Summary
Full Decision
ARBITRAL AWARD
1. REPORT
1.1 A…– REAL ESTATE INVESTMENT MANAGEMENT COMPANY, S.A., with unique number of collective person and registration…, headquartered in …, … –…, …-… Lisbon, came on 01.08.2016, under article 2, no. 1, sub-paragraph a) and 10, nos. 1 and 2, of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and of articles 1 and 2 of Order no. 112-A/2011, of 22 March, to request the constitution of the arbitral tribunal in representation of B…– CLOSED REAL ESTATE INVESTMENT FUND, collective person number….
1.2 Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.
1.3 The Deontological Council of the Center for Administrative Arbitration (CAAD) appointed the undersigned to integrate the Collective Arbitral Tribunal, having notified the parties accordingly, and the Tribunal was constituted on 07.11.2016.
1.4 The request for arbitral pronouncement concerns the annulment of stamp tax assessments for the year 2015, relating to real properties registered in the urban real estate registry of the parish of …, municipality of Vila Nova de Gaia, under articles …, …, …, …, …, …, …, … and …, assessments and properties that are better identified in the Claimant's petition and in the documents attached thereto, to which reference is made herein.
1.5 The Claimant manifests its disagreement with the acts of tax assessment in dispute, based fundamentally on the fact that the real properties subject to the tax are not residential properties, but rather land for construction, unsuitable for habitation, and regarding which there is no provision or authorization for construction of only real properties – or autonomous fractions of property – intended for habitation, and therefore does not fit within the provision of item no. 28.1 of the TGIS in the wording introduced by article 194 of Law 83-C/2013, of 31.12.
It argues, in summary, that the ownership of these assets is, given its commercial activity, a productive investment and not property with residential vocation of high economic significance and, therefore, does not reveal the contributory capacity that said item in the Table considers.
It understands, as such, that items nos. 28 and 28.1 of the TGIS, in their original wording, had and have to be interpreted in the sense of applying only to properties immediately intended for habitation and, likewise, that the amendment introduced by article 194 of Law 83-C/2013, of 31.12, is unconstitutional, because it violates the principle of tax equality and contributory capacity that emanate from article 13 and article 204 of the CRP. It further considers that its application creates a situation of double taxation.
For which reason it concludes that application of the norm should be refused and that the acts of assessment in dispute are illegal, petitioning their respective annulment and the reimbursement of the amounts paid, plus statutory interest from the date of payment of each installment until effective and complete reimbursement.
1.6 The Tribunal issued an initial order on 07.11.2016.
1.7 The TAX AND CUSTOMS AUTHORITY responded, defending itself solely by way of objection.
It seeks the maintenance in the legal order of the impugned act, based on its understanding that "By consulting the certificates of the contents of the urban properties that form the basis of these assessments, it is verified that the land for construction is intended for habitation"
It argues, summarily, that item 28 of the TGIS applies to ownership, usufruct or right of superficies of urban real properties with residential intent, whose tax patrimony value recorded in the registry, under the terms of CIMI, is equal to or greater than €1,000,000.00, that is, it applies to the value of the property, being a general and abstract norm, applicable uniformly to all cases in which the factual and legal requirements are met.
It further invokes the exceptional context and evident difficulties that the Country, especially the public accounts, faced when item 28.1 of the TGIS arose, which required extraordinary collection measures and additional tax revenue, reasons for which the measure implemented seeks to achieve maximum effectiveness as to the objective to be reached, with minimum injury to other interests considered relevant.
Regarding the alleged unconstitutionality of the norm, the Respondent recalls that this has already been subject to a negative judgment by the Constitutional Court.
It adds that, bound as it is by the principle of legality, it is not for it to assess the constitutionality of a norm and is, until this has been declared with binding general force, obliged to apply it, so that, even if the Claimant's petition were upheld, the Respondent could never be condemned to pay statutory interest.
It concludes by seeking the legality of the assessments and the dismissal of the petition for arbitral pronouncement.
Further requests, so that "should the Arbitral Tribunal come to accept the Claimant's claim and, inherently, refuse application of this norm based on its unconstitutionality (...) by appeal to the provisions of article 280, no. 3, of the CRP and article 72, no. 3, of the Constitutional Court Law, the Arbitral Tribunal's learned award be determined to be notified to the Public Prosecutor's Office, so that it fulfills its legal prerogatives".
1.8 The Tribunal issued, on 23.12.2016, an order to the effect that it did not appear necessary to hold the arbitral tribunal meeting provided for in article 18 of the RJAT, and inviting the parties to submit their allegations.
1.9 The parties, having been notified, did not submit allegations.
1.10 The Respondent did not attach the administrative proceedings to the file, clarifying that these "do not exist".
2. SANITATION OF THE PROCEEDINGS
The Tribunal is competent and was regularly constituted.
The parties have legal personality and procedural capacity, show themselves to be legitimately interested, and are regularly represented.
The proceedings do not suffer from any defects that would render it invalid.
3. FACTS
With relevance for the decision on the merits, the Tribunal considers the following facts to be proven:
1. The Fund represented by the Claimant is the owner of urban real properties located at the Place of…, parish of…, municipality of Vila Nova de Gaia, registered in the urban real estate registry of that parish under articles…, …, …, …, …, …, …, … and …;
2. The properties are described in the registry as "land for construction";
3. In the assessment of the properties, the "location coefficient type: residential" was applied;
4. The properties have tax patrimony values that range from a minimum of 1,338,810.00 to a maximum of 3,136,450.00;
5. On 05.04.2016 the Tax Authority proceeded with the assessments of Stamp Tax on item 28.1 of the TGIS with reference to the properties described in 1, in the total amount of 137,888.00€ and subsequently issued collection notices for payment of the installments resulting from those assessments.
Facts Not Proven
With relevance for the assessment of the merits of the case, it was not proven that any construction had been authorized, designed or foreseen on the property in question, particularly intended for habitation, a fact whose proof was incumbent on the Respondent, as it constitutes an essential fact for integration in the rule of real incidence of the tax and is, therefore, constitutive of the right to assess it.
No other facts with relevance for the assessment of the merits of the case were alleged by the parties that were not proven.
Reasoning of the Decision on the Facts
The conviction regarding the facts was based on the allegations of the Claimant and the Respondent not contradicted by the opposing party, sustained in the documentary evidence attached by the Claimant whose authenticity and correspondence to reality were also not questioned.
4. MATTERS OF LAW - ISSUES TO BE DECIDED
In the Tribunal's view, the following are the issues on which it must decide:
A) For the purpose of applying the aforementioned item, are the properties in question, land for construction, without authorized or foreseen construction, covered by the rule of incidence?
B) Being item 28.1 of the TGIS, in the wording introduced by Law no. 83-C/2013, of 13 December, unconstitutional, for violation of the constitutional principles of tax equality and contributory capacity, should, in that case, its application be refused, which would remove legal support from the acts of assessment which, being illegal, would have to be annulled?
C) In the event that the assessments are annulled, does the Claimant have the right to statutory interest as a result of the amounts paid?
It is necessary to decide:
A) Whether the properties are covered by the rule of incidence:
The subjection to Stamp Tax of properties with residential intent resulted from the addition of item no. 28 to the TGIS, effected by article 4 of Law 55-A/2012, of 29 October, which typified the following tax facts:
"28 – Ownership, usufruct or right of superficies of urban real properties whose tax patrimony value recorded in the registry, under the terms of the Code on Municipal Property Tax (CIMI), is equal to or greater than €1,000,000.00 – on the tax patrimony value used for purposes of Municipal Property Tax:
28.1 – For property with residential intent – 1%;
28.2 – For property, when the taxpayers who are not individuals are resident in a country, territory or region subject to a regime clearly more favorable, listed in the list approved by order of the Minister of Finance – 7.5%".
The Law also added to the Stamp Tax Code no. 7 of article 23, concerning Stamp Tax assessment: "in the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban real property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI", and article 67, no. 2 which provides that "to matters not regulated in this Code concerning item 28 of the General Table, the CIMI shall apply, subsidiarily".
Law no. 83-C/2013, of 31 December amended the wording of the norm, which became as follows: "28.1 For a residential property or for land for construction whose construction, authorized or foreseen, is for habitation, under the terms of the provisions of the Municipal Property Tax Code".
Articles 2 to 6 of the Municipal Property Tax Code enumerate the types of properties as follows:
"Article 2 – Concept of property
1 – For the purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any kind incorporated in or resting on it, with a character of permanence, provided that it forms part of the patrimony of an individual or collective person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated on a fraction of territory that constitutes an integral part of a different patrimony or does not have patrimony character.
2 – Buildings or constructions, although movable by nature, are deemed to have a character of permanence when intended for non-transitory purposes.
3 – The character of permanence is presumed when the buildings or constructions have been in place for a period exceeding one year.
4 – For purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property."
"Article 3 – Rustic Properties
1 – Rustic properties are lands located outside an urban agglomeration that are not to be classified as land for construction, under the terms of no. 3 of article 6, provided that:
a) they are intended for or, in the absence of concrete intent, have as their normal destination use generating agricultural income, such as are considered for purposes of personal income tax (IRS);
b) Not having the intent indicated in the preceding sub-paragraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.
2 – Also rustic properties are lands located within an urban agglomeration, provided that, by force of a legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact having this intent.
3 – Also rustic properties are:
a) Buildings and constructions directly intended for the production of agricultural income, when located on the lands referred to in the preceding numbers;
b) Waters and plantations in the situations referred to in no. 1 of article 2.
4 – For purposes of this Code, urban agglomerations are considered, in addition to those located within legally fixed perimeters, settlements with a minimum of 10 housing units served by streets of public use, their perimeter being delimited by points distanced 50 m from the axis of the streets, in the transverse direction, and 20 m from the last building, in the direction of the streets.
"Article 4 – Urban Properties
Urban properties are all those which should not be classified as rustic, without prejudice to the provisions of the following article."
"Article 5 – Mixed Properties
1 – Whenever a property has rustic and urban parts it is classified, in its entirety, according to the main part.
2 – If neither of the parts can be classified as main, the property is deemed mixed."
"Article 6 – Types of Urban Properties
1 – Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Others.
2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of license, that have as their normal destination each of these purposes.
3 – Land for construction is deemed land located within or outside an urban agglomeration for which a license or authorization has been granted, prior communication admitted or favorable prior information issued for subdivision or construction operations, and also those which have been thus declared in the acquisition title, except for lands where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, according to municipal land use plans, are intended for public spaces, infrastructure or facilities.
4 – Lands located within an urban agglomeration that are not land for construction nor are covered by the provision of no. 2 of article 3 fall within the provision of sub-paragraph d) of no. 1, as well as buildings and constructions licensed or, in the absence of license, that have as their normal destination purposes other than those referred to in no. 2, and also those in the exception of no. 3."
It is within this legal framework that it is important to assess the legal qualification of the properties on which the tax in dispute was assessed.
There is no doubt that the properties are "land for construction". It is a qualification that was not called into question by either party and which results from the contents of their respective property cards and from the comparison of the cited articles 2, 4 and 6 of the CIMI, applicable by express reference of the rule of incidence applied.
That rule is item 28.1 of the TGIS which, we recall, provides as follows: "28.1 For a residential property or for land for construction whose construction, authorized or foreseen, is for habitation, under the terms of the provisions of the Municipal Property Tax Code".
It is therefore necessary, for the fulfillment of the rule of incidence, that the property be residential or, if not, be land for construction and that construction intended for habitation has been authorized or is foreseen.
It must be said that in this case the wording adopted by the legislature was unfortunate and does not make clear whether the construction must be exclusively for habitation and, if not, whether it is intended that the tax base corresponds to the tax patrimony value of the property, or only to the part intended for habitation (being that its respective determination does not appear viable to us).
The Tribunal does not ignore the context in which the norm was produced, but not even in a context of urgency is the legislature exempt from observing constitutional precepts, namely the principle of legality in the sense of typifying with clarity the tax facts that are subject to tax.
No. 2 of article 5 of the CIMI clarifies what it understands by "residential" properties for purposes of sub-paragraph a) of no. 1, classifying as such constructions licensed for habitation or which, in the absence of license, have this normal use, and is not referring to land for construction, but to buildings already constructed which will be residential when that is the use licensed by the municipal authority or when, in the absence of license, that is its normal use.
The criterion of "normal use" in the absence of license cannot be extrapolated for the purpose of guessing at the buildings that may come to be made on land for construction, a type of property provided for in sub-paragraph d) of no. 1 of the same article, as the Respondent appears to intend.
Certainly in the assessment of the lands the Tax Authority used the location coefficient of the residential type, and the taxpayer could, in fact, have reacted against the application of this coefficient, it not having been shown that it did so.
That is not, however, the criterion adopted by the legislature either in the CIMI or in the Stamp Tax Code. The legislature did not attribute any relevance to the use of that coefficient in the qualification of the property, only in its respective assessment. It should be said in passing, and without consequences for the decision of the claim, that it appears to us there is an error by the Tax Authority in the use of such coefficient.
Item 28.1 of the TGIS appears to us – in that part, at least – perfectly clear: subject to tax are, in addition to residential properties (those of sub-paragraph a) of number 1 and no. 2 of article 5 of the CIMI), land for construction (i.e., the type of property provided for in sub-paragraph d) of no. 1 of the same article of the CIMI), provided that construction intended for habitation has been authorized or is foreseen (remaining only to be defined whether it is total or partial and, in the latter case, what is the value considered for purposes of subjection to taxation).
Now, it was not proven that the land for construction in question had authorization, design or foreseen construction for habitation, so as to be subject to Stamp Tax under item no. 28.1 of the TGIS.
Proof that was incumbent on the Respondent and should moreover be contained in the reasoning of the acts of assessment, which was not attached to the file. The Respondent, moreover, did not attach the administrative proceedings, claiming that this "does not exist", which may point to the non-existence of the very reasoning of the assessments. The defect arising therefrom was not, however, raised.
It thus seems to us evident that the properties, land for construction regarding which it was not proven that there was authorization or foreseen construction intended for habitation, do not fulfill the rule of incidence of the tax that served as the basis for the assessments.
For which reason, without need for further consideration and on this ground, the acts of assessment are considered voidable, as illegal, for the fact that item 28.1 of the TGIS does not apply to the properties on which they were assessed.
B) It is moot, being unnecessary, to consider the other defects raised by the Claimant, namely the alleged unconstitutionality of the norm.
C) Finally, as regards the Respondent's claim that statutory interest be paid:
The substantive regime of the right to statutory interest is regulated in article 43 of the General Tax Code, which establishes, insofar as it is relevant here, that "Statutory interest is due when it is determined, in administrative objection or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due. 2 – It is also considered that there is error attributable to the services in cases where, although the assessment is made based on the taxpayer's declaration, the taxpayer has followed, in completing it, the general guidelines of the tax administration, duly published."
Now, in the case at hand, the illegality of the assessments is entirely attributable to the Tax Authority, here Respondent, which considered that properties had residential intent that did not meet the conditions, expressed in the rule of incidence, for such intent to be inferred.
Consequently, the Claimant is entitled to statutory interest on the amounts paid by it, by force of the provisions of art. 43, no. 1, of the General Tax Code and 61 of the Tax Procedural Code, at the statutory supplementary rate, under the terms of articles 43, nos. 1, and 35, no. 10 of the General Tax Code, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the Tax Procedural Code, article 559 of the Civil Code and Order no. 291/2003, of 8 April (or any other which may alter the statutory rate), from the date of payment of each installment until effective and complete reimbursement.
5. DECISION
In these terms and with the reasoning above, it is decided:
To declare fully upheld the petition of the Claimant and, in consequence, to annul the acts of assessment in dispute, and the Respondent must, as an effect of the annulment, return to the Claimant the amounts which it has paid on this account, plus the respective statutory interest, under the terms of article 43, no. 1, of the General Tax Code, from the date of payment until effective and complete reimbursement.
* * *
The value of the proceedings is fixed at 137,888.00€ (one hundred thirty-seven thousand eight hundred eighty-eight euros) in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, sub-paragraph a) of the Tax Procedural Code and 306 of the Civil Procedure Code.
The amount of costs is fixed at 3,060.00€ (three thousand sixty euros) under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, at the charge of the Respondent, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT and 527 of the Civil Procedure Code.
§ Notify.
Lisbon and CAAD, 31 March 2017
The Arbitral Tribunal
José Poças Falcão
(Arbitrator President)
Francisco José Nicolau Domingos
(Adjunct Arbitrator)
Eva Dias Costa
(Adjunct Arbitrator)
Text prepared by computer, under the terms of no. 5 of art. 131 of the Civil Procedure Code, applicable by reference of sub-paragraph e) of no. 1 of art. 29 of Decree-Law no. 10/2011, of 20 January and with the spelling of the 1990 Orthographic Agreement.
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