CAAD 493/2015-T: Stamp Tax on Building Land Under Verba 28.1 TGIS – Equality and Ability-to-Pay Principles

Arbitral Decision

The arbitrators Fernanda Maçãs (arbitrator president), Álvaro Caneira and Francisco Carvalho Furtado (arbitrators members), appointed by the Ethics Council of CAAD,

following the Summary Decision No. 833/2018 delivered by the Constitutional Court, in appeal of a previous decision handed down by this Arbitral Tribunal in the present proceedings on 12 April 2016, proceed to deliver a new Arbitral Decision, as follows:

Report

1. The Claimant A..., S.A., legal entity No. ..., with registered office at ..., No. ..., ...-... ..., notified of the Stamp Duty assessment acts Nos. 2015... and 2015... relating to the year 2014 and issued under item 28.1 of the General Table of Stamp Duty (GTSD), as amended by Law No. 55-A/2012, of 29 October, in the total amount of €68,466.01, hereby submits, pursuant to subparagraph a), No. 1 of article 2 and subparagraph a) of No. 1 of article 10 of Decree-Law No. 10/2011, of 20 January ("Legal Regime of Tax Arbitration", hereinafter "LRTA") a request for arbitral pronouncement seeking the annulment of those acts.

2. The Respondent is the Tax and Customs Authority (TA).

3. The subject-matter of the request for arbitral pronouncement consists in the annulment of those acts.

3.1. The Claimant petitions for the declaration of illegality and the consequent annulment of the Stamp Duty assessment acts, issued with reference to the year 2014.

1. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the TA.

4.1. The Claimant did not proceed with the appointment of an arbitrator, wherefore, pursuant to the provisions of subparagraph a) of No. 2 of article 6 and subparagraph b) of No. 1 of article 11 of the LRTA, the President of the Ethics Council appointed the signatories as arbitrators of the collective Arbitral Tribunal, who communicated their acceptance of the appointment within the time limit.

4.2. On 28 September 2015, the parties were notified of the appointment of the arbitrators and raised no objection.

4.2. In accordance with the provisions of subparagraph c) of No. 1 of article 11 of the LRTA, the collective Arbitral Tribunal was constituted on 13 October 2015.

4.3. Accordingly, the Arbitral Tribunal is properly constituted to hear and decide the subject-matter of the proceedings.

1. In support of the request for arbitral pronouncement, the Claimant alleges, in summary, the following:

• Item 28 of the GTSD, as worded after 31 December 2013, subjected to Stamp Duty residential properties or land for construction whose construction, authorized or anticipated, is for residential purposes, in accordance with the Property Tax Code;

• The said item violates the constitutional principles of equality and contributory capacity;

• The recognition of the principle of contributory capacity implies the existence of a connection between the tax obligation and the economic circumstance selected as the object of the tax;

• In the case at hand, the Claimant is the owner of two plots of land for construction with a total Tax Property Value of €6,646,611, which represents its contributory capacity and is subject to the tax provided for in item 28.1 of the GTSD;

• If the Claimant were the owner of 10 plots of land, each with a Tax Property Value of €900,000, it would have a higher contributory capacity (€9,000,000), but would not be subject to the tax provided for in item 28.1 of the GTSD;

• Taxpayers with different contributory capacities are taxed differently, and the one with lower capacity bears a heavier burden;

• The underlying rationale of item 28.1 of the GTSD is the taxation of higher patrimony;

• Therefore, there is no justification for only residential properties to be subject to tax;

• For this reason, the value prominence of the right to housing, provided for in article 65 of the Constitution of the Portuguese Republic (CPR), is also violated;

• The exclusion from taxation of properties dedicated to services, commerce or industry on the argument that they are productive instruments of enterprises violates the principle of equality given that, in the case of enterprises, land for construction with residential purposes is also a productive instrument;

• An enterprise having as productive instruments buildings intended for commerce, services or industry or land for construction with construction, anticipated or authorized, for those purposes, will not be subject to any tax;

• On the other hand, an enterprise holding identical factors of production – land for construction – but with construction, anticipated or authorized, for residential purposes will be taxed;

• It concludes by requesting the declaration of illegality, due to violation of the CPR, of the Stamp Duty assessment acts.

1. The Tax and Customs Authority (hereinafter identified as Respondent) presented a response, defending itself by exception and by objection, alleging, in summary, the following:

By exception:

• The Claimant seeks the non-application of item 28 of the GTSD on the grounds of its unconstitutionality and not by reason of any illegality occurring in its application to the concrete facts;

• The Respondent is, in its actions, bound by the CPR and the Law and cannot refuse to apply rules on the grounds of their unconstitutionality or illegality – cf. articles 266, No. 2 of the CPR, 3, No. 1 of the Administrative Procedure Code (APC) and 55 of the General Tax Law (GTL);

• Equally, the Arbitral Tribunal lacks competence to assess the conformity of item 28.1 of the GTSD with the CPR, the Constitutional Court being the competent forum for that purpose – cf. articles 280, No. 2, subparagraphs a) and d) and 281, subparagraphs a) and b) and No. 3, of the CPR and 6 and 66 of the Law of the Constitutional Court;

• The Arbitral Tribunal is prohibited from declaring the illegality / unconstitutionality of item 28.1 of the GTSD as it is a matter excluded from its jurisdiction – cf. articles 2 of the LRTA in conjunction with No. 2 of the Binding Order to CAAD, 4, No. 2, subparagraph a) of the Statute of Administrative and Tax Courts (SATC), by virtue of article 29 of the LRTA;

• It concludes with the lack of material competence of the Tribunal and the request for dismissal of the claim – cf. articles 278 of the Civil Procedure Code (CPC), 2 of the LRTA, 2 of the Binding Order to CAAD and 4, No. 2, subparagraph a) of the SATC by virtue of article 29 of the LRTA.

By objection:

• It is the Respondent's understanding that the properties in the present proceedings have the legal nature of property with residential purposes;

• In the absence of any definition of the concepts of urban property, land for construction and residential purposes, in the context of Stamp Duty, reference must be made to the provisions of the Property Tax Code, namely articles 2 and 6 thereof;

• The notion of the intended use of the urban property is found in the section relating to the valuation of real property;

• The concept of properties with residential purposes comprises both built properties and land for construction;

• The intended use of the real property (aptness or purpose) is a coefficient that contributes to the valuation of the real property, in determining the Tax Property Value, applicable to land for construction;

• The legislator does not refer to "properties intended for residential use", having opted instead for the notion of "residential purposes";

• Law No. 83-C/2013, of 31 December 2013, amended the wording of Item 28.1 of the GTSD to expressly include land for construction as an objective element of the scope of the rule;

• The principle of equality provided for in articles 13 and 104, No. 3, of the CPR has as its corollary the principle of contributory capacity;

• This principle requires that what is equal be treated equally and what is essentially different be treated differently, preventing arbitrary and unreasonable discriminations;

• There is no violation of the principle of equality in the present case in the dimension of the prohibition of differentiation in equal situations given that we are not dealing with a solution that violates the prohibition of arbitrariness;

• Item 28 of the GTSD applies to the ownership, usufruct or right of superficies of urban properties with residential purposes, whose Tax Property Value shown in the cadastral register, in accordance with the Property Tax Code, is equal to or greater than €1,000,000.00, that is, it applies to the value of the real property;

• The legislator defined a valid economic presumption, as a manifestation of contributory capacity from which no unjustified differences in treatment between taxpayers result;

• Equally, there is no violation of the principles of proportionality, legality, trust and contributory capacity;

• Rather, item 28.1 of the GTSD is a measure of equality intended to strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment programme;

• Pursuant to the provisions of article 4, No. 1 of the GTL, contributory capacity is also expressed through the ownership of patrimony;

• Such patrimony represents the economic presumption that legitimizes the taxation of the ownership of properties and of urban land with residential purposes, with the criterion of suitability being respected;

• The taxation provided for in Item 28.1 of the GTSD is individualized, over each property, being unrelated to the consideration or evaluation of the totality of the real estate patrimony of each taxpayer;

• The ownership of real property with the characteristics defined in the scope rule evidences special contributory capacity;

• The incidence of this taxation only on land for construction with residential purposes not including properties intended for commerce, services or industry is justified by the fact that they are different realities that merit different tax treatment;

• The inequality found is not excessive being proportional to the reasons that justify the differentiated treatment;

• Proportionality does not imply progressive rates and article 104, No. 3 of the CPR does not prohibit the existence of ad valorem rates;

• There is, therefore, also no violation of the principle of equality inherent in article 13 of the CPR;

• Item 28.1 of the GTSD is a general and abstract rule, applicable indiscriminately to all situations in which the presumptions of fact and law are met;

• It represents a legitimate, legal and constitutional option of the legislator;

• It concludes by requesting the dismissal of the claim.

1. In response to the exceptions raised by the TA, the Claimant, as to the matter of the exception, alleged that:

• It is not a question of abstract review of constitutionality but rather an analysis of the legality of assessment acts;

• The assessment of acts that are materially legislative is only possible through their application to concrete cases submitted to judicial decision;

• Article 25 of the LRTA provides, when the respective conditions are met, the possibility of appealing the Arbitral decision to the Constitutional Court, which is only justified if the former has competence to refuse to apply rules on the grounds of their non-conformity with the Constitution.

1. As no production of constitutive evidence was requested, it was decided to dispense with the hearing provided for in article 18 of the LRTA and, likewise, to designate 13 April 2016 as the deadline for the delivery of the arbitral decision.

8.1 The parties waived the presentation of written submissions.

Issues to decide

1. In the present proceedings the issues to decide are:

• To decide on the exception of lack of competence of the arbitral tribunal;

• To determine whether item 28.1 of the GTSD, as worded on the date of the facts, conforms with the constitutional principles of equality, contributory capacity and the right to housing.

Preliminary matters

1. The parties have legal personality and capacity, are legitimate and are properly represented (articles 4 and No. 2 of article 10, of the LRTA and article 1 of Order No. 112-A/2011, of 22 March).

2. The tribunal is competent and properly constituted. Indeed, firstly, the Respondent raised the lack of competence of the Tribunal to assess the issues raised by the Claimant. On this matter, the Respondent considers that only the Constitutional Court has competence to carry out abstract review of the conformity of rules with constitutional principles (cf. article 281, subparagraph a) of the CPR).

It does not appear, however, that the Respondent has a valid argument. First and foremost, because the present proceedings do not involve a request for abstract review of rules, but rather a request for declaration of illegality and consequent annulment of tax assessment acts, on the grounds of non-conformity of the underlying scope rules with constitutional principles.

From article 204 of the CPR emanates the general principle that Courts (whichever they may be) cannot apply rules that infringe what is provided in the constitution or its principles. On the other hand, there exists no principle of mandatory referral in the Portuguese procedural legal system of questions relating to the assessment of the conformity of rules with the constitution to the Constitutional Court. Strictly speaking, there exists not even, as a general rule, the obligation to appeal to the Constitutional Court sentences that refuse to apply rules on the grounds of their non-conformity with the Constitution or its principles. It seems, therefore, evident that the present Tribunal has competence to assess the issue raised by the Claimant. So much so is the case that the procedural law, and what is relevant to the present case is particularly the provisions of articles 280 of the CPR and 25 of the LRTA, which provide for the possibility of appeal to the Constitutional Court of arbitral decisions that refuse to apply any rule on the grounds of its unconstitutionality or that apply a rule whose unconstitutionality has been raised during the proceedings.

Finally, as the Claimant has framed its request as the declaration of illegality and consequent annulment of Stamp Duty assessment acts, it is manifest that, in light of the provisions of article 2, No. 1, subparagraph a) of the LRTA, the procedural means used is appropriate.

Therefore, the argument invoked by the TA regarding the lack of competence of the Arbitral Tribunal and the impropriety of the means collapses, wherefore the exception in question is held to be unfounded.

1. The proceedings do not suffer from any nullities.

2. There are no other circumstances that prevent the tribunal from hearing the merits of the case.

Questions to decide

1. The issues to be decided in the present proceedings are:

• To decide on the exception of lack of competence of the arbitral tribunal;

• To determine whether item 28.1 of the GTSD, as worded on the date of the facts, conforms with the constitutional principles of equality, contributory capacity and the right to housing.

Merits

IV.1. Facts

1. Proven facts:

15.1. With relevance to the assessment and decision of the issues raised, the following facts are taken as established and proven:

• The Claimant is the owner of an urban property registered in the urban property cadastral register, in the parish of ..., district of ... and municipality of ..., under registration No. ... (document attached to the Application submitted on 5 April 2016);

• The property in question has a Tax Property Value of €3,582,876.03, is registered in the cadastral register as a "land for construction" and has been assigned the location coefficient corresponding to residential use (document attached to the Application submitted on 5 April 2016);

• The Claimant is the owner of an urban property registered in the urban property cadastral register, in the parish of ..., district of ... and municipality of ..., under registration No. ... (document attached to the Application submitted on 5 April 2016);

• The property in question has a Tax Property Value of €3,263,725.14, is registered in the cadastral register as a "land for construction" and has been assigned the location coefficient corresponding to residential use (document attached to the Application submitted on 5 April 2016);

• The Respondent, with reference to the property registered in the urban cadastral register under No. ..., issued the Stamp Duty assessment act No. 2015..., on the grounds of item 28.1 of the GTSD, resulting in a collection of €35,828.76 (document attached to the Application submitted on 5 April 2016);

• The Respondent, with reference to the property registered in the urban cadastral register under No. ..., issued the Stamp Duty assessment act No. 2015..., on the grounds of item 28.1 of the GTSD (document attached to the Application submitted on 5 April 2016);

• On 28 July 2015, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.

15.2. Substantiation of the facts

The proven facts were based on the documents attached to the request for arbitral pronouncement and the statements made by the parties in their respective procedural submissions, with no controversy regarding them.

1. There are no other facts with relevance for the assessment of the merits of the case that have not been proven.

IV.2. Legal matters

1. The central issue to be decided concerns the question of whether the rule contained in items 28 and 28.1 of the GTSD is, or is not, in conformity with the constitutional principles of equality, contributory capacity and the right to housing.

Let us see.

1. The Claimant argues that the assessment acts in question are illegal inasmuch as item 28.1 of the GTSD violates the provisions of article 13 of the CPR. This legal provision enshrines the principle of equality and its tax corollary, the principle of contributory capacity. Given the cause of action contained in the Initial Application submitted by the Claimant, it is important first to analyze the regime that follows from ordinary law.

A) Analysis of the legal regime and its evolution

1. From article 1, No. 1, of the Stamp Duty Code, as worded following Law No. 55-A/2012, of 29 October, it results that "stamp duty applies to all acts, contracts, documents, securities, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property". Item 28 was added to the GTSD by the same Law simultaneously with an amendment to article 1, No. 1, of the Stamp Duty Code.

The said amendment to article 1, No. 1, of the Stamp Duty Code consisted in the inclusion of a generic reference to "legal situations" as a potential object of the scope of this tax, with items 28, 28.1 and 28.2 of the GTSD defining the first legal situations to which the tax came to apply.

1. The initial wording of these items of the GTSD was as follows:

"28 – Ownership, usufruct or right of superficies of urban properties whose Tax Property Value shown in the cadastral register, in accordance with the Property Tax Code (PTC), is equal to or exceeding €1,000,000 – on the Tax Property Value used for Property Tax purposes:

28.1 – For property with residential purposes – 1%;

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in an order of the Minister of Finance – 7.5%."

1. The underlying rationale of the legal innovation achieved with the introduction of Item 28 into the GTSD is contained in the Explanatory Memorandum of Bill No. 96/XII/2nd, which states the following:

"The pursuit of the public interest, in light of the country's economic and financial situation, requires a consolidation effort that will require, in addition to continuous action to reduce public spending, the introduction of fiscal measures included in a broader set of measures to combat the budget deficit.

These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment programme. The Government is firmly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live on the income of their work. In line with that goal, this bill broadens the taxation of capital income and property, equitably covering a wide range of sectors of Portuguese society.

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

On the other hand, a stamp duty rate is created applying to urban properties with residential purposes whose Tax Property Value is equal to or exceeding one million euros.

Finally, this bill introduces a measure to strengthen the fight against tax fraud and evasion, through the strengthening of the regime applicable to the manifestations of wealth of taxpayers (personal income tax) and transfers to and from tax havens. First, the operation of the personal income tax collection based on manifestations of wealth is strengthened, reducing the differential from 50% to 30% between manifestations of wealth and income declared for personal income tax purposes. On the other hand, transfers to and from tax havens made between accounts of the taxpayer, not declared in accordance with the law, come to be considered a manifestation of wealth and, to that extent, subject to taxation for personal income tax purposes by indirect methods."

1. The conformity of the first wording of item 28.1, in light of the constitutional principle of equality, was affirmed by the Constitutional Court in Decision No. 590/2015, of 11 November 2015, delivered in case No. 542/14, in which it states that "there is no arbitrary fiscal measure in the scope rule at issue, because it lacks a rational basis. As we have seen, the legislative change was intended to broaden the taxation of patrimony, making it fall more heavily on property which, by its value significantly higher than that of the generality of urban properties with residential purposes, reveals greater indicators of wealth and, as such, is capable of founding the imposition of an increased contribution to the settling of public accounts to its holders, in realization of the aforesaid 'principle of social equity in austerity'" and that "the Tax Property Value on which the incidence of the tax depends is only reached by urban properties with residential purposes of higher economic significance, manifesting levels of wealth corresponding to the higher standards of Portuguese society".

2. It is also important to note that the doctrine and jurisprudence were unanimous in declaring that the first wording of item 28.1 did not apply to realities that could be classified as land for construction. Equally, the jurisprudence, namely of the Supreme Administrative Court (e.g., Decision of the Supreme Administrative Court of 09 September 2015, delivered in Case No. 047/15), clarified that, with respect to built properties, the relevant value for purposes of applying this item of the GTSD is that of each of the fractions with independent use and not, in the case of properties in full ownership, the aggregated Tax Property Value. This jurisprudence results from the fact that the Property Tax Code (PTC) determines that, regardless of the regime in which the registration and recording of the property takes place (horizontal property versus full ownership) the registration and valuation takes into account each part of the property capable of independent use (cf. article 12 of the PTC). This interpretation is the one that allows reconciliation of this rule with the requirement of rational economic basis and, therefore, not arbitrary, effected by the Constitutional Court in its assessment of the conformity of this rule with the relevant constitutional principles, in particular the principle of equality and its corollary, the principle of contributory capacity. That is, only parts of property capable of independent use and with a Tax Property Value equal to or exceeding €1,000,000.00 (one million euros) are capable of revealing the contributory capacity intended to be reached by item 28 of the GTSD.

3. It seems, therefore, clear that it should be concluded, in line with what was declared by the legislator in the respective explanatory memorandum, that the original wording of item 28.1 of the GTSD was intended to tax rights over luxury homes, because it reveals the necessary and appropriate contributory capacity for that purpose.

4. Subsequently, Law No. 83-C/2013, of 31 December, broadened the scope of item 28.1 of the GTSD, with item 28 coming to have the following wording:

"28. – Ownership, usufruct or right of superficies of urban properties whose Tax Property Value shown in the cadastral register, in accordance with the Property Tax Code (PTC), is equal to or exceeding €1,000,000 – on the Tax Property Value used for Property Tax purposes:

28.1 – For residential property or for land for construction whose construction, authorized or anticipated, is for residential purposes, in accordance with the provisions of the Property Tax Code – 1%

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in an order of the Minister of Finance – 7.5%"

1. That is, in line with the interpretation that the Tax and Customs Authority made of the original wording of item 28 of the GTSD, the scope of the same was expanded so that it encompasses rights of ownership, usufruct or right of superficies over land "for construction whose construction, authorized or anticipated, is for residential purposes".

2. Thus, in the new wording, item 28 of the GTSD applies to land for construction whose construction, authorized or anticipated, is for residential purposes with a Tax Property Value equal to or exceeding €1,000,000.00 (one million euros), calculated also in accordance with the rules contained in the Property Tax Code.

B) Analysis of the constitutional principles of equality and its corollary, the principle of contributory capacity

1. The analysis of the conformity of item 28 of the GTSD with the constitutional principles of equality and its corollary, the principle of contributory capacity, should be analyzed in light of what has been stated above. It will be important, in this regard, to analyze the provisions of articles 13 and 104, No. 3, of the CPR. Article 13 of the CPR establishes the principle of equality. It follows from the said constitutional provision that "All citizens have the same social dignity and are equal before the law", and that: "No person shall be privileged, benefited, prejudiced, deprived of any right or exempted from any duty by reason of descent, sex, race, language, territory of origin, religion, political or ideological convictions, education, economic situation, social condition or sexual orientation".

2. This principle is constantly interpreted as a limit on arbitrariness and discretion. As abundantly referred to, both in doctrine and jurisprudence, the principle of equality manifests itself in three dimensions (GOMES CANOTILHO/VITAL MOREIRA, Constitution of the Portuguese Republic Annotated, 4th ed, Vol. I, Coimbra, 2007, p. 339): "a) prohibition of arbitrariness, with differentiated treatment being inadmissible, whether without any reasonable justification, according to objectively constitutionally relevant criteria, or the identical treatment of manifestly unequal situations; b) prohibition of discrimination, with differentiated treatment between citizens not being legitimate if based on merely subjective categories or on account of such categories (...); c) obligation to differentiate, as a means to compensate for inequality of opportunities, which presupposes the elimination, by public authorities, of factual inequalities of a social, economic and cultural nature (...)".

3. This principle is interpreted and defined not as a prohibition on differentiated treatment but as a prohibition on arbitrariness and lack of economic rationality in the differences established. As has also been stated by doctrine and jurisprudence, including that of CAAD, within tax law the principle of equality has as its corollary the ideas of contributory capacity and uniformity of taxation (tax the equal equally and the different differently, in the measure of the difference). In this sense, the Constitutional Court Decision No. 197/2013, of 9 April 2013 is relevant, which, referring to earlier jurisprudence, states: "the principle of contributory capacity expresses and concretizes the principle of tax or fiscal equality. This is because if the principle of tax equality presupposes equal treatment of equal situations and unequal treatment of unequal situations, contributory capacity is the tertium comparationis – that is, the criterion – which must serve as the basis for comparison. In this sense, the principle of contributory capacity operates both as a condition or prerequisite as well as as a criterion or parameter of taxation (...). It operates as a prerequisite or condition in that it prevents taxation from affecting a wealth or income that does not exist; it serves as a criterion or parameter because it determines that the exaction of the taxpayers' patrimony be made in accordance with their 'ability to pay'. That is, taxpayers with the same ability to pay should pay the same taxes (horizontal equality), and taxpayers with different ability to pay should pay different taxes (vertical equality)".

4. The Constitutional Court has addressed the principle of equality in the sense that it should be interpreted together with other constitutional principles and, also, that it cannot eliminate the freedom of the legislative power to shape the scope of taxation (cf. Constitutional Court Decisions No. 187/2013, of 5 April 2013 and No. 590/2015, of 18 December 2015). It follows from the cited decisions that, insofar as the differences in treatment that emanate from the Law find reasonable justification, they will not merit censure. It is, therefore, in this light and assuming these objective criteria that the conformity of item 28.1 of the GTSD with the constitutional principle of equality and its corollary principle of contributory capacity should be analyzed.

5. For the analysis and decision sought here, the interpretation of article 104, No. 3 of the CPR also proves to be decisive. In accordance with this rule "the taxation of patrimony must contribute to equality between citizens". That is, respect for the principle of equality previously stated, and its corollary of taxation in accordance with contributory capacity, implies that tax rules be applicable generically and rest on valid economic presumptions that permit the conclusion that they are motivated and justified by criteria of proportionality and in the contributory capacity of each taxpayer. Contributory capacity which will manifest itself through justifiable and rational economic criteria that should be inherent to taxation.

6. On this aspect it is important to note that the fact that article 104, No. 3, of the CPR makes reference to the need for taxation on patrimony to contribute to equality between citizens does not imply a special legal content of the principle of equality. On this aspect, the doctrine that has argued that: "as the instrument to be used to pursue such equality is not specified, nor is tax equality always synonymous with the application of progressivity or another specific mechanism, the rule has no utility" (BRÁS CARLOS, Taxes. General Theory, 4th ed., Coimbra, 2014, p. 172); "[t]he No. 3 of art. 104 on taxation of patrimony is today completely ineffective, no more than a statement of principle, not even a very emphatic one" (XAVIER DE BASTO, "The Constitution and the fiscal system" in RLJ, year 138 (2009), p. 282). With the interpretive criteria enumerated in relation to the various legal provisions in question, it becomes important to apply them, then, to the concrete case.

C) Analysis of the violation of article 104 of the CPR on the grounds that the tax applies to each property individually and not to the totality of the real estate patrimony

1. As stated above, in the initial application the Claimant objects to the fact that Stamp Duty provided for in item 28.1 of the GTSD applies to the individual value of each real property and not to the totality of the patrimony of each taxpayer. In this manner, a taxpayer who is the owner of a single property whose relevant tax value is equal to or exceeding €1,000,000 (one million euros) is subject to tax and another taxpayer with patrimony (of identical nature) of higher overall value but divided by properties that individually do not have a Tax Property Value equal to or exceeding €1,000,000.00 (one million euros) is not burdened with any tax. It does not appear, however, that the Claimant has a valid argument.

2. As follows from doctrine interpreting article 104, No. 3, of the CPR, this constitutional rule does not place upon the legislator the obligation to tax patrimony on the basis of progressive rates or to make the taxation apply to the totality of the taxpayer's patrimony. In other words, it is a legitimate option of the legislator to make the tax apply to segments of patrimony individually considered provided there exists appropriate economic substance, that is, not arbitrary.

3. Indeed, item 28 of the GTSD is not intended to represent a general taxation on patrimony. As the Constitutional Court pointed out in Decision No. 590/2015, of 18 December, it is a partial tax that applies to each property / land for construction with residential purposes, with Tax Property Value being the relevant economic unit. Now, as already mentioned, article 104, No. 3, of the CPR does not require the existence of global taxation on patrimony, but only that this (taxation) contribute to equality between taxpayers. Accordingly, the legislative choice to tax properties / land for construction of higher value (those whose Tax Property Value is equal to or exceeding €1,000,000.00 – one million euros) exempting those with value below a pre-defined threshold conforms with the constitutional principles in force. Indeed, assuming item 28.1 of the GTSD the function of promoting "social equity in austerity" through, alongside other measures, the increased taxation of holders of real rights over properties with residential purposes of high value, it is clear that this legal provision has sufficient material foundation. The argument invoked by the Claimant cannot, therefore, proceed.

D) Analysis of the alleged violation of article 13 of the CPR on the grounds that the tax applies to land for construction with residential purposes without regard to the value of the concrete buildings authorized or anticipated

1. As regards this ground, after decisions in different senses, the Plenary of the Constitutional Court took a uniformizing position in Decision No. 378/2018 (http://www.tribunalconstitucional.pt/tc/acordaos/20180378.html), in the terms reproduced below:

In this approach, Decision No. 250/2017 argues, in essence, that the disregard, by the rule under scrutiny, of the differences existing both in the physical and legal planes between land for construction and buildings or existing constructions, leads to the subjection to taxation both "a plot of land for construction intended for the construction of one or more luxury homes" or, even, "a luxury home already constructed" – that is: with a value equal to or exceeding one million euros – as well as "a plot of land for construction with a higher Tax Property Value [than that value], but intended for the construction of a collective housing building (…) consisting of autonomous fractions of small or medium size, all of them with value much lower than one million euros", a situation which is in no way materially comparable to either of the first two hypotheses.

The cause of unconstitutionality would reside, therefore, according to the position adopted, in the fact that the rule taxes the ownership of land for construction with a Tax Property Value equal to or exceeding €1,000,000.00, whose construction, anticipated or authorized, being for residential purposes, includes autonomous fractions with value below that sum, a situation which, by being unequal to those other situations, would merit different tax treatment.

But it does not appear that this is the case.

As emphasized in Summary Decision No. 214/2017, which analyzed and refuted equivalent argument, "the connection between the rules of objective and subjective scope applicable to the legal situation provided for in item 28.1 of the General Table of Stamp Duty and the rules contained in the Property Tax Code has as a consequence that the concept of property relevant for purposes of the Stamp Duty Code be, in accordance with the provisions of article 1, No. 6, thereof, the homonymous concept defined in the PTC; and that the taxpayer of Stamp Duty, in the situations provided for in item No. 28 of the respective General Table, be, as established in article 2, No. 4, of the Stamp Duty Code, whoever, on 31 December of the year to which the tax relates, is owner of a property with a TPV [Tax Property Value] appraisal in accordance with the PTC, equal to or exceeding €1,000,000.00".

Considering such homogeneity of tax legal concepts, it is clear that, for purposes of application of the Stamp Duty Code, just as for purposes of application of the PTC, a plot of land for construction is not equal to an urban property, whether for residential or other purposes, as is asserted in the decision appealed. But, precisely because it is so, it is not possible to apply retroactively, even if merely for purposes of analysis or legal construction, tax criteria that only apply after the construction of the building, not before.

As emphasized, what is relevant for purposes of application of the rule in item 28.1 is the legal and patrimonial situation existing on the date the tax obligation becomes due, being, therefore, by reference to the concrete tax fact existing on that date that the existence, or otherwise, of a rational or reasonable basis should be assessed to justify the tax and legal consequences that immediately emerge therefrom.

The juridically relevant transformations that the object of ownership may undergo over the course of time, from that moment onwards, resulting notably from the possibility of a building being constructed on a plot of land for construction with Tax Property Value exceeding €1,000,000.00 consisting of autonomous fractions of lower value, configure hypotheses of uncertain verification and content, even considering the existence of a licensing in those terms, which may come to be altered or not even used. They cannot, therefore, be decisive in the assessment of the constitutionality of rules, or segments thereof, which, by virtue of their occurrence, will cease to be applicable.

The only certain data that, in the legal framework applicable, can and should be assessed, at the constitutional level, is the ownership, at the moment the tax obligation becomes due, of real property rights of enjoyment over a plot of land for construction with Tax Property Value equal to or exceeding €1,000,000.00, whose construction, authorized or anticipated, is intended for residential purposes.

Now, from the legally relevant perspective of the demonstration of wealth, plots of land intended for the construction of dwellings, independently of the legal structure and typology that these latter may come to assume, are not comparable to properties consisting of autonomous fractions.

In the first case, it is a single property, in accordance with the definitions adopted by the Stamp Duty Code, whose TPV, determined in accordance with the Property Tax Code, cannot but be taken into account to assess the incidence of Stamp Duty; in the second case, with each of the autonomous fractions being considered as constituting a single property (article 2, No. 4, of the PTC, applicable), there are as many properties as autonomous fractions, with the TPV of each of them counting for purposes of incidence of Stamp Duty.

Now, while the value of the plot of land for construction necessarily reveals the contributory capacity of its sole holder, the same does not occur with a property consisting of horizontal property, "because, being each of the fractions susceptible of its own legal real situation, only the value of each of them is fit to reveal the contributory capacity of its holder" (Decision No. 620/15; in this sense, cf. Summary Decision No. 214/2017).

Considering the totality of the applicable legal framework and, in particular, the scope of application of the rule contained in Item 28.1 of the GTSD – the ownership of a residential property or of a plot of land for construction of dwellings with TPV equal to or exceeding €1,000,000.00 – the owner of a plot intended for construction reveals, on the date of the tax fact, a contributory capacity higher than the holder of each of the autonomous fractions whose Tax Property Value does not exceed that amount, even if the building anticipated to be constructed also comes to include fractions of value less than €1,000,000.00.

That is, as what is relevant for tax purposes is only the TPV of each autonomous fraction - which, as we have seen, constitutes a legal economic-legal unit statutorily qualified as constituting a single property – it is not valid to compare the patrimonial situation of the owner of an already-constructed property for residential use, whose fractions have Tax Property Value less than €1,000,000.00, with that of the owner of a plot of land for construction with value equal to or exceeding that amount, even if the latter has authorization to construct a property with such characteristics thereon.

In accordance with the applicable legal criteria, whose constitutionality is not questioned, the owner of an already-constructed property, consisting of horizontal property, is not considered, for tax purposes, as holder of the totality of the autonomous fractions composing it, precisely considering the economic-legal autonomy of the latter in relation to the building of which they form part. For this reason, as none of those fractions has a TPV of or exceeding €1,000,000.00, such person is not subject to payment of stamp duty.

Differently, the owner of a plot of land for construction of a residential building is already considered, for those same purposes, as holder of the corresponding Tax Property Value, for the obvious reason that, despite the future possibility of economic-legal division of that building, this has not yet materialized. Hence, as the plot has a TPV of €1,000,000.00 or more, he is required to pay the tax, a tax which, being compatible with the level of wealth demonstrated by the taxpayer at the moment the corresponding tax obligation becomes due, cannot be considered unfounded or arbitrary.

As impressively stated in a concurring opinion in Decision No. 250/2017:

"(...) it is not the circumstance that the construction anticipated on a given plot is reducible to a luxury dwelling or a property in horizontal property with several fractions of small or medium value that permits questioning the actual achievement of the purpose of taxation of specific manifestations of wealth. Whether the corresponding holder wishes to build a dwelling endowed with all manner of ostentation, a property in horizontal property with dozens of fractions or a simple dwelling, the reality is that, at the moment of the tax fact, we are invariably faced with a plot whose anticipated construction is directed to residential use and which assumes a TPV exceeding €1,000,000.00. And it is the ownership of such a plot – and not already the specific dwelling one wishes to construct – that permits referencing the respective owner as endowed with particular affluence.

If, notwithstanding the multiple possibilities at his disposal, the owner decides on the implementation of construction that does not reach such magnitude – namely because it appears in horizontal property, to result in taxation of the autonomous fractions and not of the building as a whole – this does not invalidate the finding that, as a plot of land, that real property presented itself, in itself, as a special manifestation of wealth."

And it being thus, it also offers no doubt that, contrary to what is maintained in the decision appealed, the differentiation introduced between taxpayers who find themselves in such a situation and those who do not, including the holders of urban properties consisting of urban fractions of TPV below €1,000,000.00, is adequate to the realization of the purpose pursued by the rule in Item 28.1, which is to tax in an increased manner the real estate patrimonies of greater value in terms adjusted to the satisfaction of the "principle of social equity in austerity."

1. Consequently, and applying that judgment of non-unconstitutionality of item 28.1 of the GTSD, it follows that, on this ground, the assessments that are the subject-matter of the present proceedings are not affected by any error regarding the legal presumptions.

In light of the conclusion reached, it is now important to address the other ground of unconstitutionality invoked by the Claimant.

E) Analysis of the alleged violation of the right to housing

1. The last of the parameters of constitutional non-conformity invoked by the Claimant was that of the right to housing (article 65 of the Constitution). Its non-invocation in the cited decisions of the Constitutional Court does not mean that the solution they reached would have been different had such a parameter been invoked: it is that the legal framework of the questions of constitutionality raised before the Constitutional Court (as before other courts) is not dependent on the request made to it, being therefore presumable that the judgment of non-unconstitutionality incorporated all relevant parameters.

2. The mere fact that the taxation in question applies – without any doubt or reservation from the constitutional standpoint – to dwellings makes it impossible for its application to land intended for the construction of dwellings to be subject to constitutional censure on that basis. This would obviously imply claiming greater protection for the right to future construction of housing than would be conferred on the right to housing itself.

3. Finally, the Constitutional Court has also pronounced on the specificity of the land covered by the taxation belonging to enterprises engaged in their commercialization. Thus, in Decision No. 22/2019 (http://www.tribunalconstitucional.pt/tc/acordaos/20190022.html) it cited the earlier Decision No. 378/18:

"It should, however, be underlined that the tax provided for in Item 28.1, as is proper for taxes on patrimony, delimits its scope of application by exclusive reference to the ownership of certain patrimony values, "independently of the function performed by such assets (productive capital, application of funds or saving or durable consumption)" (Summary Decision No. 214/2017). Furthermore, being a tax on patrimony, it also does not individualize or distinguish the respective taxpayers by resort to any criterion other than precisely the ownership of such patrimony values. Accordingly, it applies indiscriminately to natural and legal persons and, within this latter category, to associations, foundations and commercial companies, independently of the economic sector in which the latter operate and the specific commercial risks existing in their respective sectors of activity, itself proper to any and all commercial activity.

Now, as we have seen, the choice for such a model of taxation is constitutionally legitimate, being virtually capable, with such a configuration, of pursuing the programme that the Constitution associates with it of contributing to equality between citizens, not resulting from the argument advanced in the decision under appeal a founded demonstration that there effectively occurs "intolerable arbitrariness" in the normative option of extending the incidence of the said tax to land for construction.

In fact, if it is certain that mere ownership of land for construction of dwellings with value equal to or exceeding €1,000,000.00 does not permit, by itself alone, determining the concrete and complete economic-financial situation in which the taxpayer of the tax finds itself – which, it is repeated, is not constitutionally required – it also does not authorize extrapolative judgments about the type of taxpayers affected by such a scope rule, the economic sector in which they operate and the cyclical vicissitudes, particularly of market, to which they may be subject.

As referred to, the rule at issue starts from the consideration of concrete legal-patrimonial situations, delimited as a function of the Tax Property Value of the real property and its normal social purpose, integrating in its subjective scope of application a determined set of taxpayers in accordance with a uniform criterion: the ownership of land for construction of buildings for residential use of high Tax Property Value. In relation to none of them is their concrete economic-financial situation valued (income or profits), their nature (natural or legal), structure of organization (business or non-business), concrete legal form assumed (commercial company or other) and, still less, the diverse sectors of activity in which the merchants covered might eventually operate and the specific risks inherent to each of those branches of activity.

The mere statistical probability of being affected by the rule in question of commercial companies dedicated to real estate promotion, associated with the consideration of uncertain-verification economic variables, such as the economic impact of the tax in that particular branch of commercial activity – whose value, besides, will not cease to be considered as a cost of activity – does not constitute a sufficiently solid reason to support a judgment of unconstitutionality of the rule at issue, in the specific hypothesis under assessment, considering, furthermore, the negative character of constitutional review dictated by the principle of equality."

1. It is therefore concluded, in the direction of the constitutional conformity of the impugned rule, which was the only ground invoked against the assessment acts Nos. 2015... and 2015... relating to the year 2014 and issued under item 28.1 of the General Table of Stamp Duty (GTSD), as amended by Law No. 55-A/2012, of 29 October, in the total amount of €68,466.01, which had been impugned by the Claimant.

Decision

The present Arbitral Tribunal hereby decides to hold the claim of the Claimant as unfounded, accordingly maintaining the Stamp Duty assessment acts relating to 2014 contested by the Claimant.

Value of the proceedings

In accordance with the provisions of No. 2 of article 306 and No. 2 of article 297, both of the Civil Procedure Code, of subparagraph a) of No. 1 of article 97-A of the Tax Procedure and Process Code and of No. 2 of article 3 of the Rules of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €68,466.01 (sixty-eight thousand, four hundred and sixty-six euros and one cent).

Costs

In accordance with the provisions of No. 4 of article 22, No. 2 of article 12, both of the LRTA, article 2, No. 1 of article 3 and Nos. 1 to 4 of article 4 of the Rules of Costs in Tax Arbitration Proceedings, as well as in Table I attached to this enactment, the total value of costs is set at €2,448.00 (two thousand, four hundred and forty-eight euros), to be borne by the Claimant.

Let notice be given.

Lisbon, 25 February 2019.

The Arbitrators,

Fernanda Maçãs
(President Arbitrator)

Álvaro Caneira
(Member Arbitrator)

Francisco de Carvalho Furtado
(Member Arbitrator)

Text prepared by computer, in accordance with the provisions of No. 5 of article 131 of the Civil Procedure Code, applicable by referral of subparagraph e) of No. 1 of article 29 of the LRTA.

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