Summary
Full Decision
ARBITRAL DECISION
CAAD: Tax Arbitration
Case No. 495/2014-T
Subject Matter: Stamp Duty | Item 28.1 of the General Stamp Duty Table (2013) | Building Land
The single-arbitrator tribunal operating pursuant to the legal framework established by Decree-Law No. 10/2011 of January 20, constituted on 18-09-2014 at CAAD – Administrative Arbitration Centre, for which the arbitrator from the Centre's list, Nuno Maldonado Sousa, was appointed by the respective Ethics Council, hereby issues its arbitral decision as follows.
- Report
1.1. Constitution of the Arbitral Tribunal
A..., Torre Constructions Company, S.A., a company registered at the Commercial Registry Office of Lisbon under registration number and tax identification number …, with registered office at Avenue … Lisbon, filed a request for constitution of an arbitral tribunal pursuant to the combined provisions of Articles 2 and 10 of the RJAT and Articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, naming the Tax and Customs Authority as respondent.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 18-07-2014 and notified to the Tax and Customs Authority on 21-07-2014.
Pursuant to the provisions of Article 6(1) and Article 11(1)(b) of the RJAT, the Ethics Council appointed the undersigned as arbitrator of the single-arbitrator tribunal, who communicated acceptance of the appointment within the applicable time period, and notified the parties of such appointment on 03-09-2014. In compliance with the rule contained in Article 11(1)(c) of the RJAT, the arbitral tribunal was constituted on 18-09-2014.
1.2. The Claimant's Request
The Claimant requests that:
· The tax acts – Stamp Duty assessments for 2013 – relating to the urban property registered in the property roll of the Avenidas Novas parish, Lisbon municipality, Lisbon district, under property registration number ..., be annulled for defect of breach of law, including unconstitutionality, for error in factual and legal presuppositions;
· The Tax and Customs Authority be ordered to refund to the Claimant the amount of Stamp Duty paid, or to pay, regarding the assessments challenged herein;
· The Tax and Customs Authority be ordered to pay the Claimant compensatory interest at the legal rate, until full reimbursement of the amounts due and calculated on the stamp duty paid or payable by the Claimant until the final decision of the arbitral proceedings.
1.3. The Tax and Customs Authority's Position
The Tax and Customs Authority filed a response sustaining the legality of the assessment and defending the lack of merit of the claim and its grounds, holding that the property subject to the challenged assessment has the legal nature of a property with residential allocation. It thus considers that item 28.1 of the General Stamp Duty Table is applicable to building land. It concludes by requesting its absolution from the claim.
1.4. Procedural Investigation and Submissions
The Tax and Customs Authority and the Claimant did not request any additional evidence and waived the holding of the meeting provided for in Article 18 of the RJAT.
The Claimant and the Tax and Customs Authority waived making submissions.
1.5. Procedural Soundness
The arbitral tribunal was regularly constituted and has competence ratione materiae pursuant to the provisions of Article 2(1)(a) of the RJAT.
The parties possess legal personality and capacity (that of the Tax and Customs Authority pursuant to the provisions of Article 4(1) of the RJAT and Article 10(2) of the same statute and Article 1(a) of Ordinance No. 112-A/2011 of 22 March), are legitimate and are regularly represented.
There are no procedural nullities that taint the proceedings.
Thus, there is no obstacle to adjudication on the merits and a decision must be rendered.
- Decision
2.1. Factual Matters
2.1.1. Facts Deemed Proven
In these proceedings the following facts were established:
A. The Claimant was notified of the Stamp Duty assessment act of 17-03-2014, relating to the year 2013 with identification number 2014 … 1, determining a tax amount of € 21,858.15, with reference to the urban property registered in the property roll of Avenidas Novas parish, Lisbon municipality, Lisbon district under property registration number 00.... (10th initial claim and its document 2).
B. The urban property registered in the property roll of Avenidas Novas parish, Lisbon municipality, Lisbon district under property registration number 00... is described as "building land". (12th initial claim and its document 1).
C. With the assessment the Claimant was notified to pay in April 2014 the first instalment of Stamp Duty in the amount of € 7,286.05. (10th initial claim and its document 2).
D. The Claimant was notified to pay the subsequent second and third instalments of Stamp Duty, in July and November 2014, each in the amount of € 7,286.05. (10th initial claim and its documents 3 and 4).
E. On 25-03-2014 the Claimant made payment of the 1st instalment of Stamp Duty (71st initial claim and its document 2).
2.1.2. Facts Deemed Not Proven
No other facts of interest for the decision of the case were alleged.
2.1.3. Reasoning on Proven Factual Matters
The tribunal's conviction was based on the documentary evidence in the file and on the position taken regarding each fact in the pleadings by the parties, duly identified.
2.2. Legal Matters
The following questions are raised in these proceedings, which will be resolved below, to the extent necessary, according to a criterion of logical precedence:
o The fundamental question consists in determining whether the combined provisions of Article 1-1 of the Stamp Duty Code and item 28.1 of the General Stamp Duty Table, in the version in force until 31-12-2013, resulting from Law No. 55-A/2012 of 29 October, determine the incidence of the tax on building land or whether that rule only intended to tax already-built properties with residential allocation.
o In case of affirmative answer to the preceding question it is necessary to determine:
§ Whether the claim for refund of paid tax is well-founded;
§ Whether the Tax and Customs Authority should pay interest calculated on the value of the paid tax.
2.2.1. Fundamental Question
The fundamental question to be examined in these proceedings consists in determining whether the combined provisions of Article 1-1 of the Stamp Duty Code and item 28.1 of the General Stamp Duty Table, in the version in force until 31-12-2013, resulting from Law No. 55-A/2012 of 29 October, determine the incidence of the tax on building land or whether that rule only intended to tax already-built properties with residential allocation.
The Tax and Customs Authority argues that the expression "urban properties with residential allocation" in item 28.1 of the General Stamp Duty Table comprises both built properties and building land. In its thesis it resorts to the concepts of the Municipal Property Tax Code (CIMI), which allow for the assertion that property is any fraction of territory (Article 2-1) and that building land is in turn a species of urban property (Article 6-1). It argues that residential allocation and residential purpose or destination are notions with different scope. With regard to the notion of allocation of urban property, it understands that it is a broader expression that arises from the necessity to integrate other realities and to define it uses the rules proper to real estate valuation and considers that allocation depends on the type of use of built properties or their potential characteristics, which allow for a specific value to be established.
For its part, the Claimant defends an interpretation to the effect that urban property with residential allocation and building land are two distinct figures and that the latter is not subject to the incidence of the tax in question. It bases its conclusion on the definition it draws of the very notion of residential allocation, in the sense that this is "necessarily implicit in" "residential" use, referring to urban properties that have (or can have) an effective use for residential purposes, either because they are licensed for such or because that is their normal purpose. In this way it equates the notion of residential allocation to the figure of urban residential properties, already built, as opposed to building land which is for construction but does not yet contain the building.
It is therefore above all in the field of normative interpretation that the solution to the dispute must be found.
Law No. 55-A/2012 of 29 October introduced into the rule of Article 1 of the Stamp Duty Code an amendment such that this provision came to contemplate also "legal situations" in addition to "acts, contracts, documents, securities, papers and other facts" provided for in the General Stamp Duty Table. Furthermore, the same legislative amendment added item 28 to the General Stamp Duty Table, in which it provides for taxation of the ownership of the right of property, usufruct or right of superficies of urban properties whose taxable patrimonial value entered in the roll, pursuant to the Municipal Property Tax Code, is equal to or exceeding € 1,000,000, with the tax inciding on the taxable patrimonial value used for purposes of the Municipal Property Tax. The tax is calculated at the rate of 1% if the property in question has residential allocation and at the rate of 7.5% if it concerns a legal entity resident in a country, territory or region subject to a clearly more favourable tax regime.
The expression "residential allocation" does not emerge as evident when compared with the terminology used by the Municipal Property Tax Code to make the objective definition of the incidence of the tax and it is precisely therein that the interpretive divergence resides. It should be noted that it is in the Municipal Property Tax Code that the basic concepts are enshrined which tax law uses for taxation of patrimony, as is evidenced both by Article 1-6 of the Stamp Duty Code itself and Article 1-2 of the Municipal Tax Code, so that in dealing with a concept common to various taxes it is necessary to ensure proper treatment so as to guarantee the unity of the system, as the rules of legal interpretation require (Article 9-1 of the Civil Code).
For taxation of patrimony and making use only of its own characteristics, property is ultimately any fraction of territory, including waters, plantations and constructions of any nature incorporated or situated therein, with a character of permanence, provided it forms part of the patrimony of a person and has economic value (Article 2 of the Municipal Property Tax Code). In turn, properties may be rural or urban.
Rural properties are land situated outside urban agglomerations that are not building land, destined or capable of being destined for agricultural activities, including constructions directly related to that activity, its waters and plantations (Article 3 of the Municipal Property Tax Code).
Urban properties, which are all others and are divided into various species, namely (i) residential properties; (ii) commercial, industrial or service properties; (iii) building land; and (iv) others (Article 6-1 of the Municipal Property Tax Code). The specification of urban properties is made according to its purpose, or because it is licensed for the purpose in question or because that is the purpose for which it is normally destined (Article 6-3). In turn, building land comprises (i) that for which a license or authorization has been granted, or for which prior notice has been admitted or favorable prior information issued for a subdivision or construction operation; (ii) that which has been declared as such in the title of acquisition (Article 6-3 of the Municipal Property Tax Code).
In turn, classified as other urban properties are (i) land within the limits of urban agglomerations in which competent entities or land use planning instruments prohibit subdivision or construction (ii) land within an urban agglomeration that cannot have income-generating use and is not allocated to income-generating agricultural use; (iii) buildings and constructions licensed or, in the absence of a license, that have as their normal purpose ends other than residential, commercial, industrial or service purposes (Article 6-4 of the Municipal Property Tax Code).
Provision is also made for the classification of mixed property, when the same property has both rural and urban parts and neither can be classified as principal relative to the other (Articles 5-1 and 5-2 of the Municipal Property Tax Code).
It is believed that the conceptual constructions of the Municipal Property Tax Code should be understood as structuring the taxation of patrimony, for several reasons. Firstly because the very provisions of tax laws in this area of taxation express themselves in that sense, in particular Article 1-6 of the Stamp Duty Code and Article 1-2 of the Municipal Tax Code. Secondly because the Municipal Property Tax Code is a true code in its legal sense, i.e., it contains the core regime of rules relating to a specific matter; it contains the fundamental discipline, treating it in a systematic and scientific manner. Thirdly, the provisions of the Municipal Property Tax Code in question were drafted in the context of the reform of taxation of patrimony, considered in the complex of norms in which they are integrated and have the function of "establishing the precise contours of the reality to be taxed" (preamble of the Municipal Property Tax Code). For this reason the treatment of properties made by the Municipal Property Tax Code is taken as exhaustive from a conceptual standpoint.
It is important to determine whether in subjecting to Stamp Duty properties with residential allocation the legislator actually intended: (i) to tax a species of urban properties that had not previously been autonomized and which consists of all urban properties that are susceptible to having residential allocation, whether they are buildings with residential purpose or building land; (ii) whether it intended to tax urban properties that effectively have allocation for residential use, i.e., those in which that use is not an expectation or potentiality but a reality.
At first glance it could be said that the system of classification of urban properties does not allow for the possibility of building land having a specific purpose within itself; urban land either is for construction or is classified as other if, being situated within an urban agglomeration, construction is prohibited in it or if it cannot have income-generating use. The purpose or finality – residential, commercial, industrial or for services – thus emerges in the system of incidence of taxation on patrimony as a qualification only applicable to already-built properties and coincident with the license for the purpose in question or in accordance with the normal purpose (Article 6-2 of the Municipal Property Tax Code).
Of course it is always possible to assert that the purpose to which the provision of Article 6-2 of the Municipal Property Tax Code refers is not the same reality as the provision of Article 41, which regulates the allocation coefficient. Certainly it is not, as what this provision intends is to find a weighted element, in the form of a coefficient, which expresses the consolidated value of the various purposes (or uses, according to the title contained in the table of the article itself) existing, based on the three base criteria: commerce, services and housing, combined with the class of other urban properties (such as parking, storage and lofts), also taking into consideration factors such as the type of housing (e.g. at controlled costs) or constructive characteristics (covered, enclosed, etc.). This weighted element which intends to express the consolidated value for evaluation purposes is designated by the Municipal Property Tax Code as "allocation coefficient". Now to consider it appropriate that the use of the vocabulary "allocation" in the General Stamp Duty Table intends to qualify properties in which their valuation includes "residential" use in the calculation of the allocation coefficient does not help preserve the conceptual unity of the system, as its purity requires that each term be perfectly unambiguous and its meaning the same wherever it is used.
Moreover, even the provision of Article 41 of the Municipal Property Tax Code does not allow for the assertion that a property whose purpose (recognized or potential) is housing has residential allocation, as the coefficient to which Article 41 refers will never be a residential allocation coefficient; it will be a numerical coefficient that expresses a weighted value and which may contemplate in its calculation use for housing, to a certain extent. Article 41 of the Municipal Property Tax Code does not enshrine "residential allocation", "commercial allocation" or "allocation for services"; it enshrines a use coefficient that will synthesize the weight of each in the whole.
Furthermore, in the original version of the Municipal Property Tax Code, resulting from Decree-Law No. 287/2003 of 12 November, the term allocation was used exclusively with the meaning of effective use for a specific purpose or destination, in the provisions of Articles 3-1(a) and (b), 3-2, 9-4, 27-3 and 29-3 or as a proper name of the allocation coefficient in the provisions of Articles 38-1 and 41. The term "allocation" also did not confuse with purpose or normal destination as its use effectively had implicit effective use, as is necessarily deduced from the provision of Article 3-1(a), where distinction is made between properties allocated and properties with lack of concrete allocation but in any case properties possessing a normal purpose or use. Allocation thus emerged as the characteristic resulting from effective use and not from the qualification or attribute of the property.
Only with Law No. 53-A/2006, of 29 December (State Budget for 2007), through its Articles 77 and 78, was the introduction of Article 40-A made and in its wording the term allocation for housing was used. Without disparagement of the revision, made in the typical heat of State Budget elaboration, it seems that this only intended to introduce alterations in the matter of valuation and no longer in the conceptual system created (or renewed) by the Municipal Property Tax Code, as is inferred from the very scope of the alteration which only dealt with Articles 33, 39, 40, 41, 43, 44 and 62 which it altered and 40-A which it added, all dealing with that subject, not taking care to maintain intact the original terminology.
The use of the term allocation for a specific purpose is historically linked in the Municipal Property Tax Code to effective use for a specific purpose and the Code uses the concept with due consistency. More recently the term is associated with the purpose of properties for purposes of application of valuation criteria. However, no case is known in which the expression is used to designate a broader legal situation that encompasses both the sense of purpose provided for in Article 6-1(a) of the Municipal Property Tax Code (which it never actually had) and its allocation in the sense of use, referred to in Article 40-A.
For the Municipal Property Tax Code and concomitantly for the Stamp Duty Code, residential allocation does not have the meaning of comprising building land in which construction for that purpose may come to be erected but only urban residential properties, defined in Article 6-1(a) of the Municipal Property Tax Code.
Only this interpretation allows for the maintenance of the unity of the legal system and certainly the legislator knew how to express its thinking using appropriate and consistent terminology for the various codes that regulate taxation on patrimony, which has roots in its 2003 reform, a solution that seems more correct for the coherence of tax law.
Other questions are raised on this subject, in particular the question of determining at what point there is actually residential allocation of an urban property which has residence as its purpose but is not required to be analyzed for the solution of the case sub judice as the property in question has not yet even acquired this classification as it is only building land.
The prevailing case law has established solutions to the effect that building land is not comprised in the relevant provisions of the Stamp Duty Code, which may be seen in the review made on this matter by the Decision of the Single Arbitral Tribunal constituted at CAAD of 16-10-2014, in case 202/2014-T [Álvaro Caneira].
Let us now examine to what extent this understanding is applicable to the factuality brought by the Claimant.
It was established that the Claimant's property is "building land", with uncertainty as to the extent its aptitude is linked to the erection of housing. It was further established that on 18-03-2014 the Tax and Customs Authority made the Stamp Duty assessment relating to the year 2013, based on item 28.1 of the General Stamp Duty Table, relating to the Claimant's urban property.
From the legal matters set out above it clearly results that the right of property over building land, such as that of the Claimant, is not subject to payment of Stamp Duty pursuant to item 28.1 of the General Stamp Duty Table. It is thus necessary to conclude that the assessment is illegal and that the Claimant's claim is well-founded.
2.2.2. Refund of Paid Amounts
The Claimant also petitions that the Tax and Customs Authority refund to it the value of the Stamp Duty paid relating to the challenged assessment.
Pursuant to the provision of Article 100 of the General Tax Law, "the tax administration is obligated, in case of full or partial merit of complaints or administrative appeals, or of court proceedings in favor of the taxpayer, to the immediate and full reconstitution of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, under the terms and conditions provided for by law." It seems clear that the taxpayer is entitled to the reimbursement of amounts that it has paid, relating to assessments tainted with illegality, so that its patrimony is reconstituted to the amount it had at the moment preceding that payment.
It is important, however, to assess whether this Arbitral Tribunal enjoys competence to recognize this right or to condemn the Tax and Customs Authority to that effect. For this it is important to bear in mind that (i) with the RJAT it was intended to strengthen effective protection of the rights and legally protected interests of taxpayers (preamble of Decree-Law No. 10/2011 of 20 January); (ii) the imperative character of arbitral decisions for the Tax and Customs Authority has the extent of its exact terms (Article 24-1 RJAT); (iii) the obligation of reconstitution by the Tax and Customs Authority is subordinate to the very scope of merit of the claim (which can be full or partial) (Article 100 of the General Tax Law).
The first interpretive element cited prevents conceiving of any system that prevents or hinders the arbitral decision from achieving its objective, which is the determination of the law in the specific case. The protection of the rights of taxpayers is not satisfied with less, i.e., the decision must result in all consequences necessary to obtain legality. One cannot conceive that the illegality of the tax act being declared the taxpayer would still have to resort to another instance to see its right to reconstitution of the situation declared.
On the other hand, the second element leads to considering that being arbitral decisions imperative for the Tax and Customs Authority in its exact terms (Article 24-1 RJAT), this means that these must contain all elements necessary for the Tax and Customs Authority to, with complete exactness, restore legality and for this it is indispensable that the decision contains the precise limits and terms in which it judges.
The third element actually illustrates this necessity for exactness or precision of the decision. In asserting that the obligation of reconstitution by the Tax and Customs Authority is subordinate to the very scope of merit, the law (Article 100 of the General Tax Law) creates a nexus of dependence between the decision and the obligation of reconstitution. Reconstitution is made to the extent the claim is judged well-founded. There is no reconstitution without merit and the measure of merit defines the measure of reconstitution. The necessity of this precision is very clear in cases of partial merit. When partial merit occurs, how should the Tax and Customs Authority behave? The answer can only be one – in the exact terms and limits in which the decision was rendered, whether judicial or arbitral.
From the above it results that the decision on reconstitution must be taken by the arbitral tribunal when it is requested to examine the question.
In these proceedings it was established that the Claimant was notified to pay in April 2014 the first instalment of Stamp Duty, in the amount of € 7,286.05, which it satisfied on 25-03-2014. It was also established that the Claimant was notified to pay the subsequent second and third instalments of Stamp Duty, in July and November 2014, each in the amount of € 7,286.05.
The Claimant is entitled to full reconstitution of the situation that would exist if the assessment had not been made, so it must be refunded the first instalment it paid and those it has since satisfied.
2.2.3. Compensatory Interest
The Claimant further requests that the Tax and Customs Authority pay it "compensatory interest at the legal rate, until full reimbursement of the amounts due and calculated on the stamp duty paid or payable until the final decision of the arbitral proceedings."
Questions are raised here regarding the competence of arbitral tribunals to decide on this matter, which were examined in the preceding section. The question is the same and the solution is also the same. This Arbitral Tribunal considers itself competent for the reasons invoked to decide on this matter.
Pursuant to Article 43-1 of the General Tax Law, when there is undue payment of the tax obligation resulting from error attributable to the Tax and Customs Authority's services, the taxpayer is entitled to compensatory interest. In the same sense, the provision of Article 100 of the General Tax Law provides for the payment of the same interest as a means to obtain the requested reconstitution of the situation.
In the specific case it was established that the first instalment of the levied tax has already been paid. On the amount paid, compensatory interest is due to the Claimant at the legal rate, counted from 25-03-2014. Interest is also due to the Claimant calculated on amounts it has actually paid until the transit of this decision, for performance of the second and third instalments, from the date on which it satisfied them. In either case interest will be counted until full reimbursement of the amounts due.
- Decision
Having considered the factual and legal elements gathered and set out, the Arbitral Tribunal decides to judge the claim for arbitral pronouncement well-founded:
a) Declaring the illegality of the Stamp Duty assessment relating to the year 2013, dated 17-03-2014, relating to the urban property registered in the property roll under registration number 00... of Avenidas Novas parish, Lisbon municipality, Lisbon district, annulling as a consequence this assessment;
b) Ordering the Tax and Customs Authority to refund to the Claimant the amount of the first instalment it paid and of the other instalments it has since satisfied;
c) Ordering the Tax and Customs Authority to pay the Claimant compensatory interest at the legal rate, counted until full reimbursement of the amounts to be restored pursuant to the preceding item of this decision, calculated on:
I. The amount of € 7,286.05 corresponding to the first instalment, from 25-03-2014;
II. Amounts it has already paid for performance of the second and third instalments, from the date on which it satisfied them.
- Value of the Case
In accordance with the provision of Article 306-2 of the Code of Civil Procedure, by virtue of Article 29-1(e) RJAT and Article 97-A(1)(a) of the Tax Procedure Code, by virtue of Article 3-2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 21,858.15.
- Costs
The costs are borne by the party that occasioned them, understanding that the losing party occasions them (Articles 527-1 and 527-2 of the Code of Civil Procedure).
In these proceedings and considering the cited rule, responsibility for costs lies with the Tax and Customs Authority, as the losing party.
Pursuant to Article 22-4 RJAT, the amount of costs is set at € 1,224.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, which is borne by the Tax and Customs Authority.
Lisbon, 16 March 2015
The Arbitrator
(Nuno Maldonado Sousa)
[1] In this decision designated by the abbreviated form of common use "RJAT" (Legal Regime of Arbitration in Tax Matters).
[2] In this decision designated by the abbreviated form "AT" as is in general use.
[3] In this document the acronym TGIS is used to designate the General Stamp Duty Table.
[4] In this document referred to as "IR" the initial claim containing the request for pronouncement of the arbitral tribunal.
[5] In this document the acronym CIS is used to designate the Stamp Duty Code.
[6] In this document the acronym CIMI is used to designate the Municipal Property Tax Code.
[7] See José de Oliveira Ascensão – Law – Introduction and General Theory. 3rd ed., Lisbon, Calouste Gulbenkian Foundation, 1983, pp. 282-283.
[8] Article 112 was also updated which contains the tax rates.
[9] Accessible at http://www.caad.org.pt/
[10] In this document the acronym LGT is used to designate the General Tax Law.