Summary
Full Decision
ARBITRATION DECISION
I - REPORT
A…, S.A., taxpayer no. …, with registered office in Lisbon, under the jurisdiction of the Lisbon Tax Office …, came, on 22 August 2017, pursuant to article 76 no. 2, in conjunction with article 102, no. 1, and paragraph e) of no. 1 of that same article and article 99, all of the Code of Tax Procedure and Process (CPPT), and article 2 no. 1 paragraph a) of the Legal Framework for Arbitration in Tax Matters (RJAT), to file a request for constitution of an arbitral tribunal with a view to declaring the illegality and consequent annulment of the acts of tacit dismissal of its request for ex officio revision of Stamp Duty (IS) concerning the years 2014 and 2015, collected through assessments no. 2014…, of 20 March 2015, concerning the year 2014, in the amount of € 33,093.62 and 2015…, of 4 April 2016, concerning the year 2015, in the amount of € 33,093.62.
It asserts that the revision request was submitted on 21.04.2017, with its tacit dismissal occurring on 21.08.2017, its challenge request falling within the three-month period provided for in articles 102, no. 1, paragraph d) of the CPPT and article 10, no. 1, paragraph a) of the RJAT.
The request was accepted on 23 August 2017.
As the Claimant did not designate an arbitrator, the undersigned were designated by the Deontological Council of CAAD and accepted the assignment within the legal timeframe.
Once notified of this designation, the parties made no objection, and the arbitral tribunal was constituted on 21 November 2017.
The Director-General of the Tax and Customs Authority (AT), notified to respond, request, if wished, the production of additional evidence, and attach a copy of the administrative file, responded, defending itself through challenge, attached the administrative file, all within the legal timeframe, raising a defence by challenge, but did not request the production of additional evidence.
As it was not deemed useful, the meeting referred to in article 18 of the RJAT was dispensed with and the parties were invited to submit written arguments, which they did not do.
21 May 2018 was designated as the date for the arbitral decision.
II - PRELIMINARY DETERMINATION
The arbitral tribunal was regularly constituted and is competent to decide.
The parties have legal personality and capacity, have standing, and are regularly represented.
The process is not affected by nullities and there are no exceptions or preliminary issues preventing consideration of the merits.
III - FACTUAL MATTER
With relevance to the decision, and as a result of examination of the documents attached to the file, the following facts are deemed proven, which, moreover, are not disputed:
a) The Claimant is a company with registered office in Lisbon engaged in the purchase and sale of real estate and real estate consulting and management.
b) It was the owner, on 31 December 2013 and remained so until, at least, 31 December 2014, of the urban property registered in the matrix as land for construction under matriculation no. …, of the parish of …, municipality of Lisbon, whose tax patrimonial value (VPT) was, on that date, € 3,236,540.00.
c) The land has a total area of 2,704.570 m²
d) On 03/08/2012 the Claimant had its architectural project approved by the Lisbon City Council, which it had submitted, for a gross construction area of 7,212.220 m², on the identified land, of which 1,625.700 m² was intended for housing and the remainder for services and commerce.
e) It was notified, on 28 March 2015, of the assessment of IS 2014…, of 20 March 2015, of tax concerning the year 2014, in the amount of € 33,093.62, through collection note no. 2015…, document for payment of the first of three instalments, in the amount of € 11,031.22.
f) It was subsequently notified for payment of the second and third instalments of the tax concerning the year 2014 through notifications nos. 2015… and 2015…, respectively.
g) The Claimant was also notified on 8 April 2016 of the assessment of IS no. 2015…, of 4 April 2016, tax concerning the year 2015, in the amount of € 33,093.62, through collection note no. 2016…, for payment of the first of three instalments, in the amount of € 11,031.22.
h) Subsequently it was notified for payment of the second and third instalments of the tax concerning the year 2015 through notifications nos. 2016… and 2016…, each in the amount of € 11,031.20.
i) The identified assessments resulted from the application of Item 28.1 of the General Table of Stamp Duty (TGIS).
j) On 21 April 2017 it filed an administrative appeal against the said assessments, without obtaining a decision.
k) The Claimant made the following payments:
on 30/04/2015, € 11,031.22, 1st instalment of IS for 2014;
on 31/07/2015, € 11,031.20, 2nd instalment of IS for 2014;
on 21/12/2015, € 11,031.20, 3rd instalment of IS for 2014;
on 29/04/2016, € 11,031.22, 1st instalment of IS for 2015;
on 01/08/2016, € 11,031.20, 2nd instalment of IS for 2015;
on 21/11/2016, € 11,031.20, 3rd instalment of IS for 2015.
No relevant facts for the decision of the case remained unproven.
III - LEGAL MATTER
Stamp duty is the oldest tax in force in Portugal.
Born essentially as a tax on documents – the stamp guaranteed their authenticity – its scope expanded over the course of its validity, covering today taxable events of varied nature.
With Law no. 83-C/2013, of 31 December, which introduced item 28 into the General Table of Stamp Duty (TGIS), it began to apply, among other things, and for what is relevant here, to the ownership of "(…) urban properties whose tax patrimonial value recorded in the matrix, pursuant to the Municipal Property Tax Code (CIMI) is equal to or greater than € 1,000,000".
Furthermore, by means of item 28.1, properties "(…) with residential use" also became subject to IS.
Law no. 80-C/2013, of 31 December, which entered into force on 1 January 2014, amending item 28.1, made the tax apply to residential properties or land "(…) for construction whose building, authorised or foreseen, is for residential purposes, pursuant to the provisions of the IMI Code".
Thus, land for construction with a value exceeding € 1,000,000, even if they had building, foreseen or authorised, for residential purposes, only became subject to IS with the coming into force of Law 80-C/2013.
This was not the previous understanding of the AT, which considered, in light of the regime prior to the 2013 law, that it was sufficient, for "residential use", that land for construction had an approved project for the construction of residential properties, or that they were classified as for construction in areas designated as residential.
The case law, however, did not accept this understanding, deciding, in numerous cases, examples of which are the many cited by the Claimant, that "residential use" required a building capable of concretely serving residential purposes – in other words, land with nothing built on it could never meet the legal requirement of "residential use", since mere land is not habitable.
We thus have that, from the coming into force of Law 80-C/2013, urban properties whose tax patrimonial value exceeds € 1,000,000 are subject to IS;
- all such properties, provided that their owners are not natural persons and reside in a country, territory or region subject to a clearly more favourable tax regime;
- properties with residential use; and
- land for construction, authorised or foreseen, for residential purposes, regardless of the person who owns it.
Article 1 no. 6 of the Stamp Duty Code provides that the concept of property is that defined in the Municipal Property Tax Code (CIMI), that is, pursuant to article 2 no. 1 of the latter instrument,
"(…) property is any parcel of land, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or built thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are located, although situated on a parcel of land that constitutes an integral part of a different asset or does not have a patrimonial nature".
Urban properties are those that do not fall within the definition of rural properties in article 3 of the CIMI (article 4), and in accordance with no. 1 of article 6, may be
residential,
commercial,
industrial or for services,
land for construction,
and others.
Land for construction is, pursuant to article 6 no. 3 of the CIMI, "(…) land situated within or outside an urban settlement for which a licence or authorisation has been granted, prior notification admitted or favourable prior information issued for a subdivision or construction operation, and also those which have been so in the acquisition title, excepting land for which the competent entities prohibit any of those operations (…)".
Pursuant to article 3 of the CIS, "the tax is a burden on the holders of the economic interest in the situations referred to in article 1", with its no. 3 specifying, in paragraph u), that the "holder of the economic interest" is considered to be "the taxable person referred to in no. 4 of the previous article", that is, the taxable person referred to in article 8 of the CIMI, namely, the "owner of the property on 31 December of the year to which the tax relates" (no. 1 of the said article 8).
Having regard to the fact that the Claimant was the owner of the property in question on 31 December 2014, and remained so on 31 December 2015, there is no doubt that it is the taxable person with respect to the tax concerning 2014 and 2015 – which, moreover, it does not contest.
Thus having defined the subjective scope, it is important to move to the objective scope.
As already seen, the Claimant is a company with registered office in Portugal, and its property is land for construction, intended by it for buildings for commercial, residential use, and services, with an architectural project approved for that purpose, and has a tax patrimonial value exceeding € 1,000,000.
The requirements of the tax scope of item 28.1 of the TGIS thus appear to be met.
The Claimant disputes this. It states that "the subject matter to be decided in the present Revision Request is whether land for construction can be included in the normative provision of the tax scope inherent in Item 28.1 of the TGIS according to the letter of the law in force for the tax year 2013, that is, whether mere land for construction can be considered, for the purposes of applying the said item, a property with residential use", since, in its view, the AT considers, incorrectly, that the tax scope inherent in Item 28.1 of the TGIS, and in the letter of the law in force at the time of the taxable event, on 31 December 2013, applies to simple land for construction, recognising it as having residential use, even though nothing has been constructed or built on it.
But, for the Claimant, it cannot be considered that "land for construction" falls within the concept of properties "with residential use" for the purposes of IS taxation according to the letter of item 28.1 of the TGIS.
However, the Claimant forgets that the law applicable to the present case is not that of 2012, but that of 2013, since this came into force at the beginning of 2014, and the tax assessed concerns the years 2014 and 2015.
And item 28.1 of the TGIS, after Law 83-C/2013, clearly encompasses land for residential construction, and not merely properties already with effective residential use.
The expression "residential use" ceased to appear in item 28.1, which now refers to residential properties and to land "(…) for construction whose building, authorised or foreseen, is for residential purposes, pursuant to the provisions of the IMI Code".
It therefore follows that, for the present case, the discussion about the meaning to be attributed to this abandoned expression is sterile.
What does not exhaust the matter, as it cannot yet be taken as certain that, when, as here, the foreseen building is not exclusively for residential purposes, land intended for such building falls within item 28.1 of the TGIS, in the version of Law 83-C/2013.
As already seen, the legislator did not intend to subject IS to all urban properties, but only to buildings intended for residential purposes and to land for which such building is foreseen or authorised (apart from the case, mentioned above, but now not relevant, of properties whose owners are not natural persons and reside in a country, territory or region subject to a clearly more favourable tax regime).
The Claimant's property is not built; it is mere land, on which it is foreseen to build a building intended for commerce, services and residential purposes.
Plainly, the law does not intend to tax in IS land for construction intended for commerce and/or services. Nor does it even aim to encompass buildings for the installation of commerce and services.
It limits the scope of the tax (abstracting, for now, from erected properties) to land for construction whose authorised or foreseen building is for residential purposes.
On the other hand, the property subject to taxation is a single one, and it is impossible to split it into three – one, the part intended for construction with residential use, another, the part intended for construction with commerce use, yet another, the part intended for construction with services use.
Since it is a single property (land for construction), it cannot be asserted that the building authorised or foreseen thereon is for residential purposes. This is only a half-truth; it would be equally true if it were said that the building authorised or foreseen thereon is for commerce, or that it is for services.
If this were not understood, the scope of the tax rule would be extended, making it encompass what clearly lies outside it – land for construction whose authorised or foreseen building is for commerce and/or services.
In summary, the situation in question is not encompassed by the tax scope rule invoked by the Respondent – item 28.1 of the TGIS – and in applying it, the Respondent incurred a violation of law.
IV - DECISION
On the grounds set forth, the Claimant's request is granted, annulling the assessments challenged and ordering the Respondent to refund to the Claimant the stamp duty paid by it, together with compensatory interest, from the date of the payments made until reimbursement.
IV - VALUE OF THE CASE
Seeing article 97-A no. 1 paragraph a) of the CPPT, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Cases, the value of the case is set at € 66,187.24.
IV - COSTS
The costs, computed at € 2,448.00, are borne by the Respondent, which loses the case, in accordance with the provisions of articles 12 no. 2 and 22 no. 4 of the RJAT and 4 no. 4 of the Regulation of Costs in Tax Arbitration Cases and attached Table I.
Let notice be given.
Lisbon, 21 May 2018.
The arbitrators
(José Baeta de Queiroz)
(Carla Castelo Trindade)
With dissenting opinion attached
(Marcolino Pisão Pedreiro)
With statement of vote attached
STATEMENT OF VOTE
In the decision rendered in case 452/2016-T (following identical decisions rendered in cases 482/2015-T and 395/2016-T in which I was also an arbitrator) the following position appears on a matter analogous to that under discussion in the present case:
"We understand, in light of the teleological element, that the legislator, in making the taxation of item 28.1 apply to plots of land for construction, is anticipating the taxation of "luxury", which constitutes the basis of taxation, to the extent that, although the possibility of the property of high tax patrimonial value being subject to residential use is not yet occurring, the mere fact of being the owner of land intended for the building of a property with such characteristics and, also itself, immediately holding a tax patrimonial value of high value, suggests increased taxable capacity, the basis and criterion of this taxation.
But this increased taxable capacity, this "luxury", only exists if the authorised or foreseen construction is for "luxury" residential purposes, that is, for residential units with a value exceeding one million euros.
The "ratio legis" of the provision is in no way the taxation of plots of land intended for medium-value housing or social housing, apparently resulting from the literal element of the rule, since a plot of land for construction intended for the construction of medium-value or lower-value housing can reach a value exceeding one million euros, which may depend, in particular, on the number of units to be built.
An interpretation of the provision is thus required, in the sense of considering that plots of land for construction are subject to taxation but, solely and only, in the case where the authorised or foreseen construction is for high-value housing, that is, for residential units with a value exceeding one million euros ("cessante ratione legis cessat eius dispositivo").
In addition, the interpretation of the rule that is adopted here, besides being in perfect harmony with the teleological element and having in the letter of the law a minimum of verbal correspondence, is that which best accords with the unity of the legal system and, in particular, with the principle of interpretation in accordance with the constitution. In truth, if it were understood that the taxation of plots of land provided for in item 28.1 of the TGIS is not confined to plots intended for the building of high-value housing, this would imply the possibility of taxation falling on land intended for medium-value housing or, indeed, social housing, which, besides clearly violating the principles of equality and taxable capacity, would also manifestly breach article 65 of the Portuguese Constitutional Republic."
While maintaining this position, I vote for the present decision to the extent that, should the interpretation of the provision that I adopted in the aforementioned cases not be correct, I consider the correct legal framework to be that set out in it, for the precise reasons therein stated, and to which I subscribe.
(Marcolino Pisão Pedreiro)
STATEMENT OF VOTE
With all due respect, which is considerable, I do not share the above understanding. I therefore dissented from the position that prevailed, voting in dissent, for the following essential reasons which I now summarise.
I am of the opinion that it would be very difficult for me to defend that the subjection to tax would apply only to land for construction exclusively intended for residential purposes as is advocated in the present decision. The law does not say this and I am not inclined to believe that this was the legislator's objective when it extended the scope of taxation to land for construction.
I do not hide that the constitutional question offers me doubts, but here I follow the dissenting opinion of Mr Counsellor of the Constitutional Court João Pedro Caupers in the Judgment rendered in the context of case no. 156/2016 when he states that "(…) these [doubts] extend to various provisions of the regulation of stamp duty, an anachronistic and irrational tax. One will search in vain there for any acceptable tax logic, seeming rather the respective table a list of miscellaneous "residues" that the tax State understands should be taxed – or because they do not fit in any other tax, or because, being already taxed, simply needs more money. What common trait will exist between mutual wagers, acquisitions of goods, credits, commissions, insurance policies, credit instruments, the ownership of real estate? What is the internal logic of the system?". Thus, I do not share the tenor of the Constitutional Court judgment, rendered in case no. 156/2016, which held that "if the addition of land for construction made by Law no. 83-C/2013 to item no. 28.1 of the TGIS is not arbitrary, it is, in any case, violating the principle of tax equality enshrined in articles 13 and 104, no. 3 of the Portuguese Constitutional Republic, both because it does not respect the different taxable capacity of the owners of the properties on which it applies, affecting indiscriminately taxpayers with and without the taxable capacity necessary to bear the tax, and because the differentiations it introduces between those who are included and excluded from its scope are not proportional, being inadequate to satisfy the purpose envisaged by the rule, which is to tax in an aggravated manner real estate assets of greater value in terms that satisfy "the principle of social equity in austerity".
What was intended, as I understand it, and as has been widely accepted, was to tax luxury real estate. All those whose tax patrimonial value pointed to a taxable capacity above average on the part of the owner. And this exists independently of whether we are faced with land on which only properties intended for housing are built or where properties intended for services or commerce are also built.
Because if this is the case, it would be enough that a single unit be intended for commerce or services to automatically fall outside the scope of subjection.
Given this, I would be of the opinion of upholding the contested tax act and therefore not granting the Claimant's request.
Carla Castelo Trindade
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