax Code, the Corporate Income Tax Code, the Stamp Tax Code and the General Tax Law, in the "pursuit of the public interest, in light of the economic and financial situation of the Country (…)" and the requirement of "(…) a consolidation effort that will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat budgetary deficit (…)" – cf. Bill no. 96/XII/2nd presented by the Government to the Assembly of the Republic and which was the basis for the approval of the aforementioned Law";

e. "The legislation thus intended to establish measures "(…) fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment programme (…) expands the taxation of income from capital and property, equitably covering a broad set of sectors of Portuguese society (…)" – cf. Bill no. 96/XII/2nd presented by the Government to the Assembly of the Republic";

f. (…) "the aforementioned Law added to the General Table of Stamp Tax the respective item 28 (…) through which the Government intended to establish (…) "special taxation" that applies only to urban properties with a value exceeding one million euros";

g. (…) "the Government aimed to promote a "more equitable tax system", in which taxpayers "are called to contribute according to their ability to pay (…); However (…) the taxation achieved with this item is manifestly contrary to constitutional principles, especially the principle of equality (…)";

h. "The principle of equality (…) translates to the prohibition of any discrimination in the treatment of equal situations (equalizing dimension) and the acceptance of unequal treatment of unequal situations (differentiating dimension)";

i. "This principle is expressly enshrined in article 13 of the Constitution of the Portuguese Republic ("CRP") (…); (…) the principle of tax equality assumes itself as a particular expression of the general principle of equality, materially considered, as "equality in law" (cf. Casalta Nabais, in Tax Law, 3rd Edition, Coimbra, 2005, p. 153)";

j. "In this context, the principle of equality translates into the "(…) idea of generality or universality, under which all citizens are bound to fulfill the duty to pay taxes, and of uniformity, requiring that such duty be assessed by the same criterion – the criterion of ability to pay. This thus implies equal tax for those with equal ability to pay (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different ability to pay in proportion to this difference (vertical equality) (…)" – cf. Casalta Nabais, in Tax Law, 3rd Edition, Coimbra, 2005, pp. 151-152)";

k. (…) "This principle of ability to pay is based (…) on the material principle of equality, constitutionally enshrined, having support in the remaining tax provisions of the CRP and in tax legislation";

l. "The principle of equality appears (…) in article 5 of the General Tax Law ("LGT") which expressly determines that "taxation aims to satisfy the financial needs of the State and other public entities and promotes social justice, equality of opportunity and the necessary correction of inequalities in the distribution of wealth and income", and that "taxation respects the principles of generality, equality, legality and material justice";

m. (…) "in the matter of property taxation, the CRP provides a special rule: "the taxation of property should contribute to equality between citizens" – cf. article 104, no. 3 of the CRP";

n. (…) "the principle of ability to pay, as a prerequisite and criterion for taxation, "(…) removes the tax legislator from arbitrariness, obliging him to adhere in the selection and articulation of tax facts to revelations of ability to pay (…)" – cf. Casalta Nabais, in Tax Law, 3rd Edition, Coimbra, 2005, p. 154"; "It is thus constitutionally forbidden to the ordinary legislator to create norms arbitrarily (…)";

o. "Now, (…) item 28 of the General Table of Stamp Tax and the special taxation resulting therefrom promote differentiated treatment and unjustified inequality among taxpayers, in manifest violation of the principle of equality enshrined in article 13 of the CRP";

p. (…) "excludes, from the outset, arbitrarily, a significant portion of high-value real property; the violation of the principle of equality derives (…) from the fact that the relevant tax fact restricts itself only to a portion of real property with a value exceeding € 1,000,000.00 – i.e. real property devoted and intended for housing –, being excluded from the scope of taxation all remaining high-value property (…) that is devoted or intended for other purposes";

q. (…) "the law, excluding (…) urban properties that are not devoted to housing (…) differentiates taxpayers in an evident manner without regard to their respective ability to pay";

r. (…) "Now, (…) such distinctions (…) can never be arbitrary (…) under the principle of tax equality, grounded on the principle of ability to pay, the legislator cannot arbitrarily select certain properties that should be subject to taxation and fail to tax others";

s. (…) "among the vast jurisprudence of the Constitutional Court, it should be noted: "only those choices of regime made by the ordinary legislator can be censured on the ground of violation of the principle of equality in those cases in which it is proved that they result in differences of treatment between persons that find no justification in reasonable, perceptible or intelligible grounds, having in regard the constitutional ends that, with the measure of difference, are pursued" – cf. Decision of the Constitutional Court no. 47/2010 (our emphasis)";

t. "Intending to "overburden" taxpayers who demonstrate a higher ability to pay, the legislator could not have excluded from this equation taxpayers who hold ownership of high-value properties that, however, are not devoted/intended for housing (…) the ownership of "high-value properties" devoted/intended for housing does not reveal, by itself, a higher ability to pay than the ownership of "high-value properties" devoted/intended for other purposes";

u. (…) "this special taxation, in the manner in which it was implemented – by applying only to urban properties, individually considered – fails to "penalize" or "aggravate" effectively all owners who have a high-value real property portfolio and who, as such, demonstrate a higher "ability to pay"";

v. (…) "considering the tax solution advocated in item 28 under analysis, if an owner holds only a single urban property and the same has a tax property value exceeding € 1,000,000.00, it will be subject to special taxation; differently, if an owner holds multiple urban properties with individual value below € 1,000,000.00, but which in total amount to a value much higher than that, it will not be subject to any special taxation";

w. (…) "the legal solution adopted leads to different treatments of taxpayers who own high-value real property portfolios, depending on whether such portfolios are concentrated or dispersed (…) it thus generates manifest inequity (…)";

x. (…) "The application of the item under analysis thus generates (…) unequal treatment of equal factual situations, infringing the general principle of equality and the principle of ability to pay (…) as defended by Sérgio Vasques: "The equality of a tax is measured by the results of its application and, when the legislator knows in advance that he cannot tax any manifestation of wealth with effective equality, he should then refrain from subjecting it to a tax" – in Ability to Pay, Income and Property, intervention at the Forum of Tax Law, Catholic University of Brasília";

y. (…) "it must be concluded that special taxation, in the context of stamp tax, applying to properties with housing designation with value exceeding € 1,000,000, introduced by Law no. 55-A/2012, violates, in the manner it was formulated, the constitutional principle of tax equality and its corollary expressed in the principle of ability to pay";

z. (…) "Item 28 (…) also collides with the principle of tax equality in determining (…) double taxation of the same tax fact – i.e. the holding of a real right (…) although it does not result expressly from the CRP, the prohibition of double taxation results from the principle of ability to pay and, furthermore, from the constitutional criminal principle of non bis in idem";

aa. In this manner, item 28 of the General Table of Stamp Tax inevitably generates negative discrimination against certain taxpayers as against others who, on the same tax fact, see only a single tax applying. In this context, Casalta Nabais wrote: "in imposing intrasystemic limits, that is, coherence between the various taxes and coherence of the tax system as a whole, the principle in question [of equality] must be invoked to solve problems such as internal double taxation, whether this is manifested in double taxation (juridical double taxation) or in overlapping of taxes (economic double taxation), multiple or plural taxation, which translates into the same assets, for example real property, being subject to various taxes (…)" – in Tax Law, 7th Edition, Coimbra, 2012, p. 164";

bb. (…) considering the application of item 28 of the General Table of Stamp Tax, the holding of a real right is simultaneously taxed under Municipal Property Tax (IMI) (…) and under Stamp Tax (…) both taxes apply to (…) the same tax fact. – [cf. Process no. 744/2014-T (…); it is thus demonstrated that item 28 of the General Table of Stamp Tax is contrary to the principle of tax equality, here considering the constitutional prohibition of juridical double taxation, and as such it should, pursuant to article 204 of the CRP, be disapplied in the present case";

cc. (…) "Without abandoning what was stated above, it must be added that the Funds (…), as real estate investment funds, develop, as their main activity, the purchase and sale of real property, whereby the holding of the right of ownership over real property, which are intended to carry out their corporate purpose, cannot ever represent a higher ability to pay (…) constituting instead investment assets, which are devoted to real estate operations (…) in the context of their respective activities";

dd. (…) "the Stamp Tax provided for in the aforementioned item cannot apply to the ownership of real property that constitute "investment assets" of a company – whose activity consists, precisely, in the purchase and sale of real property –, notwithstanding that in these factual situations the basic principles underlying the taxation here under analysis are not verified".

The Claimant concludes by requesting the non-application, in the present case, of item 28 of the TGIS, "on grounds of manifest unconstitutionality" (namely, for violation of the principle of equality), the declaration of illegality of the contested assessments and the condemnation of the Respondent to restitution of the value of the tax paid, together with compensatory interest "until the final decision in the present arbitral action".

Notified in the terms and for the purposes provided in article 17 of the RJAT, the AT presented its response, defending itself by exception and by counter-argument:

1. By exception:

a. "The Claimant does not challenge its subjection to stamp tax of item 28.1 of the General Table attached to the TGIS (…); "However, it holds that such assessment is flawed by illegality because Item 28 of the TGIS is flawed by unconstitutionality for violation of the Principle of Equality in its aspect of the Principle of Coherence of the Tax System, enshrined in articles 13 and 104, no. 3 of the Constitution of the Republic (CRP)";

b. "The request for arbitral pronouncement will be limited to the disapplying of the norm of Item 28 of the TGIS by the Arbitral Tribunal on grounds of alleged unconstitutionality and consequent restitution of the tax paid together with compensatory interest";

c. (…) "The competence of the arbitral jurisdiction, pursuant to art. 2, no. 1 of the RJAT, is exhausted in the appreciation of claims for declaration of illegality of tax assessment acts, of self-assessment, withholding at source and payment on account and declaration of illegality of acts establishing taxable matter when it does not give rise to any tax assessment, of acts determining taxable matter and of acts establishing any tax, of acts determining taxable matter and of acts establishing property values", "Moreover, no. 2 of the same article states that arbitral tribunals decide according to constituted law, being precluded recourse to equity";

d. (…) "it will be precluded from the Arbitral Tribunal the appreciation of the alleged violation of the constitutional principle of equality of Item 28 of the TGIS in the manner formulated by the Claimant, because it is not based on the concrete situation of the case under appreciation and on applicable legislation";

1. By counter-argument:

a. (…) "the situation of the properties of which the Claimant is owner fully falls within the provision of item 28.1 of the TGIS which makes the subjection to stamp tax dependent on the combination of two facts - the housing designation and the property value of the urban property registered in the land registry being equal to or exceeding € 1,000,000.00";

b. "Article 13 of the CRP provides as follows:

"1- All citizens have the same social dignity and are equal before the law.

2- No one may be privileged, favoured, prejudiced, deprived of any right or exempted from any duty on the grounds of ancestry, sex, race, language, territory of origin, religion, political or ideological beliefs, education, economic situation, social condition or sexual orientation."

c. "The legislator with Item 28.1 of the TGIS introduced a principle of taxation on wealth manifested in property (…) on urban properties with housing designation, of higher value, so-called luxury properties, which translated into the establishment of a measurable value - the Tax Property Value equal to or exceeding € 1,000,000.00";

d. "The legislative criterion would be based on the fact that the ownership of real property devoted to housing with value equal to or exceeding € 1,000,000.00 demonstrates a superior ability to pay of the respective owner (…)";

e. "This derives unequivocally from Bill no. 96/XII – 2nd, of 21/09/2012 (…): "The pursuit of the public interest, in light of the economic and financial situation of the country requires a consolidation effort that will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat budgetary deficit.

These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment programme. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live from their work income. (…)

On the other hand, a rate will be created under Stamp Tax applying to urban properties with housing designation whose property value is equal to or exceeding one million euros". (Our emphasis)";

f. "And the same conclusion can be drawn from the statements of the State Secretary for Tax Affairs when discussing the Bill in general debate, when he stated: «The Government chose as its priority principle in tax policy social equity. This is even more important in times of austerity as a way to ensure fair distribution of the tax burden. (…)

For the tax system to promote more equality it is fundamental that the budgetary consolidation effort be distributed among all taxpayers and apply to all types of income, covering with special emphasis capital income and high-value properties. (…)

First, the Government proposes the creation of a special rate on high-value residential urban properties. It is the first time that in Portugal a special taxation on high-value properties intended for housing has been created»";

g. "The norm of Item 28.1 cannot fail to fit within the express objective of the legislator to additionally burden high-value residential properties in the pursuit of distributing, beyond the holders of income and pensions, also among the holders of certain real property, the sacrifices imposed by austerity in a concrete economic and financial situation of the country";

h. "It is in this framework that one can assess the conformity of Item 28.1 with the principle of equality and the principle of ability to pay"; "The content and configuration of the principle of equality in its various aspects and in the dimension of ability to pay has been abundantly addressed by Jurisprudence and Doctrine. Thus",

i. (…) "in Decision of the Constitutional Court no. 563/96, of 16 May, it would state that «… the principle requires that equal treatment be given to essentially equal factual situations and unequal treatment for unequal factual situations (prohibiting, conversely, unequal treatment of equal situations and equal treatment of unequal situations) - see, among so many others, and in addition to the already cited decision no. 186/90, decisions nos. 39/88, 187/90, 188/90, 330/93, 381/93, 516/93 and 335/94, published in the aforementioned official journal, I Series, of 3 March 1988, and II Series, of 12 September 1990, 30 July 1993, 6 October of the same year, and 19 January and 30 August 1994, respectively.

The principle does not preclude that, taking into account the freedom of conformation of the legislator, differentiated treatment may (should) be established, "reasonably, rationally and objectively founded", under penalty of, thus not happening, "the legislator incurring in arbitrariness, by disregarding objectively justified solutions by constitutionally relevant values", in the assessment of the aforementioned decision no. 335/94. The point is that there be sufficient material foundation that neutralizes arbitrariness and eliminates unfounded discrimination (what matters is that one does not discriminate in order to discriminate, as J.C. Vieira de Andrade tells us - The Fundamental Rights in the Portuguese Constitution of 1976, Coimbra, 1987, p. 299).» (Our emphasis)";

j. "On the principle of equality, José Casalta Nabais would write in Tax Law, Almedina, 2012, 7th Edition, p. 155, that «(...) the principle of tax equality has always inherent especially the idea of generality or universality, under which all citizens are bound to fulfill the duty to pay taxes, and of uniformity, requiring that such duty be assessed by the same criterion - the criterion of ability to pay. This thus implies equal tax for those with equal ability to pay (horizontal equality) and different tax (in qualitative and quantitative terms) for those with different ability to pay in proportion to that difference»";

k. "And regarding the principle of ability to pay in correlation with the principle of equality, the Constitutional Court would pronounce itself namely in Decision no. 197/2013, of 9 April, stating that «…the principle of ability to pay expresses and concretizes the principle of tax or fiscal equality. This is because if the principle of tax equality presupposes equal treatment of equal situations and unequal treatment of unequal situations, the ability to pay is the tertium comparationis - that is, the criterion - that is to serve as the basis for comparison. In this sense, the principle of ability to pay operates both as a condition or prerequisite as well as criterion or parameter of taxation (…). It operates as prerequisite or condition in that it prevents taxation from reaching wealth or income that does not exist; it serves as criterion or parameter because it determines that the exaction from the taxpayers' assets be made in accordance with their "ability to pay" (ability to pay). That is, taxpayers with the same ability to pay should pay the same taxes (horizontal equality), and taxpayers with different ability to pay should pay different taxes (vertical equality)»";

l. "Along the same lines of understanding, Decision no. 187/2013 would proceed in the sense that «The principle of ability to pay represents a certain conception of the tax system according to which "each taxpayer should pay in measure of his capacity", thus opposing a conception based on the principle of benefit, which would determine "each one to pay in measure of the benefits he receives from the State".

Being certain that the Constitution does not expressly refer to the principle of ability to pay, there is a consistent doctrinal and jurisprudential construction around this concept.

Sousa Franco (Public Finance and Financial Law, vol. II, pp. 186-187) is peremptory in asserting that ability to pay underlies the constitutional fiscal structure (…). Saldanha Sanches (loc. cit, p. 227), analyzing the structure of the Portuguese tax system resulting from articles 103° and 104° of the Constitution concludes there is an "indirect definition of ability to pay as a structuring principle of the system through the taxation of income". Casalta Nabais (loc. cit.. pp. 445 et seq.) asserts that the principle of ability to pay is derived from the principle of equality, established in article 13° of the Constitution. Also Sérgio Vasques (Manual of Tax Law, Coimbra, 2011, p. 251), considers that the principle of ability to pay represents "the material criterion of equality appropriate to taxes»";

m. "Contrary to the arguments put forth by the Claimant, the norm of item 28.1 of the TGIS does not infringe the principle of ability to pay nor does it contain arbitrary and unjustified legislative definitions of taxes"; (…) "the legislator chose in a rational and objective manner a determined factual premise as the basis of incidence (…) whereby no arbitrariness is seen of the legislator in opting for a tax criterion, that of Tax Property Value as the basis of incidence of Item 28";

n. (…) "The legislator had in view, in electing the basis of incidence of Item 28.1 of the TGIS, the property itself considered individually and not the global land property portfolio of the taxpayer, in obedience to the political objective enshrined in the Bill translated into fair distribution of the tax burden (…)";

o. (…) "Such legislative choice would equally translate the political choice to remove from taxation of the tax urban properties intended for other activities or rural properties in the context of a concrete, gravely recessionary economic situation, in coherence and pursuit of the objectives of the tax system enshrined in the CRP. It is a rational, justified, objective and coherent choice of the legislator"; (…) "Item 28.1 of the TGIS does not incur in any arbitrariness or in any manner violates the principle of equality in tax matters in the aspect of ability to pay";

p. "In the definition given by professor Casalta Nabais, in Tax Law, 5th edition, 2009, pp. 233 and 234, double taxation consists of «(...) a situation of concurrence of norms (…) in which the same tax fact falls within the scope of incidence of two different tax norms, which implies, on the one hand, the identity of the tax fact and, on the other, the plurality of tax norms. As a requirement of the identity of the tax fact, the rule of the four identities is usually required, that is, the identity of the object, the identity of the subject, the identity of the taxation period and the identity of the tax";

q. (…) "it should be noted that IMI and Stamp Tax are taxes of different nature and with distinct bases of incidence". "In effect, IMI is a municipal tax that applies exclusively to real property, whereas Stamp Tax applies to operations which, regardless of the form of their materialization, reveal income or wealth";

r. "The fact that Item 28.1 of the TGIS applies to urban properties with housing designation with Tax Property Value equal to or exceeding € 1,000,000.00 does not alter the nature of Stamp Tax to a tax on property, insofar as it continues to apply to an operation revealing income or wealth"; "(…) as has been stated by the Constitutional Court «there is no reference in the invoked constitutional provisions to the phenomenon of double taxation and even less an express prohibition thereof», (Cf. Decision no. 363/01, of 12 July), and may even be desired by the legislator, as stated in the Decision of the Supreme Administrative Court, of 12-07-2006, handed down in process no. 0126/06, of 12 July".

The AT concludes by defending the complete lack of grounds for the "alleged illegality of Item 28.1 for violation of the principle of equality enshrined in art. 13 of the CRP in all its aspects" and, since both the exception invoked and the contested issue concern exclusively legal matters, by requesting dispensation from holding the meeting referred to in article 18 of the RJAT, as well as the production of pleadings.

The request for constitution of the Arbitral Tribunal was filed with CAAD on 23 July 2015, having been accepted by the Honourable President of CAAD and automatically notified to the AT on 6 August 2015.

The Claimant informed that it did not intend to appoint an arbitrator; thus, pursuant to the provision in no. 1 of article 6 of the RJAT, the undersigned was appointed by the Deontological Council of CAAD, which accepted within the legally provided period, without opposition from the Parties.

The Singular Arbitral Tribunal was regularly constituted on 5 October 2015 and is materially competent to appreciate and decide the dispute subject of the present proceedings.

The Parties possess judicial personality and capacity, are legitimate and are duly represented (articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

By arbitral order of 10 November 2015, the meeting provided for in article 18 of the RJAT was dispensed with, as well as the production of pleadings, should the Claimant not object thereto within 10 days. In the same order, the date of 9 December 2015 was set for rendering the arbitral decision, with notice to the Claimant that, until that date, it should proceed to payment of the subsequent arbitral fee.

By petition of 20 November 2015, the Claimant came to pronounce upon the exception invoked by the AT. Notified by order of 23 November 2015 to present pleadings within 10 days, the AT did not present counter-pleadings.

1. STATEMENT OF FACTS

2.1. Facts considered proven:

2.1.1. F... was, on 31 December 2014, owner of the autonomous fraction designated by letter B, of the urban property registered under article ... of the Union of Parishes of Cascais and Estoril, municipality of Cascais, located at Rua..., no...., ...– Cascais, with the tax property value (VPT) of 1,234,719.88;

2.1.2. On the Tax Property Value of the autonomous fraction identified in the preceding point, Stamp Tax assessment – Item 28.1, for the year 2014, was effected on 20 March 2015, in the amount of € 12,347.20, payable in three annual instalments, in the months of April, July and November 2015;

2.1.3. F... was notified for payment of the first instalment of the aforementioned Stamp Tax assessment through collection notice no. 2015..., in the amount of € 4,115.74, which he effected on 22 April 2015;

2.1.4. F... II was, on 31 December 2014, owner of the autonomous fraction designated by letter H, of the urban property registered under article ... of the Union of Parishes of Aldoar and Foz do Douro, municipality of Porto, located at Rua de..., nos ...-..., ...– Porto, with Tax Property Value of € 1,037,144.50;

2.1.5. On the Tax Property Value of the autonomous fraction identified in the preceding point, Stamp Tax assessment – Item 28.1, for the year 2014, was effected on 20 March 2015, in the amount of € 10,371.45, payable in three annual instalments, in the months of April, July and November 2015;

2.1.6. F... II was notified for payment of the first instalment of the aforementioned Stamp Tax assessment through collection notice no. 2015..., in the amount of € 3,457.15, which he satisfied on 22 April 2015.

2.2. Substantiation of the proven statement of facts:

The Tribunal's conviction regarding the statement of facts given as proven resulted from the analysis of the documentary evidence attached to the request for arbitral pronouncement (copies of the collection notices identified above, of the respective payment receipts and of the land registries of the taxed properties), not contested by the Respondent.

2.3. Facts not proven

There are no facts relevant to the decision of the cause that should be considered not proven.

1. LEGAL GROUNDS – SUBSTANTIATION

3.1. Preliminary issue – Exception of incompetence of the Arbitral Tribunal.

In its response, the AT invokes the exception of incompetence of the Arbitral Tribunal for the "appreciation of the alleged violation of the constitutional principle of equality of Item 28 of the TGIS, in the manner formulated by the Claimant, because it is not based on the concrete situation of the case under appreciation and on applicable legislation", which, if verified, will lead to dismissal of the instance. It is a procedural matter of priority consideration, pursuant to no. 1 of article 608 of the Code of Civil Procedure, of subsidiary application to the tax arbitral process, by virtue of the provision in article 29, no. 1, paragraph e) of the RJAT. Let us examine it.

Under the heading "Appreciation of unconstitutionality", article 204 of the CRP provides that "In cases submitted for judgment the courts cannot apply norms that infringe the provisions of the Constitution or the principles enshrined therein".

Thus, this norm imposes the duty to examine the normative acts potentially applicable to a concrete case, which translates into the "guarantee of a judicial decision in conformity with the constitution"[1]. There is thus enshrined a system of diffuse control of the constitutionality of norms, within the competence of the courts (of all courts – "including arbitral tribunals"[2], which have in article 209, no. 2 of the CRP explicit constitutional support).

On the other hand, the Supreme Administrative Court "has consistently decided that acts applying unconstitutional norms (…) are subject to the general regime of invalidity"[3], being, to that extent, voidable.

The Claimant comes to argue the unconstitutionality of the norm of incidence contained in item 28.1 of the TGIS, as grounds for the issuance of the Stamp Tax assessments contested, which it considers determinative of their annulment by judicial means.

Therefore, the exception of incompetence of the Arbitral Tribunal invoked by the Respondent is deemed not verified.

3.2. On the alleged unconstitutionality of item 28.1 of the TGIS, for violation of the principles of equality and ability to pay

The norm of item 28.1 of the TGIS, added by Law no. 55-A/2012, of 29 October, came to establish, in its initial wording, the incidence of Stamp Tax on the ownership, usufruct or right of superficies of urban properties of "housing designation", whose Tax Property Value registered in the land registry, pursuant to the Municipal Property Tax Code, was equal to or exceeding € 1,000,000.00, at the rate of 1%, the taxable base being extended to land for construction, following the wording given to it by Law no. 83-C/2013, of 31 December (State Budget Law for 2014).

The Claimant does not accept the treatment, which it considers discriminatory, of the taxation of real property of housing designation or purpose, with Tax Property Value equal to or exceeding € 1,000,000.00, which translates into double taxation of the same tax fact – the holding of a real right (under Municipal Property Tax and Stamp Tax), leaving out urban properties with a Tax Property Value of the same order of magnitude, but with different designation, on grounds of contradiction between the results of the application of the aforementioned norm of incidence and the objectives assumed by the Government in the explanatory memorandum of Bill no. 96/XII/2nd, which was the origin of Law no. 55-A/2012, of 29 October.

As well as the Claimant does not accept the fact that the taxation applies only to urban properties with Tax Property Value from a certain threshold (€ 1,000,000.00) and not on the global value of the real property portfolio of the taxpayers, at times of value much higher than that minimum taxable amount.

All the more so since, as is the case with the Funds it represents, the urban properties on which the Stamp Tax assessments subject of the request for arbitral pronouncement were imposed are investment assets, held within an activity of purchase and sale of real property.

The Claimant considers that, through the establishment of "special taxation" applying to urban properties under the conditions defined by the norm of item 28.1 of the TGIS, the Government intended "a more equitable tax system", in which taxpayers would be "called to pay in accordance with their ability to pay"; however, the imposition of such "special taxation" would prove to be a manifest violation of the constitutional principle of equality, enshrined in article 13 of the CRP and, more specifically in the principle of tax equality, to be assessed by the criterion of ability to pay, in its equalizing and differentiating dimensions.

It is necessary to decide:

1. The tax system, as a set of taxes in force in a given legal space, should participate in certain characteristics, such as equity in the distribution of the tax burden among citizens and financial effectiveness, so that the revenues generated are adequate to satisfy the financial needs and budgetary policy objectives[4].

2. However, a distinction must be made between fiscal taxes, which have as their main objective the raising of revenues, and extrafiscal taxes, through which other purposes are pursued than the obtaining of revenues. Among us, in accordance with no. 1 of article 103 of the CRP, "The tax system aims to satisfy the financial needs of the State and other public entities and a fair distribution of income and wealth" having, thus, as its main purpose the raising of revenues that allow the satisfaction of public needs.

3. Nevertheless, even fiscal taxes will tend towards equality in the distribution of charges among taxpayers, assessed by their ability to pay, whose main index is income[5], without prejudice to the same being observed in the taxation of property or other manifestations of wealth that may also be indicative of such capacity.

4. Legal equality requires the prohibition of arbitrariness, unfounded advantages or disadvantages in the attribution of rights or imposition of duties, so that, as it was written in Opinion no. 14/78 of the Constitutional Commission, " (…) the satisfaction of requirements imposed by the Constitution or by other reasons will sometimes impose that the law not be apparently equal for all citizens, so long as such apparent deviations cannot present themselves as an expression of privileges or charges linked to persons as such. They are legislative inequalities of compensation or of concrete equalization of harmonic conditions still with the principle of equality, in its most demanding and modern sense of social or factual equality"[6].

5. With regard to the principle of tax equality, it was written in Opinion no. 5/81 of the Constitutional Commission: "The principle of equality, in the field of taxes, is formulated in the Constitution, resulting from the provision of the aforementioned article 13, in conjunction with what is provided in articles 105, 106 and 107 (current articles 103, 104 and 105 of the CRP, after the 4th constitutional revision).

And at the basis of this principle of tax equality is the material content of the Rule of Law, tending to the prohibition of unequal treatment that is not based on objective reasons.

In this way, the principle of equality has a dual content: one that is negative – which translates into the principle of generality – and another that is positive, which translates into the principle of ability to pay.

This equality is, however, necessarily relative and does not preclude the legislator from freely choosing and treating the situations of life that it considers as taxable facts.

All it must do is take into account, in the selection it makes, that the situation chosen reveals ability to pay. It cannot escape this and must always take such capacity into account in the definition of the criteria of the measure of the tax".

1. Thus, since tax equality is necessarily relative, the principle of ability to pay "must be made compatible with other principles with constitutional dignity, such as the principle of the Social State, the freedom of conformation of the legislator, and certain requirements of practicability and cognoscibility of the tax fact, also indispensable for the fulfillment of the objectives of the tax system" – cf. Decision of the Constitutional Court no. 711/2006.

2. Law no. 55-A/2012, of 29 October, was approved in a context of budgetary imbalance in which the supplementary raising of tax revenues became necessary, with a view to meeting the budgetary targets established under the Plan for Economic and Financial Assistance (PAEF) and fixed in the Memorandum of Economic and Financial Policies.

3. The explanatory memorandum of Bill no. 96/XII/2nd, which was the origin of Law no. 55-A/2012, states that:

"The pursuit of the public interest, in light of the economic and financial situation of the Country, requires a consolidation effort that will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat budgetary deficit.

These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment programme. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live from their work income. In accordance with that objective, this legislation expands the taxation of capital income and property, equitably covering a broad set of sectors of Portuguese society.

In these terms, the taxation of capital income and securities capital gains will be increased, with the respective rates rising from 25% to 26.5% under Personal Income Tax. The rates of taxation applicable to income obtained from, or transferred to, tax havens are also increased to 35%.

On the other hand, a rate is created under Stamp Tax applying to urban properties of housing designation whose tax property value is equal to or exceeding one million euros.

Finally, this legislation introduces a measure to reinforce the fight against tax fraud and evasion, through the strengthening of the regime applicable to manifestations of wealth of taxpayers (Personal Income Tax) and transfers to and from tax havens. First, the operationalization of Personal Income Tax assessment based on manifestations of wealth is strengthened, reducing the differential from 50% to 30% between manifestations of wealth and income declared under Personal Income Tax. On the other hand, transfers to and from tax havens made between accounts of the taxpayer, not declared in accordance with the law, now become a manifestation of wealth and, as such, subject to taxation under Personal Income Tax by indirect methods" (Our emphasis).

1. When discussing the legislation in the Assembly of the Republic, the State Secretary for Tax Affairs substantiated the fiscal measures proposed therein as follows (Journal of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012, pp. 31 and 32):

"The Government chose as a priority principle of its tax policy social equity. This is even more important in times of austerity as a way to ensure fair distribution of the tax burden. In the demanding period the country is going through, during which it is obliged to comply with the programme of economic and financial assistance, it becomes even more pressing to assert the principle of equity. It cannot always be the same – employees and pensioners bearing the tax burdens. For the tax system to be fairer it is decisive to promote the increase of the taxable base by requiring increased effort from taxpayers with higher income and in this way protecting Portuguese families with lower income. For the tax system to promote more equality it is fundamental that the budgetary consolidation effort be distributed among all taxpayers and apply to all types of income, covering with special emphasis capital income and high-value properties. This matter, it is recalled, was extensively addressed in a decision of the Constitutional Court. Finally, for the tax system to be more equitable, it is crucial that all be called to contribute according to their real ability to pay, conferring on the tax administration strengthened powers to control and inspect situations of fraud and tax evasion. In this sense, the Government presents today a set of measures that effectively reinforce a fair and equitable distribution of the adjustment effort among a broad and comprehensive set of sectors of Portuguese society. This proposal has three essential pillars: the creation of special taxation on urban properties with value exceeding 1 million euros; the increase in taxation on capital income and securities capital gains; and the strengthening of rules to combat fraud and tax evasion. First, the Government proposes the creation of a special rate on high-value residential urban properties. It is the first time that in Portugal a special taxation on high-value properties intended for housing has been created. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to homes with value equal to or exceeding 1 million euros. With the creation of this additional rate the additional effort required from these owners will be significantly increased in 2012 and 2013". (Our emphasis).

1. We thus have that, on the one hand, the ownership of urban residential properties, with Tax Property Value equal to or exceeding € 1,000,000.00, "as a fiscal measure aimed at more intensely affecting the holders of real rights of enjoyment over urban residential properties of higher value, accessible only to those with high economic strength", reveals an unequivocal ability to pay, as it refers to properties of value considerably higher than the generality of urban properties with housing designation, "capable of founding the imposition of an increased contribution for the sanitation of public accounts on their holders, in realization of the aforementioned "principle of social equity in austerity" – Cf. Decision of the Constitutional Court no. 590/2015, of 11 November.

2. On the other hand, as appears from the substantiation of the same Decision of the Constitutional Court no. 590/2015, which follows here, the fact that Stamp Tax of item 28.1 of the TGIS applies to ownership concentrated in a property with Tax Property Value equal to or exceeding € 1,000,000.00, ceasing to tax property portfolios of value sometimes much higher, but in which none of the properties that comprise it reaches that Tax Property Value: "(…) The taxation resulting from the norm of incidence lodged in item no. 28 assumes the nature of a partial tax (thus, JOSÉ MARIA FERNANDES PIRES, loc. cit., p. 507), taking as taxable base the urban property devoted to housing, calculating its respective tax property value per relevant legal and economic unit. It does not constitute a general tax on property, or even a tax on all real property, in a manner to found a comparison based on a personalization perspective of the tax and from a base that takes into account the entire property of the tax subject.

(…) It should be noted that the Constitution does not impose on the legislator the creation of a general tax on property, assigning to property taxation the function of contributing to equality between citizens (article 104, no. 3 of the Constitution), with the legislator being free as to the solution to adopt (…)".

1. As regards the incidence of Stamp Tax only from the threshold of € 1,000,000.00, the substantiation of the aforementioned Decision of the Constitutional Court no. 590/2015 continues: "It should be noted that the existence of distinct application results before very approximated values - by excess or by default - of a quantitative expression stipulated normatively as a limit – positive or negative – of any legal effect is inherent to its establishment by the legislator. Whether in the definition of the tax incidence, whether in the enactment of tax exemptions or benefits based on value criteria, it is always possible to find examples of taxpayers with differentiated treatment based on a quantitative variation of very reduced expression".

2. The coherence of the tax system would preclude, in principle, that there be no overlapping of taxes as to the same tax facts, as the Claimant considers to occur with respect to the ownership of urban residential properties with Tax Property Value equal to or exceeding € 1,000,000.00, taxed under Municipal Property Tax and, simultaneously under Stamp Tax; however, not violating the aforementioned taxation the principle of ability to pay in any of its aspects, as follows from what has been set forth, that double taxation finds justification in the need to obtain state revenues, through taxation under Stamp Tax, since the revenue from Municipal Property Tax belongs to the municipalities.

3. Finally, it will always be said that the fact that the properties on which the contested assessments were imposed are "investment assets", devoted to real estate operations habitually developed by their respective owners, within the activity of purchase and sale of real property, not affecting the revealed ability to pay, will determine that taxation by item 28.1 of the TGIS be susceptible to some mitigation within the business sphere, both because it constitutes a cost of the activity, and due to the possibility of shifting (in prices) that, to a greater or lesser degree, always exists even in taxes on corporate income.

4. In light of the foregoing, it is concluded that item 28.1 of the TGIS is not susceptible to the constitutional censure sought by the Claimant, as the violation of the principles of equality and ability to pay, in any of the aspects invoked, is not verified.

5. DECISION

Based on the facts and legal grounds set forth above, it is decided:

4.1. Not to declare unconstitutional the norm of item 28.1 of the TGIS, in its application to the present case;

4.2. To declare the present request for arbitral pronouncement unmerited and to determine the maintenance of the Stamp Tax assessment acts of 2014 contested.

VALUE OF THE PROCESS: In accordance with the provision in article 306, nos. 1 and 2 of the Code of Civil Procedure, 97-A, no. 1, paragraph a) of the Tax Procedure Code and 3, no. 2 of the Regulation of Costs in Tax Arbitration Processes, the process is assigned the value of € 22,718.65 (twenty-two thousand, seven hundred and eighteen euros and sixty-five cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Processes and Table I attached thereto, in the amount of € 1,224.00 (one thousand two hundred and twenty-four euros), chargeable to the Claimant.

Lisbon, 9 December 2015.

The Arbitrator,

/Mariana Vargas/

Document prepared on computer, pursuant to no. 5 of article 131 of the Code of Civil Procedure, applicable by referral of paragraph e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The wording of this decision is governed by the 1990 Orthographic Agreement.

[1] Cf. J. J. Gomes Canotilho and Vital Moreira, in "Constitution of the Portuguese Republic" – Annotated, Vol. II, 4th Edition (reprint), Coimbra Editora, 2014, pp. 519 et seq.

[2] Idem, ibidem.

[3] Cf. Jorge Lopes de Sousa, in "Tax Procedure Code", annotated and commented, VOL. II, 6th edition, Áreas Editora, p. 331.

[4] In this sense, cf. PEREIRA, Paulo T., AFONSO, António, ARCANJO, Manuela, SANTOS, José C. G., "Economy and Public Finance", Escolar Editora, Lisbon, 2005, pp. 205 et seq.

[5] Cf. RIBEIRO, J. J. Teixeira, "Lessons on Public Finance", 5th edition, Coimbra Editora, 1995, pp. 264 et seq.

[6] Apud João Martins Claro, "The Principle of Equality", in "In the Ten Years of the Constitution", Lisbon INCM, 1986, pp. 29 et seq.