Stamp Tax Item 28.1 Construction Land - CAAD Decision 468/2016-T

Process: 468/2016-T

Date: November 23, 2018

Tax Type: Selo

Summary

This reformed arbitral decision from CAAD addresses whether Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) applies to construction land intended for housing held by a closed real estate investment fund. The fund challenged 2015 assessments totaling €1,035,497.34, arguing the tax violated constitutional principles when applied to construction land. The Tax Authority partially revoked the assessment for portions allocated to services and commerce, but maintained the tax on residential construction land. The tribunal addressed three preliminary objections raised by the Tax Authority: alleged inability to assess the claim due to multiple property allocations, jurisdictional limitations, and material incompetence of the arbitral tribunal. The decision clarifies that arbitral tribunals have jurisdiction under Article 2(1) of RJAT to review the legality of tax assessments, including when such assessments are allegedly based on unconstitutional norms. While arbitral tribunals cannot declare unconstitutionality with general binding force (reserved for the Constitutional Court per Article 281(2) CRP), they can annul individual administrative acts based on unconstitutional provisions pursuant to Article 204 CRP. The tribunal rejected the Tax Authority's argument that the claimant sought property revaluation, clarifying the challenge concerned assessment legality. The fund also claimed compensation for improper guarantee provision and indemnity interest. This case establishes important precedent regarding the scope of arbitral tribunal jurisdiction in constitutional challenges to tax assessments, the application of Stamp Tax to real estate investment funds, and the distinction between abstract constitutional review and concrete illegality declarations in Portuguese tax arbitration.

Full Decision

ARBITRAL DECISION

The Arbitrators José Baeta de Queiroz, Nuno Cunha Rodrigues and Diogo Feio, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide:

In the present proceedings, in which the Claimant is the Closed Real Estate Investment Fund A... and the Respondent is the Tax and Customs Authority, the parties were notified, on 14 March 2017, of the decision transcribed herein:

"I – REPORT

On 29 July 2016, the Closed Real Estate Investment Fund A..., with the tax identification number..., with registered office at ..., ..., ..., ..., in Lisbon, managed and represented by B... – Real Estate Funds Management, S.A., tax identification number..., with registered office at the same address, filed, pursuant to the terms and for the purposes of Article 2(1)(a) and Article 10(1)(a), both of Decree-Law No. 10/2011 of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter RJAT) a request for the constitution of the Arbitral Tribunal and submitted a request for arbitral pronouncement, with a view to the declaration of illegality of the Stamp Duty (IS) assessments relating to the year 2015 and to item 28.1 of the General Table of Stamp Duty (hereinafter TGIS), in the amount of €1,035,497.34.

In its request for arbitral pronouncement, the Claimant raises the following issues: i) illegality of the assessment relating to land for construction;

ii) violation of the principle of tax equality and proportionality;

iii) compensation for improper guarantee provision and indemnity interest.

The Respondent is the Tax and Customs Authority (AT).

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to AT on 5 September 2016.

Pursuant to Article 6(2)(a) and Article 11(1)(b) of RJAT, as amended by Article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council appointed the signatories as arbitrators of the collective tribunal, who communicated acceptance of the assignment within the applicable timeframe.

The parties were duly notified of this appointment on 20 October 2016, having expressed no intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of Article 11(1)(c) of RJAT and Articles 6 and 7 of the Deontological Code.

The collective arbitral tribunal was constituted on 7 November 2016, in accordance with the provisions of Article 11(1)(c) of RJAT, as amended by Article 228 of Law No. 66-B/2012 of 31 December.

By order dated 22 September 2016 of the Chief of Finance for Lisbon..., and in response to the petition filed by the Claimant – who, with regard to the property registered in the parish of ... under article..., sought to have the tax under item 28.1 of TGIS apply only to the taxable patrimonial values allocated to housing and not to the whole thereof, thus totaling €48,705,139.00 – the Respondent confirmed the partial revocation of the tax assessment, with respect to the allocation of services and commerce.

By request dated 8 November 2016, and following the Respondent's communication regarding the partial revocation of the assessment act relating to the property registered in the property register of the parish of ... under article..., the Claimant came before the tribunal to declare the maintenance of its interest in continuation of the proceedings. It also informed the Tribunal that the partial revocation decision communicated contained an error with respect to the amount of tax to be cancelled.

By order dated 8 November 2016 of the Presiding Arbitrator, the parties were notified of the continuation of the case, in accordance with the Claimant's expressed intention.

The Respondent, pursuant to Articles 17(1) and 17(2) of RJAT, submitted its response on 7 December 2016, raising the following issues:

preliminary question regarding the various allocations of property No.... ..., Lisbon;
preliminary question regarding the inability of both the respondent and the tribunal itself to assess the claimant's claim;
as an exception, the material incompetence of the arbitral tribunal;
absence of unconstitutionality of the assessments;
challenge of the documents submitted by the claimant;
lack of merit of the claim for compensation due to improper guarantee;

By order dated 9 December 2016 of the Presiding Arbitrator, the meeting provided for in Article 18 of RJAT was dispensed with, inviting the parties to submit written submissions.

Both parties submitted final written submissions, the tribunal having announced the pronouncement of the decision by 17 March 2016.

II – Preliminary Matters:

Preliminary Questions and Exceptions:

It is now necessary to address the exceptions and preliminary questions raised by the Respondent:

preliminary question regarding the various allocations of property No.... ..., Lisbon;
preliminary question regarding the inability of both the respondent and the tribunal itself to assess the claimant's claim; and
material incompetence of the arbitral tribunal.

First and foremost, it is necessary to address the exception of material incompetence of the tribunal raised by AT (supra ii)), on the understanding that the jurisdiction of arbitral jurisdiction does not extend to "jurisdiction for abstract review of the constitutionality of norms", and cannot "proceed to declare the illegality or unconstitutionality of item 28.1" (cf. Articles 18 and 19 of the Respondent's response).

As to the exception of material incompetence of the arbitral tribunal (supra iii)), the Respondent further argues that what the Claimant "intends is that, in light of the assessment, the valuation of the property in question be reviewed, which constitutes the taxable fact that falls within the stamp duty assessment in question" (Article 25 of the Respondent's response), considering that "it is not consistent with RJAT, nor with any tax procedural norms, for the Claimant to propose and attempt to contradict what is contained in official documents and whose periods of reaction have all expired" (Article 28 of the Respondent's response).

However, it should be noted that what the Claimant intends – being such its request – is rather to review the legality of the assessment, not to call into question the said valuation.

Now, in accordance with Article 2(1) of RJAT, the jurisdiction of arbitral tribunals comprises the "illegality of acts of assessment of taxes".

Acts are illegal if they apply norms inconsistent with fundamental law, which is clear from Article 266(2) of the Constitution of the Portuguese Republic (CRP).

Therefore, when a citizen resorts to an arbitral tribunal to obtain a declaration of illegality of a tax assessment act, accusing it of being based on unconstitutional law, such tribunal is competent.

It is not, to be sure, to declare the unconstitutionality of the norm with general binding force, for that is solely the responsibility of the Constitutional Court (Article 281(2) of the CRP), but to censure the act based on an unconstitutional norm, eliminating it from the legal order, as is the tribunal's obligation, imposed by Article 204 of the CRP: since courts cannot apply unconstitutional norms, they also cannot maintain administrative acts submitted to them that are based on norms violating the Constitution.

Now, the Claimant's request is to the effect that "the assessments subject to the present challenge should be judged illegal, as made under a norm – item 28.1 of TGIS – that is materially unconstitutional" (Article 177 of the request for arbitral pronouncement) and that "item 28.1, insofar as it refers to land for construction, should be judged unconstitutional and, consequently, the assessments in question should be annulled on that basis" (Article 202 of the request).

That is, the subject matter of the case is not the declaration of material unconstitutionality of any legal norm, but the verification of the legality, in light of the CRP, of acts of assessment of a tax.

Which demonstrates the tribunal's competence.

Finally, as to the preliminary question regarding the various allocations of property No.... ..., Lisbon (supra i)), it should be noted that the Respondent proceeded to cancel 51% of the assessments challenged, as per document 1 attached with its response (Article 3 of the Respondent's response), thus concluding that the value of the present arbitral request should be reduced accordingly (Article 5 of the Respondent's response).

The Respondent thus understands that the taxable matter is €46,795,133.77, with the tax collection being €467,951.34 (cf. document 1 attached with the Respondent's response).

However, the Claimant, in its submissions, stated that "the cancellation of 51% of the said assessment implies that the percentage of 49% should be considered for the alleged 'housing' allocation, whereas mathematically the percentage corresponding to such allocation is 48.79338233%, which, given the substantial amount in question, represents a significant difference to the detriment of the Claimant", concluding therefore that "the assessment relating to the property in question should have applied to 48.79338233% of its respective TPV, whereby the amount corresponding to the remaining percentage should have been cancelled" (Articles 4 and 5 of the Claimant's submissions).

It should be noted that the Claimant is correct, insofar as it results from consultation of the property register of the property..., more specifically from the "Calculation Demonstration", that the Housing Value of the said property is, in fact, €46,548,299.03 (as alleged in Article 33 of its request – see also document 3 attached thereto), and not €46,795,133.77, with the tax collection to be considered therefore being €465,482.99 (application of the 1% rate – item 28.1 of the General Table of Stamp Duty), whereby the percentage of housing allocation of the property in question, in relation to its TPV (€95,500,273.00 – Article 33 of the request and document 3 attached thereto), is rather 48.74153504%.

In this manner, the value of the request corresponding to the value of the tax collections in question, the final value to be considered is the sum of the collections for the three properties in question (€68,442.62 for...; €12,051.99 for...; €465,482.99 for...): which totals a collection of €545,977.60.

The request should therefore be reduced to €545,977.60, which shall be so determined in the final decision.

In addition to being competent, the tribunal is regularly constituted, with the parties presenting themselves with legal personality, capacity, standing and representation, with no nullities or other exceptions or preliminary questions preventing the consideration of the merits of the case.

III - Factual Matters

Proven Facts

It should first be noted that the Tribunal is not required to pronounce on everything alleged by the parties, rather having the duty to select the facts relevant to the decision and distinguish proven from unproven matters (cf. Articles 123(2) of the Code of Tax Procedure and Process (CPPT) and 607(3) and (4) of the Code of Civil Procedure (CPC), applicable by virtue of Article 29(1)(a) and (e) of RJAT).

Taking into account the positions adopted by the parties, the documentary evidence produced and the administrative case file attached to the record, all of which is deemed reproduced herein, the following facts are considered proven as relevant to the decision:

The Claimant is a Real Estate Investment Fund whose objective is the development of a real estate project that includes the promotion of a subdivision project and construction of properties intended for commerce, housing, logistics and services, with subsequent sale to the general public (Article 1 of the request for arbitral pronouncement).
The Claimant is the owner of three urban properties registered in the property register of the parish of ..., municipality and district of Lisbon, under property register numbers..., ... and ... (Article 2 of the request and documents 1, 2 and 3 attached thereto).
The urban properties aforementioned are registered in their respective registers as land for construction (Article 3 of the request and documents 1, 2 and 3 attached thereto).
The taxable patrimonial values (TPV) of the said properties..., ... and ..., calculated for purposes of the Municipal Property Tax Code (CIMI), are €6,844,261.62, €1,205,199.23 (determined in 2013) and €95,500,273.00 (determined in 2014), respectively, with the respective tax collections being €68,442.62, €12,051.99 and €955,002.73 (Articles 4 and 7 of the request and documents 1, 2 and 3 attached thereto).
In April 2016, the Claimant was notified of the Stamp Duty assessments relating to the year 2015, pursuant to item 28.1 of the General Table of Stamp Duty (TGIS), with respect to the three properties identified above in 2), with the total collection amount being €1,035,497.34, as well as to proceed with payment of the 1st installment, as per collection documents Nos. 2016... (amount: €22,814.22), 2016... (amount: €4,017.33) and 2016... (€318,334.25), thus the total amount of the 1st installment being €345,165.80 (Article 5 of the request and documents 4, 5 and 6 attached thereto).
In June 2016, the Claimant was notified again, this time for payment of the 2nd installment of the said Stamp Duty assessments, as results from collection documents Nos. 2016... (amount: €22,814.20), 2016... (amount: €4,017.33) and 2016... (amount: €318,334.24), thus the total amount of the 2nd installment being €345,165.77 (Article 6 of the request and documents 7, 8 and 9 attached thereto).
On 11 May 2016, the Claimant paid in full the 1st installment of Stamp Duty with respect to properties with property register numbers... and ... (Article 8 of the request and document 10 attached thereto).
On 11 May 2016, the Claimant paid the amount of €157,314.49 (Article 9 of the request and document 11 attached thereto).
A bank guarantee No.... was provided on 2 June 2016, on account of C..., in the amount of €206,407.69 for suspension of the tax enforcement procedure No. ...2016..., instituted for recovery of the amounts assessed and not paid (Article 10 of the request and document 12 attached thereto).
The land for construction – subject of the assessments sub judice – are all covered by the Master Plan for Artilharia Um (Master Plan) and its respective Regulation for the Master Plan for Artilharia Um (Master Plan Regulation), approved by the Municipal Assembly of Lisbon on 1 June 2004 and ratified by Council of Ministers Resolution No. 69/2005 of 20 January (Article 12 of the request and document 13 attached thereto).
The land for construction corresponds to "Sub-area R – reconversion", provided for in Article 8 of the Master Plan Regulation and to the area identified with the letter "R" in the implantation drawings contained in the said Master Plan Regulation (Article 13 of the request and document 13 attached thereto).
With respect to the property registered in the register under No.... the Respondent proceeded to cancel 51% of the assessments of item 28 of Stamp Duty challenged by reference to such property, with the taxable patrimonial value then becoming €46,795,133.77 (Articles 3 and 4 of the Respondent's response and document 1 attached thereto).
In this manner, the assessment was calculated at 1% of that patrimonial value, that is, €46,795,133.77 (Article 4 of the Respondent's response and document 1 attached thereto).

Unproven Facts

There are no other facts relevant to the merit of the decision that have not been proven.

Having considered all the foregoing, the decision on law must now be rendered.

II. DECISION ON LAW

The Claimant expressed its disagreement with the impugned acts based on three fundamental reasons, which require consideration.

Thus, the Claimant submits that item 28 of TGIS, applied by the said acts, suffers, in the respect relevant to the case, from unconstitutionality, due to violation of:

(a) The principle of tax equality (cf. Articles 91 to 159 of the Claimant's initial petition);

(b) The principle of proportionality (cf. Articles 178 to 202 of the Claimant's initial petition);

It is well known that properties with housing allocation became subject to stamp duty by virtue of item 28 of TGIS, added by Article 4 of Law 55-A/2012 of 29 October, in the following terms:

"28 – Ownership, usufruct or surface right of urban properties whose taxable patrimonial value contained in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the taxable patrimonial value used for IMI purposes:

28.1 – For property with housing allocation – 1%

28.2 – For property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, as set out in the list approved by order of the Minister of Finance – 7.5%".

Law No. 83-C/2013 of 31 December, effective as of 1 January 2014, amended the wording of item 28.1, which now reads:

"for residential property or for land for construction the building of which, authorized or planned, is for housing, pursuant to the provisions of the IMI Code".

The controversy was thus resolved as to whether land for construction with housing allocation fell within the said item.

Although it has been certain since 2014 that land for construction is considered properties with housing allocation, subject to stamp duty, doubts are raised regarding the constitutionality of the said norm, as noted by the Claimant.

Some of these doubts have previously been raised and decided, on numerous occasions, by various tribunals, albeit reaching different conclusions.

For example, in the past, the unconstitutionality of item 28.1 was decided in case No. 507/2015-T of CAAD, in which it was stated "that item 28.1 of TGIS, in the wording given by Law No. 83-C/2013 of 31 December, is materially unconstitutional, insofar as it subjects to taxation in Stamp Duty the ownership of land for construction whose taxable patrimonial value contained in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000, with respect to which the building, authorized or planned, does not include any individual housing unit of equal or greater value, as well as insofar as it applies to situations in which the land for construction belongs to companies engaged in the marketing of land for resale". (emphasis added)

Other arbitral tribunals, also within CAAD, have pronounced themselves to the contrary – that is, concluding for the non-unconstitutionality of item 28.1 – notably the CAAD decisions resulting from cases Nos. 495/2015-T; 515/2015-T and 516/2015-T.

The question thus remains subject to controversy within CAAD.

To this is added the fact that the jurisprudence of the Constitutional Court already pronounced on item 28.1 of TGIS is not decisive for the case sub judice, as we shall see below.

Let us thus analyze each of the grounds raised by the Claimant as determinative of the possible unconstitutionality of item 28.1 of TGIS.

The first ground raised by the Claimant – violation of the principle of tax equality – has already been extensively treated and analyzed in different jurisdictions, with reference here, again and among others, to CAAD decisions that, regarding questions of law similar to that sub judice – where item 28.1 of TGIS was at issue – pronounced themselves in the sense of non-violation of the principle of tax equality provided for in the Constitution. This was the case in CAAD cases Nos. 218/2013-T; 247/2013-T; 292/2013-T; 507/2015-T and 114/2016-T.

Consider also, to the contrary – that is, pronouncing for the unconstitutionality of item 28.1 of TGIS in light of the principle of tax equality – the decisions in CAAD cases 219/2013-T; 4/2014-T; 366/2014-T; 517/2014-T; 577/2014-T; 485/2015-T and 509/2015-T.

In this context, it should also be noted the decision of the Constitutional Court, adopted in Decision No. 590/2015, which concluded for the non-unconstitutionality of item 28.1 in light of the principle of tax equality.

In the said Decision No. 590/2015, and regarding the principle of tax equality, the Constitutional Court considered the following:

"The constitutional principle of tax equality, as a specific expression of the general structuring principle of equality (Article 13 of the Constitution), finds expression in the "generality and uniformity of taxes. Generality means that all citizens are bound to pay taxes (…); in turn, uniformity means that the distribution of taxes among citizens follows the same identical criterion for all" (TEIXEIRA RIBEIRO, Lectures on Public Finance, 5th edition, p. 261). And such criterion, as emphasized by CASALTA NABAIS, is found in the principle of contributory capacity: "This thus implies equal tax for those with equal contributory capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributory capacity in proportion to this difference (vertical equality)" (Tax Law, 7th edition, 2012, p. 155). As a presupposition and criterion of taxation, the principle of contributory capacity "on one hand, constituting the ratio or cause of taxation keeps the tax legislator from arbitrariness, obliging it in the selection and arrangement of tax facts to adhere to manifestations of contributory capacity, or, that is, to establish as the object and taxable matter of each tax a given economic presupposition that is a manifestation of such capacity and is present in the various legal hypotheses of the respective tax" (CASALTA NABAIS, ob. cit., p. 157).

Thus the Constitutional Court has stated, an example being Decision No. 84/2003:

"The principle of contributory capacity expresses and implements the principle of fiscal or tax equality in its aspect of 'uniformity' – the duty of all to pay taxes according to the same criterion – with contributory capacity filling the unitary criterion of taxation", such criterion being understood as that in which "the incidence and distribution of taxes – of 'fiscal taxes' more precisely – should be made according to the economic capacity or 'capacity to spend' (…) of each and not according to what each might eventually receive in public goods or services (benefit criterion). (…) Notwithstanding the silence of the Constitution, it is a generalized understanding of doctrine that 'contributory capacity' continues to be a basic criterion of our 'fiscal Constitution' and that it can (or must) be reached from the structuring principles of the fiscal system set forth in Articles 103 and 104 of the CRP (…)".

This Court has, however, emphasized that the principle of contributory capacity does not dispense with the concurrence of other constitutional principles. As stated in Decision No. 711/2006, "it is clear that the 'principle of contributory capacity' must be reconciled with other principles with constitutional dignity, such as the principle of the Social State, the legislature's freedom of configuration, and certain requirements of practicability and knowability of the tax fact, indispensable also for the fulfillment of the purposes of the tax system". And it continues: "However, to determine the existence of a sufficiently distinct particularism to justify a difference in legal regime, and to decide the circumstances and factors to be considered relevant in that examination, is a task that primarily falls to the legislature, which holds the primacy of implementation of constitutional principles and the corresponding freedom of configuration. For this reason, the principle of equality presents itself fundamentally to legal operators, in the context of review of constitutionality, as a negative principle (…) – as a prohibition of arbitrariness".

In sum, in the synthesis of Decision No. 695/2014, "the principle of tax equality can be implemented through diverse aspects: a first, is in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating equally taxpayers in equal situations and differently those in different situations, to the extent of the difference, assessed by contributory capacity; a final, is in the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that lack rational foundation".

In this same Decision No. 590/2015, the Constitutional Court concludes the following, regarding the assessment of the constitutionality of a norm, contained in items 28 and 28.1 of the General Table of Stamp Duty, introduced by Article 4 of Law No. 55-A/2012 of 29 October:

"All to conclude that when an apparently or tendentially equal situation is treated in a somewhat different manner, one can only speak of fiscal inequality if there are no acceptable reasons that led the legislature to make the options it made.

That is, what is constitutionally forbidden to the legislature is pure arbitrariness, treating unequally just because, but not when it has in view the pursuit of objectives to which it attributes greater value – such as the paradigmatic case of tax benefits, in which the legislature prefers to forgo fiscal revenue to achieve other objectives."

It should be noted that the jurisprudence resulting from the above partially transcribed Decision No. 590/2015 was reiterated in Constitutional Court Decisions Nos. 83/2016; 247/2016 and 568/2016.

Let us examine in particular the application of the above-cited jurisprudence to the case sub judice.

Here in question is the application of item 28.1 of TGIS in the wording given by Law No. 83-C/2013 of 31 December, effective as of 1 January 2014, and it can be said that, in approving such norm, the legislature exercised its freedom without offending fiscal equality, for it treated equally what was equal and unequally what was unequal.

Moreover, nothing obliged the legislature to institute a general tax on patrimony, as it did not, and its choice could be limited to some, but not necessarily all, properties of one owner.

Also when the legislature taxed only residential properties, refraining from imposing stamp duty on those devoted to agriculture, fishing, industry, commerce, it took a measure distinguishing what is unequal, making a choice whose justification seems clear: not to increase the tax burden on productive sectors, aimed at the much-touted needs for investment and economic growth.

Furthermore, buildings intended for housing constitute goods for personal enjoyment, and when they are of equal value or greater than one million euros, they reveal a high standard of living and greater contributory capacity.

Although the contributory capacity revealed may be equal, no violation of the principle of tax equality is apparent, given the reasonableness of the distinction and the objectives pursued – although what is stated here does not necessarily apply to land for construction intended for housing held by companies engaged in its marketing, as we shall see below regarding the case sub judice.

All this amounts to saying, in other words, that the ordinary legislature may choose to tax only properties intended for housing, of value equal to or greater than one million euros, without such offending the principle of tax equality.

It is true that what is here in question is not a tax on income.

Land for construction may, in fact, never be used for such purposes and, consequently, may provide no income whatsoever.

But what the legislature here intended to capture is a moment and a static fact – the ownership of a property which, at a given moment, merits a given qualification – land for construction for housing that is of high value, measured by average standards.

The ownership of such property, combined with its value, reveals, at the moment of taxation, an above-average contributory capacity, and this alone suffices to justify taxation, regardless of whether or not future expectations materialize, thus not calling into question the principle of tax equality.

This understanding applies, mutatis mutandis, to another of the grounds raised by the Claimant: the unconstitutionality of item 28.1 due to violation of the principle of proportionality which, we anticipate, is understood not to occur in the case sub judice.

This is because the legislature intended, as seen, to expand the tax base to wealth manifested in the ownership of urban properties intended for housing of high value and, in a perspective of promoting budgetary consolidation, as an instrument for obtaining more revenue and, correspondingly, for easing the burden that might fall on other sources of revenue or on the reduction of public spending, with a view to meeting public deficit targets.

Consequently, it is beyond question that the sums of Stamp Duty collected via the incidence provided for in item 28, whatever their amount, are apt and suitable to realize the purposes of expanded apportionment of effort in a period of additional fiscal and financial sacrifices that the legislature sought to achieve.

As a fiscal measure directed to affect more intensely the holders of real rights of enjoyment over urban properties for housing and of higher value, within reach only of those with high economic strength, there are no apparent reasons to conclude for non-compliance with the dimensions of necessity or just measure, contained in the principle of proportionality.

Finally, it remains to consider another of the grounds invoked by the Claimant, which stems from the circumstance that the ownership of properties such as those in question are held, in the case at hand, by real estate investment funds and the consequent need to realize the corporate purpose of the investment funds.

In this context, the issue would be the circumstance that the goods burdened with item 28.1 constitute investment assets, so that, as the owners – investment funds – pursue the activity of purchase and sale of real properties, they could not represent a superior contributory capacity, notably when compared with other taxpayers.

On this point, it is considered that the Claimant is correct.

In fact, one can, from the outset, compare the holding of properties of value greater than one million euros, held by real estate investment funds, with the holding of properties of value less than one million euros, also held by real estate investment funds.

It is not apparent what justification exists for differentiating identical taxpayers – real estate investment funds – engaged in identical commercial activity – purchase and sale of real properties – simply based on the circumstance that some of the properties held are worth more than others.

If this were the case, we would ultimately be penalizing or excessively burdening fiscally the real estate investment funds that were owners of real property of greater value, generating, in funds that had real property of lesser value (that is, of value less than one million euros), an artificial competitive advantage which, in our view, would call into question the principle of tax equality applicable to companies engaged in the purchase, rehabilitation, construction and sale of real properties.

Without prejudice to the tax inequality that item 28.1 implies among the same companies – real estate investment funds – that hold real properties of different values, there is further a specific dimension of the principle of tax equality that, in our view, is called into question.

Here, we cite the award of the arbitral tribunal rendered on 17 March 2016 in case No. 507/2015-T.

"It is unequivocal that companies engaged in the marketing of land for construction face a significant additional burden compared to companies in general, based on a hypothetical index of contributory capacity that does not necessarily correspond to reality, since the imposition of taxation has no relationship whatsoever to the actual income from the activity undertaken by such companies and burdens them even if they have negative results, with taxation being accentuated, accumulated annually, precisely in situations in which, due to lack of success in the marketing activity, the lands are held for several years and, for this reason, would be less justified to impose an additional tax, exclusive to this type of company.

On the other hand, there is also no apparent reason to distinguish between companies that market land for construction of residential buildings and those that market land for construction of other purposes."

For this reason, also in this perspective set out in case No. 507/2015-T, item 28.1 of TGIS materializes an unjustified negative discrimination of companies engaged in the marketing of land for construction, which implies its unconstitutionality, due to violation of the principle of equality.

This understanding is applicable, also, to real estate investment funds, autonomous patrimonies that manage that patrimony by acquiring, leasing, renovating and selling real properties.

It should further be added that, if we are correct regarding the justifying reasons for not taxing land for construction of properties not intended for housing, the legislature will have incurred some incoherence, for it ceases to protect investment and economic activities, contrary to what, moreover, it also does with respect to Municipal Property Tax, in Article 9(1)(d) and (e) of its respective Code, it established favorable special regimes for companies that build for sale or that acquire for resale – activities similar to those undertaken by real estate investment funds.

This is sufficient, this Tribunal considers, for the success of the Claimant's main claim.

In light of the foregoing, it is concluded that item 28.1 of TGIS, in the wording given by Law No. 83-C/2013 of 31 December, is materially unconstitutional, insofar as it applies to situations in which land for construction belongs to companies engaged in the marketing of land for resale.

Consequently, the assessments that are the subject of the present case (the substitute assessments issued following gracious objections) are tainted by a defect of violation of law, by constituting error as to the legal presuppositions in the application of a materially unconstitutional norm, which justifies their annulment (cf. Article 163(1) of the Code of Administrative Procedure).

As to the request for indemnity interest, the Claimant's request fails.

It is true that, without fault of its own, acts were undertaken which the tribunal now decides to be illegal.

But, for the Administration to be liable for payment of indemnity interest, it is necessary that "(…) it be determined (…) that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due" – Article 43(1) of the General Tax Law.

In this case, AT did nothing more than act according to the legal determination of Article 1 of the Stamp Duty Code and item 28.1 of its General Table.

And it could not act otherwise, given its binding to the law and the impossibility of disapplying it on the basis of a judgment of unconstitutionality of the ordinary law that is not its responsibility to make.

In sum, it did not incur in error from which resulted payment of undue tax, and cannot, absent such error, be liable for payment of indemnity interest.

As to payment of the expenses incurred with the guarantee provided by the Claimant to suspend the tax enforcement proceedings arising from the assessments challenged, the Claimant's claim also fails.

This is because such payment would only be required if the guarantee lasted for more than three years, pursuant to Article 53(1) of the LGT – and that is not the case.

Compensation would only be due in the case of maintenance for less than three years if there existed error attributable to the services in the corresponding assessment, as Article 53(2) of the cited statute provides. Which, as seen, does not occur, given the impossibility in which AT finds itself to disapply the ordinary law on the basis of its unconstitutionality.

C. DECISION

Wherefore, this Arbitral Tribunal decides:

That the exception raised by the Respondent is without merit;
That the request for arbitral pronouncement regarding the request for annulment of the assessments sub judice is with merit.
That the Respondent is ordered to refund to the Claimant the amounts unduly paid by virtue of the annulled assessment acts;
That the requests for the Respondent Tax and Customs Authority to be liable for payment of indemnity interest and compensation for the bank guarantee provided are without merit, absolved of such requests;
That the Respondent is ordered to pay 90% of the costs and the Claimant 10% thereof, given its partial lack of success.

D. Value of the Case

The value of the case is fixed at €545,977.60, (resulting from the sum of the collections for the three properties in question of €68,442.62 (property No....); €12,051.99 (property No....) and €465,482.99 (property No....)) since, with respect to the property registered in the register under No...., the Respondent already proceeded to cancel 51% of the assessments, pursuant to Article 97-A(1)(a) of CPPT, applicable by virtue of Article 29(1)(a) and (b) of RJAT and Article 3(2) of the Arbitration Cost Regulation.

E. Costs

The amount of the arbitration fee is fixed at €8,262.00, pursuant to Articles 12(2) and 22(4) of RJAT, Article 4(4) of the Tax Arbitration Cost Regulation and attached Table I.

Notification shall be made, including to the Public Prosecutor's Office, for the purposes of Article 72(3) of Law No. 28/82 of 15 November".

From this decision, an appeal was filed on 21 March 2018 by the Respondent to the Constitutional Court, admitted on 22 of the same month.

On 17 November 2018 the Constitutional Court rendered Decision No. 552/2018, in case No. 304/17, finding the norm of item 28.1 of TGIS, in the wording of Law No. 83-C/2013 of 31 December, not to be unconstitutional, and consequently granting the appeal, determining the reform of the above-reproduced decision in accordance with the judgment of non-unconstitutionality.

It is therefore necessary to proceed with such reform.

Since the decision rendered by this Arbitral Tribunal, as to the merits of the case, was based on the finding that "(…) the assessments that are the subject of the present case (the substitute assessments issued following gracious objections) are tainted by a defect of violation of law, by constituting error as to the legal presuppositions in the application of a materially unconstitutional norm, which justifies their annulment (cf. Article 163(1) of the Code of Administrative Procedure)", and given that the Constitutional Court found the said norm not to be unconstitutional, the reform of the decision results in rendering a judgment of opposite effect.

The requests for the Respondent Tax and Customs Authority to be liable for payment of indemnity interest and compensation for the expenses incurred with the provision of a guarantee, given that error attributable to the services in the assessments is no longer recognized, from which resulted payment of a tax debt greater than that legally due, necessarily fail.

In these terms, the decision portion of the above-transcribed award is amended as follows:

"Wherefore, this Arbitral Tribunal decides:

That the exception raised by the Respondent is without merit;
That the request for annulment of the assessments sub judice is without merit;
That the requests for the Respondent Tax and Customs Authority to be liable for payment of indemnity interest and compensation for the bank guarantee provided are without merit, absolved of such requests;
That the Claimant is ordered to pay the costs of the case, given its complete lack of success".

Notification shall be made.

Lisbon, 23 November 2018

The Presiding Arbitrator

(José Baeta Queiroz)

The Arbitrator Rapporteur

(Nuno Cunha Rodrigues)

The Arbitrator Rapporteur

(Diogo Feio)

The Arbitrators José Baeta de Queiroz (Presiding Arbitrator), Nuno Cunha Rodrigues and Diogo Feio, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide:

I – REPORT

On 29 July 2016, the Closed Real Estate Investment Fund A..., with tax identification number..., with registered office at ..., ..., ..., ..., in Lisbon, managed and represented by B... – Real Estate Funds Management, S.A., tax identification number..., with registered office at the same address, filed, pursuant to the terms and for the purposes of Article 2(1)(a) and Article 10(1)(a), both of Decree-Law No. 10/2011 of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter RJAT) a request for the constitution of the Arbitral Tribunal and submitted a request for arbitral pronouncement, with a view to the declaration of illegality of the Stamp Duty (IS) assessments relating to the year 2015 and to item 28.1 of the General Table of Stamp Duty (hereinafter TGIS), in the amount of €1,035,497.34.

In its request for arbitral pronouncement, the Claimant raises the following issues:

i) illegality of the assessment relating to land for construction;

ii) violation of the principle of tax equality and proportionality;

iii) compensation for improper guarantee provision and indemnity interest.

The Respondent is the Tax and Customs Authority (AT).

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to AT on 5 September 2016.

The collective arbitral tribunal was constituted on 7 November 2016, in accordance with the provisions of Article 11(1)(c) of RJAT, as amended by Article 228 of Law No. 66-B/2012 of 31 December.

By order dated 8 November 2016 of the Presiding Arbitrator, the parties were notified of the continuation of the case, in accordance with the Claimant's expressed intention.

The Respondent, pursuant to Articles 17(1) and 17(2) of RJAT, submitted its response on 7 December 2016, raising the following issues:

preliminary question regarding the various allocations of property No.... ..., Lisbon;
preliminary question regarding the inability of both the respondent and the tribunal itself to assess the claimant's claim;
as an exception, the material incompetence of the arbitral tribunal;
absence of unconstitutionality of the assessments;
challenge of the documents submitted by the claimant;
lack of merit of the claim for compensation due to improper guarantee;

By order dated 9 December 2016 of the Presiding Arbitrator, the meeting provided for in Article 18 of RJAT was dispensed with, inviting the parties to submit written submissions.

Both parties submitted final written submissions, the tribunal having announced the pronouncement of the decision by 17 March 2016.

II – Preliminary Matters:

Preliminary Questions and Exceptions:

It is now necessary to address the exceptions and preliminary questions raised by the Respondent:

preliminary question regarding the various allocations of property No.... ..., Lisbon;
preliminary question regarding the inability of both the respondent and the tribunal itself to assess the claimant's claim; and
material incompetence of the arbitral tribunal.

However, it should be noted that what the Claimant intends – being such its request – is rather to review the legality of the assessment, not to call into question the said valuation.

Now, in accordance with Article 2(1) of RJAT, the jurisdiction of arbitral tribunals comprises the "illegality of acts of assessment of taxes".

Acts are illegal if they apply norms inconsistent with fundamental law, which is clear from Article 266(2) of the Constitution of the Portuguese Republic (CRP).

Which demonstrates the tribunal's competence.

The Respondent thus understands that the taxable matter is €46,795,133.77, with the tax collection being €467,951.34 (cf. document 1 attached with the Respondent's response).

The request should therefore be reduced to €545,977.60, which shall be so determined in the final decision.

III - Factual Matters

Proven Facts

The Claimant is a Real Estate Investment Fund whose objective is the development of a real estate project that includes the promotion of a subdivision project and construction of properties intended for commerce, housing, logistics and services, with subsequent sale to the general public (Article 1 of the request for arbitral pronouncement).
The Claimant is the owner of three urban properties registered in the property register of the parish of ..., municipality and district of Lisbon, under property register numbers..., ... and ... (Article 2 of the request and documents 1, 2 and 3 attached thereto).
The urban properties aforementioned are registered in their respective registers as land for construction (Article 3 of the request and documents 1, 2 and 3 attached thereto).
The taxable patrimonial values (TPV) of the said properties..., ... and ..., calculated for purposes of the Municipal Property Tax Code (CIMI), are €6,844,261.62, €1,205,199.23 (determined in 2013) and €95,500,273.00 (determined in 2014), respectively, with the respective tax collections being €68,442.62, €12,051.99 and €955,002.73 (Articles 4 and 7 of the request and documents 1, 2 and 3 attached thereto).
In April 2016, the Claimant was notified of the Stamp Duty assessments relating to the year 2015, pursuant to item 28.1 of the General Table of Stamp Duty (TGIS), with respect to the three properties identified above in 2), with the total collection amount being €1,035,497.34, as well as to proceed with payment of the 1st installment, as per collection documents Nos. 2016... (amount: €22,814.22), 2016... (amount: €4,017.33) and 2016... (€318,334.25), thus the total amount of the 1st installment being €345,165.80 (Article 5 of the request and documents 4, 5 and 6 attached thereto).
In June 2016, the Claimant was notified again, this time for payment of the 2nd installment of the said Stamp Duty assessments, as results from collection documents Nos. 2016... (amount: €22,814.20), 2016... (amount: €4,017.33) and 2016... (amount: €318,334.24), thus the total amount of the 2nd installment being €345,165.77 (Article 6 of the request and documents 7, 8 and 9 attached thereto).
On 11 May 2016, the Claimant paid in full the 1st installment of Stamp Duty with respect to properties with property register numbers... and ... (Article 8 of the request and document 10 attached thereto).
On 11 May 2016, the Claimant paid the amount of €157,314.49 (Article 9 of the request and document 11 attached thereto).
A bank guarantee No.... was provided on 2 June 2016, on account of C..., in the amount of €206,407.69 for suspension of the tax enforcement procedure No. ...2016..., instituted for recovery of the amounts assessed and not paid (Article 10 of the request and document 12 attached thereto).
The land for construction – subject of the assessments sub judice – are all covered by the Master Plan for Artilharia Um (Master Plan) and its respective Regulation for the Master Plan for Artilharia Um (Master Plan Regulation), approved by the Municipal Assembly of Lisbon on 1 June 2004 and ratified by Council of Ministers Resolution No. 69/2005 of 20 January (Article 12 of the request and document 13 attached thereto).
The land for construction corresponds to "Sub-area R – reconversion", provided for in Article 8 of the Master Plan Regulation and to the area identified with the letter "R" in the implantation drawings contained in the said Master Plan Regulation (Article 13 of the request and document 13 attached thereto).
With respect to the property registered in the register under No.... the Respondent proceeded to cancel 51% of the assessments of item 28 of Stamp Duty challenged by reference to such property, with the taxable patrimonial value then becoming €46,795,133.77 (Articles 3 and 4 of the Respondent's response and document 1 attached thereto).
In this manner, the assessment was calculated at 1% of that patrimonial value, that is, €46,795,133.77 (Article 4 of the Respondent's response and document 1 attached thereto).