Stamp Tax on Land for Construction Under Verba 28.1 TGIS – CAAD Arbitration 477/2016-T

ARBITRAL DECISION

I. REPORT

A…, S.A., a legal person bearing taxpayer number…, with registered address at Rua …, n.º…, …, …, …-… Lisbon, filed on 29/07/2016 a request for constitution of a sole arbitrator tribunal, (hereinafter referred to as the initial request or abbreviated as I.R.) in accordance with the provisions of article 2.º, n.º 1, subparagraph a) of Decree-Law n.º 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as LRAT), in which the Tax and Customs Authority is the Respondent (hereinafter referred to as Respondent).

The Claimant requests the declaration of illegality and unconstitutionality and annulment of the Stamp Tax assessment act n.º 2016…, with reference to the year 2015, through the application of item 28.1 of the General Table of Stamp Tax (hereinafter, GTST), which was levied on urban real property registered in the urban property register under article number U-… of the Municipality of …, in the county of ..., in the total amount of € 55,755.50.

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAC on 05/09/2016 and automatically notified to the Tax and Customs Authority.

In accordance with the provisions of subparagraph a) of n.º 2 of article 6.º and subparagraph b) of n.º 1 of article 11.º of the LRAT, the Ethics Council appointed the undersigned as arbitrator of the sole arbitrator tribunal, who communicated acceptance of the office within the applicable time limit.

On 19/10/2016 both Parties were duly notified of this appointment, and neither expressed any intention to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11.º n.º 1, subparagraphs a) and b) of the LRAT and articles 6.º and 7.º of the Code of Ethics.

In accordance with the provisions of subparagraph c) of n.º 1 of article 11.º of the LRAT, the sole arbitrator tribunal was constituted on 04/11/2016.

By order of 11/11/2016, the Director-General of the Tax and Customs Authority was notified to attach the administrative file, submit a reply and request production of additional evidence.

On 23/11/2016 the Claimant requested the attachment to the proceedings of proof of payment of the third installment of the disputed assessment act.

The Respondent submitted its reply on 16/12/2016 and attached the Valuation Process for the property subject to the tax assessment in question to the proceedings, and requested exemption from sending the Administrative Tax Process (hereinafter ATP) and from holding the meeting referred to in article 18.º of the LRAT.

On 28/12/2016, the Respondent requested the attachment to the proceedings of judgment n.º 692/2016, delivered by the Constitutional Court on 14/12/2016, in the context of constitutional appeal proceedings n.º 346/16, originating from the decision of CAAC delivered in case n.º 527/2015-T, with which the now Claimant did not concur and the factual and legal situation of which is in all respects identical to that of the present proceedings.

On 17/04/2017 the Claimant opposed the request submitted by the Respondent on 16/12/2016 for exemption from attaching the ATP, requested exemption from holding the meeting referred to in article 18.º of the LRAT and that it be afforded the opportunity to make submissions in response to the content of the reply and documentation attached by the Respondent. It further requested the continuation of the proceedings and the setting of a date for delivery of the arbitral decision.

By order of 27/04/2017 both parties were notified of the exemption from the meeting referred to in article 18.º, n.º 1 of the LRAT, as no exceptions were raised, and of the extension of the time limit for delivery of the arbitral decision by two months, in accordance with the provisions of article 21.º, n.º 2 of the LRAT. They were also notified for successive submissions.

The Claimant submitted submissions on 22/05/2017 and the Respondent on 08/06/2017.

The following is a summary of the submissions of the Claimant:

The Claimant contends that the assessment acts and the respective payment notices are illegal due to violation of item 28.1 of the General Table of Stamp Tax (GTST), as reworded by Law n.º 83-C/2013, of 31/12, due to error as to the material and legal presuppositions, requesting their annulment by the Arbitral Tribunal.

It contends that the Tax Authority makes an erroneous interpretation of the concept of "land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Property Tax Code" and that the taxable event does not apply solely by virtue of the fact that the properties are registered in the property register as land for construction, also requiring municipal licensing which establishes the "residential" purpose for the said property. The Claimant also relies on the civil law concept of urban property to support its position.

The Claimant cites various judgments of the Central Administrative Court, the Supreme Administrative Court and CAAC to support its position, albeit relating to situations involving taxation for fiscal years prior to the entry into force of Law n.º 83-C/2013 of 31/12.

It further contends that the provision contained in article 194.º of the State Budget Law for 2014 (Law n.º 83-C/2013 of 31/12), which establishes that Stamp Tax is levied on residential property or land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Property Tax Code (cf. item 28.1 of the GTST) is unconstitutional as it violates the principle of the democratic State governed by law in the aspect of the sub-principle of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactive application of tax law, specifically articles 2.º, 13.º and 103.º of the Constitution of the Portuguese Republic.

It further considers that the assessment acts are illegal as they suffer from lack of grounds and lack of prior hearing.

It concludes by requesting indemnification interest, considering that the disputed assessment acts suffer from manifest errors by the authorities.

In summary, the Respondent contends, as to the grounds upon which the Claimant bases its request for arbitral annulment, that the assessments in question were issued in accordance with the information contained in the property record and which was not challenged by the Claimant (land for construction) and result from direct application of the legal norm which is clear.

It contends that following the entry into force of the wording of item 28.1 introduced by Law 83-C/2013, of 31/12 it became clear that the item applies to land for construction: a) for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for subdivision or construction operations; b) and also for those so declared in the acquisition title.

It further contends that, given the assessment is correct, no indemnification interest is owed.

Specifically regarding the violation of the constitutional principles invoked by the Claimant, the Respondent cites various judgments of the Constitutional Court that have not found unconstitutional the provision of item 28.1 of the GTST, as reworded by Law 83-C/2013 of 31/12 (Judgments n.ºs 590/2015, 692/2015, 620/2015 and 568/2016) as well as the arbitral decision delivered in case n.º 527/2015-T, on 11/04/2016, in which the now Respondent was the Claimant, the disputed situation, the grounds and the claim being in all respects identical.

The Respondent further cited judgments of the Constitutional Court delivered in cases in which the now Respondent was the appellant and in which the appeals presented by it were dismissed (cf. Summary Decision n.º 677/2016 of 26/10/2016 delivered in case n.º 346/16, originating from the decision of CAAC delivered in case n.º 527/2015-T and Judgment n.º 692/2016, delivered on 14/12/2016).

The Respondent cited various sole and collective arbitral decisions delivered in cases with an object identical to that of the present proceedings and which also concluded that the provision contained in item 28.1 of the GTST is not unconstitutional (arbitral decisions delivered in cases n.º 517/2015-T, n.º 515/2015-T, n.º 495/2015-T).

As to the invoked lack of grounds, the Respondent contends that the assessment acts and respective payment notices are grounded, as compliance was given to the provisions of article 77.º of the GTL, since in the case of mass acts the grounds must be adequate, and the same formal rigor should not be required as is required for other administrative acts. It concludes that given the request for arbitral pronouncement submitted by the Claimant it is manifest that the burden of grounds was met.

With respect to the lack of prior hearing, the Respondent contends that in the case at hand the TA was exempted from notifying the Claimant to exercise the right to prior hearing provided for in article 60.º, n.º 2 of the GTL.

It concludes by arguing for the rejection of the request for arbitral pronouncement and the request for payment of indemnification interest, considering that there was no error attributable to the authorities, since the assessment acts were issued pursuant to the application of the law to the taxable event.

II. SANATION

The request for constitution of the Arbitral Tribunal was filed in a timely manner (cf. article 10.º, n.º 1, subparagraph a) of the LRAT).

The Arbitral Tribunal was regularly constituted and is competent (cf. article 2.º, n.º 1, subparagraph a) of the LRAT combined with article 10.º, n.º 1, subparagraph a) of the same instrument).

The parties have legal personality and capacity and are legitimately constituted and the joinder of claims is admissible (cf. articles 4.º and 10.º, n.º 2, of the LRAT and article 1.º of Order n.º 112-A/2011, of 22 March).

The value of the claim is fixed at 55,755.50 as indicated by the Claimant, in accordance with the provisions of articles 3.º, n.º 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCTAP), 97.º-A, n.º 1, subparagraph a) of the Tax Procedural Code and 306.º, n.º 2 of the Civil Procedure Code (CPC).

The merits of the claims must be assessed.

III. GROUNDS

A. Established Facts

There is no disputed factual matter alleged and the following essential facts for the judgment of the case are specifically established:

1.) The Claimant has as its purpose the acquisition, promotion or exploitation of real estate projects, including in particular the development, execution and commercialization of real estate and/or tourism projects, rehabilitation, construction or reconstruction, subdivisions and urbanizations, the acquisition of properties, their leasing, onerous exploitation in other forms, their development, the leasing of properties or the buying and selling of properties, as well as the resale of those acquired for that purpose.

2.) The Claimant has as its activity the exploitation of some built properties and the promotion of future development of a property it holds in "…", municipality of…, in the county of ....

3.) For that property the Claimant submitted, on 20/09/2013, the Model 1 Real Property Tax form with registration number…, proceeding to attach various urban articles – land for construction – of which it was the owner on the site, with 36,646 m2 (Document n.º 2 of the I.R.).

4.) The Claimant was the owner as of 31/12/2015 of the urban property – land for construction – subject to the assessment act now in question, located in the municipality of…, county of ..., registered in the urban property register under article U-…, with the current Taxable Real Estate Value of € 5,575,550.00 (Document n.º 2 of the I.R.).

5.) The Claimant's land for construction, now in question, has the allocation, authorized or planned, for residential purposes (Document n.º 3 of the I.R. and valuation process attached to the Respondent's reply).

6.) The property to which the urban property article in question refers, owned by the Claimant, was not built or under construction as of 31/12/2015.

7.) The property in which the said article is located forms a continuous perimeter, situated in the southern zone of …, corresponding to the so-called "Lot AL8" of the Urbanization Plan of … (…), approved by Resolution of the Council of Ministers n.º 160/2003 (Official Journal, I-S-B, n.º 233, of 8/10/2003), as amended to date.

8.) The Claimant's property is also covered by the Municipal Master Plan of ... (version amended for compatibility with PROTAL, - notice 5374/2008, Official Journal, II-S, n.º 41, of 27/2/2008, page 7929).

9.) The Claimant's property is also covered by PROTAL, approved by Resolution of the Council of Ministers (RCM) 102/2007, of 24/5, published in the Official Journal, n.º 149, of 3 August 2007.

10.) And also by POOC – Coastal Management Plan Vilamoura/Vila Real de Sto António, approved by Resolution of the Council of Ministers 103/2005, published in the Official Journal, I-Series B, n.º 121, of 27 June 2005.

11.) The Claimant was notified of the Stamp Tax assessment acts for the tax year 2015 for the property in question, which determined an amount payable of €55,755.50 in three installments (Documents n.º 4 and 5 of the I.R. and Document attached to the request of 23/11/2016 of the Claimant).

12.) The Claimant was not notified prior to assessment to exercise the right of prior hearing provided for in article 60.º of the GTL.

13.) The Claimant paid the 1st, 2nd and 3rd installments of the disputed assessment, respectively the payment notices 2016 …, 2016 … and 2016…, on 26/04/2016, 19/07/2016 and 22/01/2016, in the amount of €18,585.18, €18,585.16 and € 18,585.16, in a total of €55,755.50 (Documents n.º 4 and 5 of the I.R. and Document attached to the request of 23/11/2016 of the Claimant).

B. Essential Unestablished Facts

There are no facts, whether alleged or known ex officio, that are relevant to the decision and have not been established.

C. Grounds for Decision

For the conviction of the Arbitral Tribunal regarding the established facts, the documentary evidence referred to above in the various points was determinative and, in general, all other documents attached to the proceedings, all analyzed critically and in conjunction with the statements where the absence of controversy regarding the alleged facts is evident.

D. Law

Questions to be decided:

In summary, and if we understand correctly, the following are the questions to be assessed and decided:

1. Do the disputed acts suffer from illegality due to lack of grounds?

2. Did the Tax Authority violate the right to prior hearing by issuing the disputed assessment acts without first notifying the Claimant to exercise said right?

3. Is item 28.1 of the GTST, insofar as it subjects to Stamp Tax "land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Property Tax Code – 1%" applicable to the Claimant's property?

4. Is item 28.1 of the GTST, insofar as it subjects to Stamp Tax "land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Property Tax Code – 1%" unconstitutional as it violates the principle of the democratic State governed by law in the aspect of the sub-principle of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactive application of tax law?

Analysis:

1) Do the disputed acts suffer from illegality due to lack of grounds?

The legal requirement for grounds of administrative acts in tax matters is provided for in n.º 1 of article 77.º of the GTL which provides that "the procedural decision is always grounded by means of a succinct statement of the material and legal reasons that motivated it, and the grounds may consist in mere declaration of agreement with the grounds of previous opinions, information or proposals, including those forming part of the tax audit report", establishing in n.º 2 of the said provision that "the grounds of tax acts may be provided in summary form, and must always contain the applicable legal provisions, the classification and quantification of the tax facts and the operations for determining the taxable matter and the tax."

Having examined the assessment acts in question in the present proceedings, we find that they contain information on the tax (Stamp Tax), the period to which the tax relates (2015), the taxable event provision (item 28.1 of the GTST), identification of the property (municipality, municipality and property article), identification of the taxpayer, taxable real estate value, applicable rate, tax collected and indication of remedies available.

Now, this Tribunal considers that for the type of acts in question in the present proceedings, considered by both doctrine and case law as mass acts, the grounds presented by the TA are adequate to the complexity thereof, fulfilling the objectives of the tax legislator. The Supreme Administrative Court has already decided in this sense in a case in which the lack of grounds of a Corporate Income Tax assessment act was discussed, having concluded in summary that "II - Corporate Income Tax assessment, because it is done hundreds of thousands of times each year, constitutes 'a mass act' and, because it is so, everything suggests that such acts should not be subjected to the same formal rigor required for other administrative acts designed for specific individualized situations.

III - In this way, and provided that there is clear identification of the entity that performed the act and that the manner in which such performance occurs does not result in any diminution of guarantees for the taxpayer, it should be concluded that it is legal."

Indeed, in light of the ratio of the norm, which is to enable the citizen (recipient of the act) the possibility of forming a judgment that allows him to decide whether to accept the act or challenge it, this Tribunal considers that the acts in question herein comply with such objective, since a normal recipient (the reasonable person), confronted with said acts, is in possession of the material and legal reasons that determined the TA to issue them, and thus his right to challenge the acts administratively or judicially is assured, should he so wish.

Moreover, the request for arbitral pronouncement submitted by the Claimant demonstrates that it understood the cognitive and evaluative process followed by the TA in issuing the disputed acts, and therefore, following the case law cited by the Respondent (cf. Judgment of the SAC delivered in case n.º 0105/12, of 30/01/2013) "The formal defect of lack of grounds does not occur if the very party challenging expressly reveals that it has perfectly understood the logical and legal process that led to the decision to tax, acknowledging that it has perceived the presuppositions concretely taken into account by the author of the act and the reasons why the taxed values were reached, exposing the cognitive and evaluative process followed, not even invoking such defect."

Accordingly, it is concluded that the request for declaration of illegality due to the defect of lack of grounds alleged by the Claimant regarding the disputed acts is rejected.

2) Did the Tax Authority violate the right to prior hearing by issuing the disputed assessment acts without first notifying the Claimant to exercise said right?

As to this defect, the Claimant refers only, in article 106.º of its I.R. that "The disputed assessments further suffer from lack of prior hearing of the claimant at a moment prior to their performance, which determines their illegality (art.º 60.º/1/a) of the GTL)."

Although without elaborating on the material and legal reasons for which it considers that the disputed acts suffer from this defect, since the same has been raised, it must be assessed by the Tribunal.

The constitutionally enshrined principle (cf. Article 267.º, n.º 5 of the CRP) of participation of citizens in the formation of administrative decisions affecting them is, in tax matters, provided for in article 60.º of the GTL, establishing in its n.º 1, subparagraph a) the right of the taxpayer to exercise prior hearing before tax assessment.

The Respondent contends that n.º 2 of the said provision exempts the said hearing in two situations - "a) In the case where the assessment is based on the declaration of the taxpayer or the decision on the claim, complaint, appeal or petition is favorable to him; "b) In the case where the assessment is made ex officio, based on objective values provided for by law, provided that the taxpayer has been notified to submit the missing declaration, without having done so." - which apply to the assessment acts subject of the present proceedings.

To that end it refers to an Arbitral decision and adopts an interpretation which this Tribunal considers to have no adherence to the text, nor to the ratio, nor to the spirit of the system in which the provision is integrated, as follows.

Indeed, the Tribunal considers that the submission of a Model 1 Real Property Tax declaration for registration of the property in the property register and its valuation cannot be considered as a declaration submitted by the taxpayer for purposes of taxation under Stamp Tax in accordance with item 28.1 of the GTST, capable of bringing the situation of the present proceedings within subparagraph a) of n.º 2 of article 60.º.

Furthermore, subparagraph b) is also not applicable to the case at hand, as the Claimant was not notified to submit any missing declaration, and thus one of the presuppositions on which the provision rests is not met.

In these terms, the TA was obliged to notify the Claimant to exercise the right to prior hearing, which in accordance with the provisions of articles 133.º and 135.º of the Code of Administrative Procedure, combined and applicable by virtue of the referrals made by article 2.º, subparagraph d) of the Tax Procedural Code and 29.º, n.º 1, subparagraph d) of the LRAT, would determine the annulment of the disputed acts.

However, in light of the principle of conservation of acts, this Tribunal considers that the omission of the duty to hear, in the case of the present proceedings, degrades to a non-essential formality, not determining the annulment of the acts.

As stated by Diogo Leite de Campos, Benjamim Rodrigues and Jorge Lopes de Sousa, in annotation to article 60.º of the GTL and as case law of judicial and arbitral courts has held, "the omission of hearing will not always lead to annulment, in particular not justifying it in cases where it is found in contentious proceedings that, had it been carried out, the interested party would not have had the possibility of presenting new elements nor failed to make representations on matters relevant to determining the content of the final decision, or ended up having the opportunity to make representations, in a second-stage procedure, on matters on which hearing was improperly omitted in the first-stage procedure".

Now, as results from the evidence, there is no disputed factuality, nor is any error invoked by the Claimant regarding the calculation of the Tax or regarding the basis for the same (the Taxable Real Estate Value), with only legal matters being in dispute, which even had they been raised in prior hearing would not be capable of altering the sense of the decision.

In this sense of conservation of acts in a situation identical to that of the present proceedings, in which the lack of prior hearing before Stamp Tax assessment was discussed in accordance with item 28.1 of the GTST, an arbitral decision was delivered in case n.º 320/2014-T, with which the Tribunal agrees and to whose grounds it refers.

Because the principle of participation has constitutional consecration, it is further important to note that the Constitutional Court, in judgment 594/2008, of 10/12/2008 did not find unconstitutional the interpretation of articles 100.º and 133.º, n.º 1 of the CAP, in the sense that prior hearing is not an essential element of the administrative act, and its absence does not give rise to the nullity of this act.

Thus, because in the case at hand the Tribunal has no doubt about the irrelevance of the right of hearing on the decisory content of the disputed Stamp Tax assessment acts, it concludes that the omission of this formality is not essential, and therefore does not determine the annulment of the acts.

In these terms, the request for annulment due to omission of essential legal formality submitted by the Claimant is rejected.

3) Is item 28.1 of the GTST, insofar as it subjects to Stamp Tax "land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Property Tax Code – 1%" applicable to the Claimant's property?

The Claimant contends that the assessment acts and the respective payment notices are illegal due to violation of item 28.1 of the GTST, as reworded by Law n.º 83-C/2013, of 31/12, due to error as to the material and legal presuppositions, arguing that the Tax Authority made an erroneous interpretation of the concept of "land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Property Tax Code" and that the taxable event provision does not apply solely by virtue of the fact that the properties are registered in the property register as land for construction, also requiring municipal licensing that establishes the "residential" purpose for the said property.

The Claimant cites various judgments of the Central Administrative Court, the Supreme Administrative Court and CAAC to support its position, albeit relating to situations involving taxation for fiscal years prior to the entry into force of Law n.º 83-C/2013 of 31/12, which, as we shall see, removes any similarity to the factual situations subject to analysis. Indeed, all the case law cited was produced as regards taxable events prior to 2014, when the taxable event provision limited the liability to "properties with residential allocation."

Now, the legislative amendment made by article 194.º of Law n.º 83-C/2013, of 31/12, the scope of the taxable event of item 28.1 of the General Table of Stamp Tax was broadened, now encompassing land for construction whose building, authorized or planned, is for residential purposes.

In accordance with the interpretation rules contained in article 11.º of the GTL, we must resort to the concept of "land for construction" contained in the Real Property Tax Code (RPTC). The RPTC defines land for construction as land situated, within or outside an urban settlement, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for subdivision or construction operations, and also land so declared in the acquisition title, with the exception of land where the competent authorities prohibit any of such operations, in particular land located in green areas, protected areas or which, in accordance with municipal master plans, are allocated to spaces, infrastructure or public facilities (cf. article 6.º, n.º 3).

It follows, in turn, from articles 45.º of the RPTC, combined with article 40.º-A of the same instrument that the allocation of the land for construction is relevant for purposes of calculating the Taxable Real Estate Value of that land. Thus, it is as a function of the allocation, authorized or planned, that the value of the building footprint area is defined (cf. article 45.º, n.º 2 of the Real Property Tax Code), which varies between 15% and 45% of the value of authorized or planned buildings.

From the above, we must conclude, as in the arbitral decision in case n.º 527/2015-T, that «the fact that in determining the taxable real estate value of land for construction the allocation is taken into account for determining the respective value of the building footprint area (cf. article 45.º, n.º 1 and 2 of the RPTC) leads to the delimitation of the taxable event provision provided in item 28.1 of the General Table of Stamp Tax, not only as a function of the type of urban property in question (land for construction) but also as a function of its allocation: residential (article 40.º-A, n.º 1 of the Real Property Tax Code), commerce or services (article 40.º-A, n.º 2 of the Real Property Tax Code), industry (article 40.º-A, n.º 3 of the Real Property Tax Code) or parking (article 40.º-A, n.º 4 of the Real Property Tax Code), by reference to article 40.º-A, n.º 5 and article 45.º of the Real Property Tax Code»» and thus the expression "land for construction whose building, authorized or planned, is for residential purposes" should be interpreted in the sense of encompassing land for construction whose allocation, authorized or planned, is for residential purposes.

Let us see. In accordance with the provisions of n.º 1 of article 45.º of the RPTC "the taxable real estate value of land for construction is the sum of the value of the building footprint area, which is that situated within the perimeter of fixation of the building to the land, measured by the exterior part, added to the value of the land adjacent to the footprint" and with n.º 2 of the same provision, the value of the building footprint area "varies between 15% and 45% of the value of authorized or planned buildings". Now, both in the calculation of the value of the footprint area and in the calculation of the value of the adjacent area, the allocation coefficient provided for in article 41.º of the Real Property Tax Code is used as a parameter.

Now, in the specific case, since the Claimant's property is land for construction whose allocation, authorized or planned, is for residential purposes, it falls within the scope of the taxable event provision provided in item 28.1 of the General Table of Stamp Tax, being applicable to the property of which the Claimant is the owner.

In these terms, this Tribunal considers that land for construction whose allocation, authorized or planned, is for residential purposes and which have taxable real estate value equal to or greater than € 1,000,000, as is the land for construction now in question, are covered by the taxable event provision contained in item 28.1 of the GTST, in the wording given by Law n.º 83-C/2013, of 31/12, and therefore the Claimant's allegation in this part is rejected.

4) Is item 28.1 of the GTST, insofar as it subjects to Stamp Tax "land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Real Property Tax Code – 1%" unconstitutional as it violates the principle of the democratic State governed by law in the aspect of the sub-principle of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactive application of tax law?

The Claimant contends that the taxable event provision is unconstitutional as it violates the principle of the democratic State governed by law in the aspect of the sub-principle of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactive application of tax law. Let us see if it has a point.

There are already numerous Constitutional Court decisions on the constitutionality questions raised by the Claimant, and there are also arbitral decisions on this matter.

But beyond case law in cases similar to that of the Claimant, decisions were delivered by the Arbitral Tribunal and by the Constitutional Court on the same situation which this Tribunal is now called upon to pronounce on, regarding the same Claimant, the same property, the same tax, with only the year to which the Stamp Tax relates being different, with the decisions referred to above relating to fiscal year 2014 and what is now being assessed is fiscal year 2015. These are, therefore, decisions delivered under the same legislation. As to the legal grounds invoked by the Claimant, they are also identical.

Thus, in observance of the principle of procedural economy, the Tribunal refers to the arbitral decision delivered in case n.º 527/2015-T, of 11/04/2016, to Summary Decision n.º 677/2016 of the Constitutional Court and to Judgment n.º 692/2016, delivered by the Constitutional Court, of 14/12/2016, which confirmed that it does not consider item 28.1 of the GTST unconstitutional, as reworded by Law n.º 83-C/2013, of 31/12, to the grounds of which it refers in full, transcribing only the arbitral decision as it considers it to contain the analysis of all the grounds invoked by the Claimant regarding the alleged unconstitutionality:

"Regarding the principle of legitimate expectations, the Claimant contends, relying on case law of the Constitutional Court (cf. Judgment n.º 128/2009) – that the same requires the verification of cumulative requirements, namely: "(i) first, that the State (in particular the legislature) has undertaken behavior capable of generating in private parties 'expectations' of continuity; (ii) then, such expectations must be legitimate, justified and based on good reasons; (iii) third, private parties must have made life plans taking into account the prospect of continuity of the 'behavior' of the State; (iv) lastly, it is further necessary that there are no reasons of public interest that justify, in balancing, the non-continuity of the behavior that gave rise to the situation of expectations".

The principle of protection of legitimate expectations, deriving from the principle of the democratic State governed by law contained in article 2.º of the Constitution, postulates "an idea of protection of the trust of citizens and the community in the legal order and the conduct of the State, which implies a minimum of certainty and legal security in the rights of persons and in expectations legally created and, consequently, the trust of citizens and the community in legal protection (Judgment n.º 237/98 of the Constitutional Court).

As has been stated by the Constitutional Court, such principle does not preclude the freedom of the democratically legitimated legislator to shape the law and the principle of self-reversibility of laws (Judgments n.ºs 287/90, 128/09 and 564/12 of the Constitutional Court).

To this effect, the Appellant contends that business taxpayers, such as the challenger, whose revenues derive from the exploitation of properties ('rents') linked to contracts in execution, made their plans and could not reasonably expect the introduction of a new tax event in the calendar year and fiscal year 2014.

However, this position does not merit acceptance.

On the one hand, there is no reason to assert that the State, through the Tax Administration, has allowed the creation of an expectation that land for construction, whose building, planned or authorized, is for residential purposes would remain outside the scope of the taxable event of item 28.1 of the General Table of Stamp Tax. Moreover, the legislative evolution brought about by the introduction of item 28.1 in 2012 at the rate of 1% for properties allocated to residential use and the interpretation that the Tax Administration had been making of that provision, asserting that it applied to land for construction (an interpretation rejected by the Courts) points even in the opposite direction. It would be expected that the legislator would extend the scope of the taxable event provision to land for construction whose building, authorized or planned, is for residential purposes, as had been the Tax Administration's interpretation.

On the other hand, there is no basis in the subjective factual context alleged by the Claimant to consider that it modeled its activity and investment on the assumption that land for construction would remain outside the scope of item 28.1 of the General Table of Stamp Tax.

Finally, it must be pointed out that – as referred to in the various judgments of the Constitutional Court - the provision in question forms part of a set of measures all guided to supplementary obtaining of tax revenue and, in general to counteract budgetary imbalance. Thus, invoking the principles of social equity and tax justice (cf. Judgment n.º 590/2015).

Regarding the question of whether item 28.1 of the General Table of Stamp Tax, as reworded by Law n.º 83-C/2013, of 31 December is unconstitutional due to violation of the principle of proportionality, as well as the principle of equality and prohibition of retroactive application of tax law (articles 2.º, 13.º and 103.º of the CRP).

It must first be emphasized that part of the question raised by the Claimant has already been assessed in several cases, both within the scope of Tax Arbitration (cf. decision delivered in case n.º 505/105-T, among others), as well as taking into account the Judgment of the Constitutional Court n.º 590/15, of 11 November 2015 which already pronounced on the unconstitutionality of item 28.1 of the General Table of Stamp Tax, added by Law n.º 55-A/2012, of 29 October, subsequently amended by Law n.º 83-C/2013, of 31 December.

On this matter, the Claimant contends that the provision in question merits constitutional censure due to violation of the principle of equality whenever 'taxpayers (addressees of the provisions) who are in identical material situations are treated in clearly different ways, the difference not being measured or assessed by their actual tax capacity, or whenever the provisions are based on indices of tax capacity or arbitrary solutions devoid of any perceptible rational foundation (prohibition of arbitrariness)'.

From the perspective of the Appellant, this would result, among others, from the following situations:

· "how to reconcile the tax capacity of taxpayers (TP), with the Taxable Real Estate Value of a property individually considered, vs. the sum of the Taxable Real Estate Values of the different properties of the same TP, which may exceed the said € 1M mark; or further, (iii) the rational and/or perceptible foundation of the reason why properties (built or not) allocated currently or potentially to a certain purpose (residential) would be considered, vs. the exclusion of taxation of the same types of properties, allocated to other purposes (e.g. offices, warehouses, industry, public or private facilities)."

· "what is the reason for discrimination or establishment of liability on properties 'allocated to residential use' (built or not), versus the exclusion of taxation of the same type of urban properties - urban - when these have tertiary, commercial, equipment, industry, or other purposes."

· "it is not seen how to justify positive discrimination through non-subjection of taxpayers holding the relevant right over urban properties with 'with allocation' not 'non-residential' mentioned above which does not lead to an intolerable inequity, or does not reveal that, in fact, we are facing an unjust, irrational and arbitrary provision".

· "it is not seen what the reason or foundation is or by what means the constitutional assessment judgment shall pass to the taxation under this item 28.1 of a small construction company, which by mere chance had in its assets only a single plot of land designated by the subdivision permit for construction of an exclusively residential building, versus the same company that, by mere chance, had its assets composed only of a plot for construction of a shopping center";

· "if the same small construction company would be taxed in this capacity, which by mere chance had in its assets only a single plot of land designated by the subdivision permit for construction of an exclusively residential building, versus a large real estate promoter, or a real estate investment fund, which is not taxed, despite only holding in its assets the plot of land designated for construction of the largest shopping center in Portugal? Or the largest 'tower' of offices in Portugal? Or the plot designated for construction of the hotel (private facility) of greatest luxury in Portugal? Or a plot designated for construction of a football stadium? or of a golf course?"

The principle of tax equality as a corollary of the principle of equality inherent in article 13.º of the Constitution can be translated in the idea that one must treat "in the same way what is equal and in a different way what is different", with its implications in tax matters being found in articles 103.º and 104.º of the Constitution (cf. Judgment n.º 620/2015).

Regarding the principle of tax capacity, the Constitutional Court has held the following (Judgments n.ºs 601/04, 542/03, 84/03, among others): "The principle of tax capacity expresses and concretizes the principle of tax or fiscal equality in its aspect of 'uniformity' – the duty of all to pay taxes according to the same criterion – with tax capacity filling the unitary criterion for taxation.", understanding this criterion as being one in which «the incidence and distribution of taxes - 'tax taxes' more precisely - should be made according to the economic capacity or 'ability to spend' (-) of each and not according to what each one might eventually receive in goods or public services (benefit criterion)».

The recognition of the principle of tax capacity as a criterion aimed at assessing the constitutional inadmissibility of a certain or certain solutions adopted by the tax legislator has also led to the idea, expressed for example in Judgment of the Constitutional Court n.º 348/97, that taxation in accordance with the principle of tax capacity will imply «the existence and maintenance of an effective connection between the tax payment and the economic presupposition selected as the object of the tax, requiring, for this reason, a minimum of logical coherence among the various concrete cases of tax provided for in the law with the corresponding object of the same».

On the other hand, the Court has also considered that the principle of tax capacity must be reconciled with other principles with constitutional dignity, such as the principle of the Social State, the freedom of the legislator to shape the law, and certain requirements of practicability and cognoscibility of the tax event, also indispensable for the fulfillment of the objectives of the tax system (cf. Judgment n.º 142/04).

The Constitutional Court has therefore been moving away from a merely negative control of tax equality, adopting the principle of tax capacity as an appropriate criterion for the distribution of taxes; but it does not cease to accept the prohibition of arbitrariness as an adjuvant element in verifying the constitutional validity of normative tax solutions, particularly when these are dictated by considerations of legislative policy related to the rationalization of the system.

In sum, the principle of tax equality can be concretized through different aspects: a first, lies 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 who find themselves in equal situations and differently those who find themselves in different situations, to the extent of the difference, to be assessed by tax capacity; a last, lies in the prohibition of arbitrariness, in preventing the introduction of discriminations between taxpayers that are devoid of rational foundation.

The taxation of the ownership of residential urban properties and, more recently, of land for construction whose building, authorized or planned, is for residential purposes, of Taxable Real Estate Value equal to or greater than € 1,000,000.00 "as a fiscal measure aimed at affecting more intensely the holders of real estate rights over urban properties of residential vocation and of highest value, within the reach only of those with high economic power", reveals an unequivocal tax capacity, as it relates to properties of value considerably higher than that of the generality of urban properties with residential allocation, even if potential, "capable of founding the imposition of increased contribution for the remedying of public accounts to their holders, in realization of the said 'principle of social equity in austerity'" – (Judgment of the Constitutional Court n.º 590/2015, of 11 November).

On the other hand, as appears from the grounds of the same Judgment of the Constitutional Court n.º 590/2015, which follows here, the fact that Stamp Tax of item 28.1 of the GTST is levied on the ownership concentrated in a property of Taxable Real Estate Value equal to or greater than € 1,000,000.00, ceasing to tax assets of value sometimes much higher, but in which none of the properties that comprise it reach that Taxable Real Estate Value: "(…) The taxation resulting from the taxable event provision contained in item n.º 28 assumes the nature of a partial tax (thus, JOSÉ MARIA FERNANDES PIRES, op. cit., page 507), taking as taxable base the urban property allocated to residential use, calculating the respective taxable real estate value per legal and economic unit relevant. It is not a general property tax, or even a tax on all real estate property, so as to found a comparison based on a property perspective and based on a foundation taking into account all property of the tax subject. (…) It should be noted that the Constitution does not require the legislator to create a general property tax, assigning to taxation on property the function of contributing to equality among citizens (article 104º, nº 3, of the Constitution), the legislator being free as to the solution to adopt (…)".

In the case under analysis, the legislator considered that land for construction whose building, authorized or planned, is for residential purposes should be subject to the "luxury tax", within the effort of budgetary consolidation. It was intended with said taxation to share the sacrifices demanded of owners of residential properties and high-value land for construction with those who live from the income of their labor.

The creation of this new tax event still occurred in the context of economic crisis and serious crisis in public finances, with the purpose of increasing the State's tax revenues, through the taxation of those who reveal greater indicators of wealth.

In truth, through item 28.1 it is intended to tax the wealth manifested in the ownership, usufruct or surface right over luxury urban properties which, by its value considerably higher than that of the generality of urban properties, reveals greater indicators of wealth, capable of founding the imposition of increased contribution for remedying public accounts to their holders, in realization of the said "principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices for the fulfillment of the adjustment program." – (See Bill n.º 96/XII).

The choice for taxation of residential urban properties and land for construction whose building is for residential purposes and not of rural properties or properties intended for commerce results from an option of economic policy, based on the idea that penalizing properties with economic allocation would contribute to worsening the country's economic situation.

As taught by José Maria Fernandes Pires, "the application of the tax to properties allocated to residential use and to land for construction in which residential building is planned or approved, reveals the intention not to burden the productive sector and companies in general. In fact, properties allocated to business activities, namely commerce, services or industrial activity, can easily reach a value exceeding one million without that fact being able to reveal a relevance in terms of wealth identical to that revealed by those with residential allocation with said value.

Thus, it appears that the tax facts contemplated by item 28.1 of the GTST were not chosen arbitrarily, their choice being justified by the underlying political-economic context.

The Claimant's argument that the taxable event provision discussed here violates the principle of equality thus does not stand. For the reasons set out above, this Tribunal also does not consider that the principle of tax capacity is breached by the exclusion of other properties, beyond those contemplated in the provision, that reveal equal tax capacity. Similarly, it is not apparent that there is a violation of the principle of tax capacity by the fact that Stamp Tax liability is effected property by property or "per unit", given the motivations of the Legislator and since there is no global property tax that would impose another type of consideration." (cf. pages 10 to 17 of the arbitral decision delivered in case n.º 527/2015-T)

Agreeing with the arbitral decision transcribed above, this Tribunal has no doubts whatsoever as to the soundness of the interpretation that has been unanimously adopted by arbitral case law and, in particular, by the Constitutional Court regarding the taxable event provision contained in article 28.1 of the GTST, as reworded by Law n.º 83-C/2013, of 31/12, and therefore in the case at hand this Tribunal cannot refuse to apply the said provision on the grounds of its unconstitutionality as sought by the Claimant.

Thus, since the Claimant's urban property is land for construction with allocation, planned or authorized, for residential purposes, the said provision should be applied, which does not suffer from the defect of unconstitutionality alleged by the Claimant.

In these terms, and in this part as well, the Claimant's request is rejected.

Decision:

For the foregoing reasons and grounds, it is hereby decided:

The request for arbitral pronouncement is judged to be entirely without merit.

The Claimant is condemned to pay the costs of the proceedings.

Costs: The amount of costs is fixed at €2,142.00 (two thousand one hundred and forty-two euros) pursuant to the provisions of article 22.º, n.º 4 of the LRAT and Table I attached to the RCTAP, payable by the Claimant, in accordance with the provisions of articles 12.º, n.º 2 of the LRAT and 4.º, n.º 4 of the RCTAP and 527.º of the CPC.

Notification shall be made.

Lisbon, 10 July 2017

The Arbitrator,

Susana Soutelinho