Stamp Tax on Urban Land for Construction: CAAD Ruling 497/2015-T on Verba 28 TGIS

ARBITRAL AWARD

The arbitrators Judge Court of Appeals Justice Manuel Luis Macaísta Malheiros (arbitrator-president), Prof. Dr. Maria do Rosário Anjos and Dr. Luis Ricardo Farinha Sequeira, appointed by the Deontological Council of the Center for Administrative Arbitration to form the Collective Arbitral Tribunal, constituted on 20 October 2015, hereby render the following award:

I – Report

1. On 28 July 2015, A… (A…), autonomous patrimony with tax identification number…, hereinafter referred to as "Claimant", represented by its Management Company B…, S.A., with registered office at Rua…, no.…, … floor, …-… Lisbon, requested arbitral ruling, pursuant to paragraph a) of number 1 of article 2, paragraph a) of number 3 of article 5, and paragraph a) of number 1 of article 10, all of the Legal Regime of Arbitration in Tax Matters (RJAT) approved by Decree-Law no. 10/2011, of 20 January, for the purpose of declaring the illegality of the acts of assessment of Stamp Tax (IS), under item 28.1 of the General Stamp Tax Table (hereinafter GSTT) annexed to Law no. 150/99, of 11 September, which approves the Code of Stamp Tax on urban properties, embodied in the collection documents with the following numbers and amounts: 2015 … = €39,949.30; 2015 … = €19,705.10 and 2015…= €16,562.00, totalling € 76,216.40, as well as the refund of the amounts of taxes paid and payable during the pendency of the proceedings, plus compensatory interest from the dates of payment until full payment.

2. In the request for arbitral ruling, the Claimant chose not to appoint an arbitrator.

3. The request for constitution of the arbitral tribunal was accepted on 29 July 2015 and automatically notified to the Tax and Customs Authority (hereinafter the Respondent or TA) on the same date.

4. Pursuant to paragraph a) of number 2 of article 6 and paragraph b) of number 1 of article 11 of the RJAT, the following arbitrators were appointed: Court of Appeals Justice Manuel Luis Macaísta Malheiros (President), Dr. Maria do Rosário Anjos and Dr. Luis Ricardo Farinha Sequeira.

5. The Arbitral Tribunal was constituted on 20 October 2015, in accordance with the provision of paragraph c) of number 1 of article 11 of the RJAT.

6. The Tax and Customs Authority submitted its response on 18 November 2015.

7. The Claimant was notified, on 20 November 2015, of the tribunal's order requesting the presentation of the property records of the properties to which the tax referred to in the request for arbitral ruling applied.

8. On 18 December 2015, the Claimant presented to the tribunal the property records, which were not presented within the deadline due to the Claimant having misinterpreted the arbitral order.

9. On that same date, the Claimant submitted proof of having proceeded in the previous month with the payment of the 3rd instalment of stamp tax, in the amount of € 13,316.43.

10. On that same date, the Claimant declared waiving the holding of the meeting referred to in article 18 of the RJAT, considering all evidence to be documentary.

11. With agreement of the parties, by order of 29 December 2015, the tribunal dispensed with the meeting referred to in the previous number and granted the parties a deadline for submission of their respective pleadings.

12. By order of 13 January 2016, the date of 25 February was fixed for the rendering of the decision.

II – Position of the Parties

1. The Claimant contends, in summary, as follows:

1.1. The Claimant is the sole owner of the following properties:

§ land for construction registered in the urban property matrix of ... under matriculation article U-… (Ex-…) of the Parish of … –…and ... (Ex -… –…), Municipality of ... and District of Porto, and described in the Property Registry Office of ... under registration number…;

§ land for construction registered in the urban property matrix of ... under matriculation article U-… (Ex-…) of the Parish of … –…and ... (Ex-… –…), Municipality of ... and District of Porto, and described in the Property Registry Office of ... under registration number…;

§ urban property registered in the urban property matrix of Lisbon under matriculation article … (Ex-…), located at Rua…, no. … to…, in the District … – Lisbon, Municipality…– Lisbon and Parish … –…, which is within the geographical jurisdiction of the Finance Office of Lisbon... .

1.2. On the properties referred to in the previous number, the TA assessed stamp tax, applying the rule provided for in item 28.1 of the General Stamp Tax Table, totalling the IS assessed of € 76,216.40.

1.3. However, the Claimant does not accept the aforementioned assessments, since it considers that the rule of tax incidence provided for in item 28.1 of the General Stamp Tax Table is unconstitutional, by violation of the principle of equality and contributory capacity.

1.4. With regard to the urban property registered in the urban property matrix of Lisbon under matriculation article… (Ex-…), of the Parish…, the Claimant understands that the IS assessment on it suffers from errors in the factual and legal presuppositions, inasmuch as it does not fall within the scope of item 28.1 of the GSTT, since it is not dedicated to residential use.

1.5. The Claimant bases the unconstitutionality by violation of the principle of equality on three grounds:

a) First, from a horizontal equality perspective, because it admits that a certain taxpayer, with real estate assets that together exceed the threshold of 1 million euros "escapes" this incidence by reason of each property individually considered being below 1 million euros;

b) Secondly, equally from a horizontal equality perspective, by the fact that only property owners of urban properties or land for construction with residential dedication are burdened, leaving out property owners of urban properties dedicated to commerce, services or industry, even if the VPT of those properties is equally superior to 1 million euros;

c) Finally, because, from a vertical equality perspective, it burdens exclusively property owners of residential urban properties with VPT superior to 1 million, leaving out all property owners of properties below that threshold.

1.6. Being a corollary of the principle of equality the generality and impersonality of laws, it is certain that the principle of equality does not translate into a linear treatment of all citizens, in the sense that what is truly required is identical treatment of identical situations (horizontal equality) and differentiated treatment of differentiated situations, in the measure of that differentiation (vertical equality). What is prohibited, on the other hand, is arbitrariness, that is, any option to differentiate must be taken on the basis of objective grounds and respect the measure, the proportion of that difference.

1.7. In the fiscal sphere, the principle of equality translates, according to Casalta Nabais, into "the idea of generality or universality, by which all citizens are bound by the duty to pay taxes, and uniformity, requiring that such duty be measured by the same criterion."

1.8. The Claimant adds that number 1 of article 103 of the CRP determines that it is the responsibility of the fiscal system to effect a fair distribution of income and wealth. And from this precept we can derive, even if implicitly, the general criterion of taxation, which is that of contributory capacity: a fair distribution is only achieved if the tax is distributed in the measure of the capacity that each one shows to bear it.

1.9. In support of its assertion, it invokes the Constitutional Court, in Award no. 142/04, of 10 March 2004, "The Principle of contributory capacity expresses and concretizes the principle of fiscal or tax equality in its aspect of 'uniformity' – the duty of all to pay taxes according to the same criterion – with contributory capacity filling the unitary criterion of taxation", understanding this criterion as being that in which "the incidence and distribution of taxes – of 'fiscal taxes' more precisely – should be made according to the economic capacity or 'capacity to spend' (-) of each and not according to what each one might eventually receive in public goods or services (benefit criterion)".

1.10. It concludes by defending that contributory capacity appears as a prerequisite, as a criterion and as a limit of taxation in light of our fiscal system, thus preventing arbitrary solutions. Although, naturally, the principle must be compatible with other principles with constitutional dignity, such as the principle of the Social State, the freedom of legislative conformation, and certain requirements of practicability and cognoscibility of the tax fact, also indispensable for the fulfilment of the objectives of the fiscal system; nevertheless, the constitutional validity of a certain fiscal choice depends still on the existence of reasonable and objective grounds in its imposition.

1.11. The question in the case at hand will be whether the fiscal burden imposed on property owners of urban properties dedicated to residential use and on property owners of land for construction corresponds to a proportionally differentiating treatment in relation to property owners of urban properties dedicated to other purposes [in particular, commerce, industry or services or others].

1.12. It is further necessary to discern whether the burden imposed only on property owners of residential urban properties or land for construction with a VPT individually considered superior to 1 Million euros is reasonable, given the purposes invoked in parliamentary proceedings, of achieving a "fair and equitable distribution of fiscal effort", and that all contribute "according to their contributory capacity".

1.13. Now, the principle of contributory capacity implies, up to the limits of the practicability of such taxation, a global taxation, i.e., taxation of all income, taxation of all assets, taxation of all consumption. In short, all economic means must be employed in the payment of the tax.

1.14. Also, the legitimation of item 28.1 of the GSTT in light of the principle of equality and contributory capacity requires that taxation fall on all the economic force of the taxpayer, on all real estate assets, and in the measure of that force. It implies, therefore, that all real estate assets contribute to the assessment of that contributory capacity and that the quantum of such taxation be assessed in proportion to that capacity, simultaneously contributing "to equality among citizens".

1.15. It is admitted by the Claimant that the classification of the property [type / purpose] may be used in the assessment of that same contributory capacity. In fact, it already is necessarily by virtue of the current model of property appraisal. However, even within the scope of property appraisal, properties dedicated to commerce and services have a superior weighting.

1.16. And even if it were intended to avert the arbitrariness of that differentiation based on the understanding that contributory capacity would be revealed by the fact that the taxpayer holds the urban property for its own permanent residence (in the light of "income consumption", as argued in Arbitral Decision no. 487/2014-T, of 13 January 2015) such understanding is not at all applicable to the Claimant, which constitutes a legal person which by its nature does not occupy properties for permanent own residence.

1.17. In the same context, this light of income consumption, of special contributory capacity revealed by the holding of a high-value property for permanent own residence, cannot be transposed per se to the property owner of land for construction which does not occupy the projected house, nor is it certain that it will come to occupy it. Nor is it the case with regard to the property owner of a property who holds it merely for investment purposes [rental]. Therefore, there is no evidence of a special contributory capacity in the consideration of some types of properties and not others.

1.18. Properties with identical tax patrimonial values reveal identical contributory capacities, regardless of the use that these properties have, there being no reason that objectively justifies the exclusion of the other types of urban properties.

1.19. On the other hand, because it only considers relevant for taxation purposes properties individually considered that have a VPT superior to 1 million euros, item 28.1 imposes discrimination of patrimonially identical situations: if the revelation of availability of economic means arises in relation to the property owner who has a property with that value, there will be as much or greater contributory capacity the property owner who holds two or more properties that together total that same value.

1.20. Indeed, and since that contributory capacity is merely an appearance (because the holding of real estate assets is not necessarily revelatory of the existence of sufficient income to bear the tax that burdens that same real estate assets) more easily can the owner of several properties bear the burden of the tax – who to meet that burden could sell one of them – than one who has only one, and who is supposed to reside in it.

1.21. Consequently, one does not discern "a connection between the tax obligation and the economic presupposition – contributory capacity - selected as the object of the tax.

1.22. The Claimant then invokes what was decided in Arbitral Case no. 218/2013, of 24 February 2014.

1.23. Regarding the error in the factual and legal presuppositions of the assessment of Stamp Tax on the urban property with matriculation article U-… (Ex-…), the Claimant further understands that it is not subject to IS under item 28.1 since it is not a residential property as provided in the respective incidence item. In fact, as is duly described in the updated Urban Property Record of the urban property in question, we are dealing with "an urban property entirely dedicated to the owner's business activity". In truth, in that property there are installed, certainly since its acquisition by A…, various departments and services of Bank C…, S.A., a financial institution that heads Group D… and promotes the Pension Fund which is the owner of the property at issue.

1.24. Given the above, given the necessary residential dedication and the fact that the property in question does not have such dedication, the assessment of Stamp Tax in question would be inadmissible, requiring the declaration of its illegality.

1.25. In fact, the Claimant argues, nor does one understand the present assessment when the TA's own services have already recognized, within the process of Gracious Complaint no. …2013… in which the Assessment of IS under item 28.1 relating to the year 2012 was discussed, the existence of "error in transcription of cadastral elements or entries in any official documents", concluding on the need "to correct the dedication of the property for services"

1.26. Moreover, seeking to drive the TA to correct the above-identified error, on 22/01/2015 the Claimant submitted a Complaint of the Matrix, seeking the correction of the transcription error, in accordance with paragraph d) of number 3 of article 130 of the CIMI.

1.27. Request regarding which it obtained approval, as per the Decision of which it was notified by Official Letter no. … of 20/05/2015, with receipt in the Claimant's offices on 25/05/2015.

1.28. Additionally, also within the scope of the discussion of the legality of the assessment of IS / item 28.1 of the GSTT on the urban property in question, relating to the year 2013, in which the Appellant resorted to the arbitral procedure, the illegality of the assessment perpetrated by the TA was recognized, in case no. 328/2014-T.

2. The Respondent contends, in summary, as follows:

I – On the lack of grounds for the Claimant's position:

2.1. Law no. 55-A/2012, of 29 October, introduced item 28.1 to the GSTT and with this legislative amendment it intended to make IS also apply to the ownership, usufruct or right of surface of urban properties whose tax patrimonial value contained in the matrix, in accordance with the CIMI, is equal to or superior to €1,000,000.00.

2.2. In the absence of any definition of the concepts of urban property, land for construction and residential dedication, in the IS sphere one must resort to the CIMI in search of a definition that allows assessment of possible subjection to IS, in accordance with number 2 of article 67 of the CIS in the wording given by Law no. 55-A/2012, of 29 October. In accordance with the said legal provision, to matters not regulated in the Code, relating to item 28.1 of the GSTT, the provisions of the CIMI apply subsidiarily.

2.3. Now, in accordance with number 1 of article 6 of the CIMI, urban properties are divided into residential, commercial, industrial or service properties, land for construction and others.

2.4. In turn, the classification of residential, commercial, industrial or service properties is dependent on their respective licensing, or in the absence thereof, on the normal destination for such purpose and not on their dedication (cf. number 2 of article 6 of the CIMI).

2.5. On the other hand, the notion of dedication of urban property is found in the part relating to the appraisal of properties, which is well understood since the appraisal of the property (purpose) incorporates value to the property, constituting a determining fact of distinction (coefficient) for purposes of appraisal.

2.6. As results from the expression "…value of authorized buildings", contained in number 2 of article 45 of the CIMI, the legislator chose to determine the application of the methodology of appraisal of properties in general, to the appraisal of land for construction, being therefore applicable to it the dedication coefficient provided for in article 41 of the CIMI.

2.7. In support of its argument, the Respondent invokes Award no. 04950/11, of 14-02-2012, of the Central Administrative Court.

2.8. Thus, for purposes of determination of the tax patrimonial value (VPT) of land for construction, the application of the dedication coefficient is clear in the scope of appraisal, so its consideration for purposes of application of item 28.1 of the GSTT cannot be ignored.

2.9. Contrary to what is advocated by the Claimant, the TA understands that the concept of "properties with residential dedication", for purposes of the provision in item 28.1 of the GSTT, encompasses both built properties and land for construction, immediately given consideration to the literal element of the rule. Note that the legislator does not refer to "properties intended for residential use", having opted for the notion "residential dedication", a different and broader expression, whose meaning must be found in the need to integrate other realities beyond those identified in paragraph a) of number 1 of article 6 of the CIMI.

2.10. Being certain that the only reference to "dedication" of urban properties emerges in the chapter relating to the determination of the tax patrimonial value (VPT) of urban properties - cf. articles 37 to 46 of the CIMI -, resulting from article 38 of the CIMI that the VPT of urban properties for residential use is determined by the application of a formula that integrates various factors, one of which is the dedication coefficient.

2.11. As regards land for construction, the VPT corresponds, in accordance with the provision in number 1 of article 45 of the CIMI, to "the sum of the value of the building footprint area to be constructed, which is that situated within the perimeter of fixation of the building to the ground, measured by the outer part, added to the value of the land adjacent to the building footprint." Number 2 of this provision clarifying that the value of the footprint area varies between 15% and 45% of the value of authorized or planned buildings.

2.12. Thus, it is clear that in the appraisal of land for construction, account is necessarily taken of the area to be constructed that is authorized and of the use to be given to that construction, that is, of the characteristics of the urban property that will be constructed on it.

2.13. In consonance, resulting clear the application of the dedication coefficient for purposes of assessment of the VPT of land for construction, it is symptomatic that its consideration for purposes of application of item 28.1 of the GSTT (in the prior wording) cannot be ignored.

2.14. The urban legislation, invoked by the Claimant, has, for purposes of determination of the concept of urban property with residential dedication, no application, since the fiscal classification of urban properties is not bound by their respective licensing. A property licensed or intended for residential use is not the same as a property with residential dedication.

2.15. One cannot ignore that the license permit for the carrying out of urban operations must contain, among other elements, the number of lots and the indication of the area of location, purpose, building footprint area, construction area, number of stories of number of units of each of the lots, with specification of the units intended for controlled-cost housing, where provided, in accordance with paragraph a) of article 77 of the Legal Regime of Urban Development and Construction (RJUE).

2.16. And even though article 77 of the RJUE contains mandatory specifications, immediately for permits for subdivision operations or urbanization works, and for construction works, the Municipal Master Plans also establish the strategy for municipal development, the municipal policy for land organization and urbanism and other urban policies. It integrates and articulates the guidance established by territorial management instruments of national and regional scope and establishes the model for spatial organization of municipal territory.

2.17. For the reasons stated, the Respondent defends that long before the actual building of the property, it is possible to ascertain and determine the dedication of the land for construction.

2.18. The Respondent further states that the progressive rates of IMT provided for in paragraphs a) and b) of article 17 of the CIMT apply to acquisitions of urban properties intended for permanent own residence and residence and not to properties with residential dedication.

2.19. Furthermore, no doubt can be raised as to 2014, since, with Law no. 83-C/2013 of 31-12-2013, the wording of that provision was changed to expressly include land for construction as an objective element of incidence of the rule, so there is necessarily an absence of any attempt to invoke any interpretive issue of the letter of the Law.

II – On the alleged unconstitutionality of item 28.1:

2.20. The principle of equality, as it emerges from article 13 of the CRP, implies that All citizens have the same social dignity and are equal before the law. Furthermore, article 104, number 3, also of the CRP, determines that The taxation of assets must contribute to equality among citizens.

2.21. However, with respect to number 3 of article 104 of the CRP, the doctrine cautions that the principle of equality, as concerns assets, must be interpreted with some parsimony, in the sense that it does not involve a particular and autonomous legal content of the principle of equality in the scope of taxation of assets. To justify this position, the TA cites some doctrine, namely Américo Brás Carlos and Xavier de Basto and José Casalta Nabais.

2.22. In jurisprudential terms, the Respondent cites the Award of the Constitutional Court no. 197/2013, of 9 April, and affirms that the most recent decisions of the Constitutional Court, in the aspect relevant here, correctly signal that the principle of equality requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, i.e., distinctions of treatment that do not have justification and sufficient material foundation. In this sense, the principle of equality is concretized and possesses various dimensions, such as (i) the prohibition of arbitrariness, (ii) the prohibition of discrimination and (iii) the obligation of differentiation.

2.23. It considers that the Claimant raises the violation of the principle of equality before fiscal law only in the dimension of prohibition of differentiation in equal situations and that, on this dimension, pronounced the Award of the Constitutional Court no. 563/96, of 16 May, in which it was said, in particular, that The principle does not prevent that, taking into account the freedom of legislative conformation, differentiation of treatment can be (should be) established, "reasonably, rationally and objectively founded", under penalty of, should this not be the case, "the legislator incurring in arbitrariness, by disregard of respect for objectively justified solutions by constitutionally relevant values", in the consideration of said award no. 335/94. The point is that there is sufficient material foundation that neutralizes arbitrariness and averts unfounded discrimination (what matters is that one does not discriminate in order to discriminate, J.C. Vieira de Andrade tells us - The Fundamental Rights in the Portuguese Constitution of 1976, Coimbra, 1987, p. 299).

2.24. It further reinforces its position with the citation of the Award of the Constitutional Court no. 187/2013, of 5 April: only can be censured, on the basis of violation of the principle of equality, the regime choices made by ordinary legislation in those cases in which it is proven that they result in differences of treatment between persons that do not find justification in reasonable, perceptible or intelligible grounds, taking into account the constitutional purposes which, with the measure of the difference, are pursued", as well as that this principle, in its dimension of prohibition of arbitrariness, constitutes an essentially negative criterion (...) which, not eliminating "legislative conformation freedom" - understood as the freedom that pertains to the legislator to "define or qualify the factual situations or relations of life that are to function as reference elements to be treated equally or unequally" -, entrusts the courts not the faculty to replace the legislator, "weighing the situation as if they were in its place and imposing their own idea of what would be, in the case, the reasonable, just and opportune solution (what would be the ideal solution of the case)", but rather the faculty to "avert those legal solutions entirely incapable of being rationally credited.

2.25. To conclude that item 28 is a rule in conformity with the Constitution of the Portuguese Republic. It applies to the ownership, usufruct or right of surface of urban properties with residential dedication, whose tax patrimonial value contained in the matrix, in accordance with the CIMI, is equal to or superior to € 1,000,000.00, that is, it applies to the value of the property. The legislator defined an economically relevant presupposition, constitutionally valid, as a manifestation of contributory capacity (whose addressees have effectively a special contributory capacity in the face of the adopted criterion) required for the payment of this tax.

2.26. It is, unequivocally, a rule of general and abstract character, applicable indistinctly to all cases in which the respective factual and legal presuppositions are fulfilled. The fact that the legislator established a value (€1,000,000.00) as a delimiting criterion of the incidence of the tax, below which the forecast of the tax rule is not fulfilled, constitutes a legitimate choice of the legislator as to the fixing of the material scope of "luxury residential properties" that it intends to tax more heavily, all the more so because any other value of similar magnitude would likewise assume, an artificial character that is inherent to any quantitative fixing of a level or limit.

2.27. The different valuation and taxation of a property with residential dedication in relation to a property intended for commerce, industry or services, or even a rustic property, results from the different aptness of the properties in question (residential/services/commerce/industry/agricultural activity), which sustains the different treatment given by the legislator which, for economic and social reasons, decided, within its freedom of conformation, to exclude from the incidence of the tax properties intended for purposes other than residential ones.

2.28. The Respondent defends that it is essential, to evaluate the constitutionality of item 28.1 GSTT, to verify the historical and chronological context in which it emerged, which was in an exceptional context and of evident difficulties that the Country, particularly public accounts, faced during the fulfillment of the adjustment program to which the Portuguese Republic bound itself and which had as guiding document the Memorandum of Understanding On the Conditions of Economic Policy of 17 May 2011. We cannot, at all, ignore that the year 2012 was marked as a particularly burdensome year in terms of budgetary containment measures, targeting holders of work income, which was undoubtedly at the origin not only of the creation of Item 28.1 GSTT, but of the provision of an additional tax fact, as a form of equitable distribution of sacrifices. A context that demanded extraordinary measures for the collection of more fiscal revenue and where the legislator, without it being necessary here to discuss the goodness of the legislative measure and its reach, but only its manifest conformity with the Constitution, decided to call to the collective effort sectors of society that were previously outside the fiscal spectrum.

2.29. In support of its position, the Respondent cites the explanatory statement of Draft Law no. 96/XII (2nd), the statements of the Secretary of State for Tax Affairs during the discussion in the general scope of this proposal, as well as the Report that accompanied the Draft State Budget for 2013, from which it says it can be concluded that it was the unequivocal intention of the legislator to integrate in the collective effort to combat budgetary deficit and fulfillment of the adjustment program, sectors of Portuguese society that revealed wealth through ownership of properties whose tax patrimonial value was equal to or superior to €1,000,000, thereby embracing equitably a broad set of sectors of Portuguese society that revealed wealth through ownership of properties whose tax patrimonial value was equal to or superior to € 1,000,000.00.

2.30. For the legislator, item 28.1 of the GSTT aimed to rebalance the distribution of sacrifices, so that these did not fall only upon "those who live on the income of their work" (which, evidently, had in mind the measures implemented in the scope of IRS as to the alteration of the structure of rates and brackets of IRS, the surcharge of 3.5%, and the additional solidarity tax). Taxation in the scope of stamp tax is subject to the criterion of adequacy, in the exact measure in which it aims at the taxation of wealth embodied in the ownership of high-value residential properties and emerges in a context of economic crisis that cannot be ignored.

2.31. Regarding a difference of situations between the holding of "concentrated" real estate assets (one property with a value of €1,000,000) or "dispersed" real estate assets (several properties whose total value reaches €1,000,000) it must be immediately noted that the measure enshrined in item 28.1 of the GSTT is, in its very essence, entirely unrelated to any weighing or global assessment of the real estate assets of the taxpayer. It was therefore intended to configure a taxation that would fall, in a specific manner, on individual property components of the taxpayer's assets that were deemed luxury (not on the assets as a whole globally considered), because it was understood that the holding of such high-value residential real estate goods reflected an increased contributory capacity capable of explaining the enhanced contribution of their holders to the common effort of budgetary consolidation. The factual-legal reality selected by the legislator to constitute the base of incidence of the tax is the property itself considered, in attention to its dedication and its tax patrimonial value, not the global real estate assets of the taxpayers.

2.32. The Respondent affirms that its position contained in the previous number results immediately from:

i. the reference of that item 28.1 GSTT to "per property with residential dedication'';

ii. it is evidenced further by the provision in number 7 of article 23 of the CIS which establishes that the "tax due by the situations provided in item no. 28 of the General Table'' "is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority'';

iii. it is finally confirmed, with the reference, determined by number 2 of article 67 of the CIS, to the provision in the CIMI, it being known that the "municipal property tax (IMI) applies to the tax patrimonial value of rustic and urban properties located in Portuguese territory'' (cf. articles 1 and 2 of the CIMI) and that "the tax is due by the owner of the property'' (article 8, number 1 of the CIMI, without prejudice to the provision in number 2 regarding the usufructuary and superficiary).

2.33. With regard to properties with dedication other than residential, on which item 28.1 does not apply, the Respondent defends that the CIS states in its article 6, number 1 as "types of urban properties'' the properties: a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others', thus entirely differentiating, as autonomous categories, on the one hand, residential buildings or constructions and, on the other hand, commercial, industrial or for service buildings or constructions, as well as land for construction and the indeterminate type of "others", a difference that manifests itself in the different regulations subject of numbers 1, 2, 3 and 5 of article 40-A and articles 41 and 45 of the CIMI. Wherefore, contrary to what the Claimant intends, one cannot even admit that such situations should be subject to the same type of regulation, being certain that they differ in substance, so it is imperative to treat unequally that which is not equal, giving full compliance with the constitutional provision of equality.

2.34. It also considers that the non-inclusion of commercial, industrial or service properties, is intuitive in face of the historical, political, social and economic circumstances that surrounded the creation of item 28.1, for that being well-known and public that the revitalization of economic activity and the increase in exports are the doors of exit from the crisis, it is understood that no legislative measures were taken that would hinder economic activity, namely the increase in tax burden that hinders it and affects competitiveness in international terms. It constitutes a legitimate criterion of rational and logical differentiation, in no way violating the constitutional dictates, which imposes the limitation of incidence of the taxation in question to luxury residential properties or with residential dedication, with exclusion and to the detriment of properties with strictly economic dedications.

2.35. Still according to the TA, it is therefore unquestionable that it is not an absolutely unreasonable solution that, in the context of the particular conjunctural situation of a serious economic and financial crisis, budgetary imbalance and degradation of public finances, an additional tax effort be made to fall on the owners of luxury residential properties, without equally encompassing the owners of properties with non-residential dedications, which are destined for the development of economic activities, in addition to the principle of equality, in its sub-dimension of the principle of proportionality, imposes verification by the judge that the legislative solutions do not show themselves indubitably, glaringly, absolutely unreasonable, having as its presupposition a differentiation that is necessary.

2.36. This dimension of proportionality of the principle of equality is not to be confused with the classical separation between proportional and progressive taxation, nothing preventing at the constitutional level that the patrimonial taxation in question is based on an ad valorem proportional rate (cf. article 104, number 3 of the CRP). Succinctly, it results indisputably that, if the dedication of the property and its respective social function are different, the situation can – and should- be treated differently, as indeed, the very principle of equality requires. In this way, as the differentiated treatment finds sufficient material justification, the principle of equality is shown to be respected, whether per se, or in its dimension of proportional equality.

2.37. It is also important to note that taxation in the scope of stamp tax obeys the criterion of adequacy, applying itself indistinctly to all holders of properties with residential dedication of value superior to € 1,000,000.00, falling on the wealth embodied and manifested in the value of the properties, with any unconstitutionality by violation of the principle of proportionality or contributory capacity ceasing. The measure implemented seeks to achieve maximum effectiveness as to the objective to be achieved, with minimum harm to other public interests that do not translate into any arbitrariness of the distinction made by Item 28.1 according to the residential dedication of properties.

2.38. According to the Respondent, the said item is a legitimate, legal and constitutional choice of the legislator, as follows from the very recent Award of 11 November 2015 by the Constitutional Court, within the scope of case no. 542/14, which already referring to the amendments introduced by Law no. 83-C/20123 of 31 December decided: «(…) Not to judge unconstitutional the rule of items 28 and 28.1 of the General Table of Stamp Tax, added by article 4 of Law no. 55-A/20121, of 29 October, insofar as it imposes annual taxation on the ownership of urban properties with residential dedication, whose tax patrimonial value is equal to or superior to € 1,000,000.00»

III – Case Management

1. The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

2. The Parties have legal personality and capacity, are legitimate and are regularly represented, in accordance with articles 4 and 10, number 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

3. No nullities were invoked or identified in the case.

4. The Claimant raised a preliminary issue, alleging the unconstitutionality of item 28.1 of the GSTT.

5. During the pendency of the present proceedings, through a petition submitted by the Claimant, this collective arbitral tribunal became aware that the Tax and Customs Authority proceeded to issue an assessment relating to the year 2014, of Stamp Tax, Item 28.1 of the GSTT, through document 2015…, relating to the urban property registered in the urban property matrix of Lisbon under matriculation article …of the parish of…, with an amount payable of € 0.0, which was received by the Claimant on 20 October 2015.

6. The Tax and Customs Authority proceeded to reverse the amounts paid by the Claimant relating to the 1st and 2nd installments of the Stamp Tax of 2014, Item 28.1 of the GSTT - € 11,041.34 - relating to the urban property registered in the urban property matrix of Lisbon under matriculation article … of the parish of…, which was received by the Claimant on 22 October 2015.

7. The present request for arbitral ruling was submitted electronically on 28.07.2015.

8. One of the requests formulated by the Claimant has as its object the assessment relating to Stamp Tax of 2014, Item 28.1 of the GSTT, which fell on article … of the parish of…, regarding which the petitioner requested the annulment of the respective tax act.

9. Now, the instance is terminated by supervening futility of the dispute, in accordance with article 277, paragraph e) of the C. Civil Procedure, when a procedural occurrence makes the instance unnecessary.

10. As noted by José Lebre de Freitas, in Annotated Code of Civil Procedure, Coimbra Publisher, Volume 1, at p. 512 "The impossibility or supervening futility of the dispute occurs when, occurring during the pendency of the instance, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or object of the case, or finds satisfaction outside the scheme of the relief sought. In one and the other case, the solution of the dispute ceases to be of interest - beyond, by impossibility of achieving the intended result; here, by it having already been achieved by another means".

11. In the case at hand, the annulment of the assessment of Stamp Tax of 2014 on article … of the parish of … carried out by the Tax and Customs Authority (at a moment subsequent to the filing of the present request for arbitral ruling) constitutes the termination of the tax act in question and likewise means its disappearance from the legal tax order, by reason of which the arbitral scrutiny regarding the illegality of that tax assessment lost its object by virtue of its meantime annulment ex officio.

12. It results from the above that, with such tax act no longer in force in the legal tax order, not only has such annulment request lost its object, but equally its consideration by this tribunal is necessarily prejudiced, being that the result sought and petitioned by the Claimant has already been achieved.

13. Accordingly, given the above, it is necessary to recognize the existence of an exception by reason of impossibility or supervening futility of the dispute, in accordance with paragraph e) of article 277 of the CPC and, in consequence, this tribunal must refrain from considering such request regarding the annulment of the Stamp Tax of 2014 that fell on article … of the parish of…, ruling the instance extinct and absolving the Respondent of the instance in accordance with article 278 of the said legal compendium.

IV – Findings

1. Factual Findings

The Tribunal considers the following facts as proven:

1.1. The Claimant is the sole owner of the following properties:

§ land for construction registered in the urban property matrix of ... under matriculation article U-… (Ex-…) of the Parish of … –…and ... (Ex -… –…), Municipality of ... and District of Porto, and described in the Property Registry Office of ... under registration number…;

§ land for construction registered in the urban property matrix of ... under matriculation article U-… (Ex-…) of the Parish of … – Mafamude and ... (Ex-… –…), Municipality of ... and District of Porto, and described in the Property Registry Office of ... under registration number…;

1.2. The TA assessed stamp tax, relating to the year 2014, applying the rule provided for in item 28.1 of the General Stamp Tax Table, totalling the IS assessed of € 76,216.40.

1.3. The Claimant was notified for payment of the Stamp Tax assessments identified by documents 2015 …and 2015… .

1.4. The Claimant submitted a gracious complaint no. …2013…, which was partially granted, providing for the correction of the dedication of the property from Residential to Services, having on 22/01/2015 submitted to the Finance Office of Lisbon… a complaint of the matrix on the ground of "Error in transcription of cadastral elements or entries in any official documents, in accordance with article 130 of the CIMI"- which came to be processed under no. … …/2015 – meriting approving order of 20/03/2015, promoting the preparation of official Model 1 declaration with its correct dedication.

2. Legal Findings

With the factual findings established, it is necessary to address the legal issues under discussion in the present proceedings, corresponding, in summary, to the issues raised by the Claimant in the present arbitral request.

Issues that involve assessing the alleged unconstitutionality of the rule of tax incidence contained in item 28.1 of the GSTT, in light of the constitutional principle of tax equality and contributory capacity, which fell on the two pieces of land for construction of which the Claimant is the holder.

Let us first focus on the succession of wordings that Item 28.1 GSTT has already known, notwithstanding its still short period of application.

Law no. 55-A/2012, of 29 October, made several amendments to the Code of Stamp Tax and added item 28 to the GSTT, with the following wording:

"28 – Ownership, usufruct or right of surface of urban properties whose tax patrimonial value contained in the matrix, in accordance with the Code of Municipal Tax on Properties (CIMI), is equal to or superior to € 1,000,000 – on the tax patrimonial value used for the purpose of IMI:

28.1 – Per property with residential dedication – 1 %;

28.2 – Per property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5 %."

In the transitional provisions contained in article 6 of that Law no. 55-A/2012, the following rules were established relating to the assessment of the tax provided for in that item:

"1 – In 2012, the following rules must be observed by reference to the assessment of stamp tax provided for in item no. 28 of the respective General Table:

a) The tax fact occurs on 31 October 2012;

b) The taxpayer of the tax is the one mentioned in number 4 of article 2 of the Code of Stamp Tax on the date referred to in the previous paragraph;

c) The tax patrimonial value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Code of Municipal Tax on Properties by reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

e) The tax must be paid, in a single installment, by the taxpayers by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential dedication appraised in accordance with the Code of IMI: 0.5 %;

ii) Properties with residential dedication not yet appraised in accordance with the Code of IMI: 0.8 %;

iii) Urban properties when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance: 7.5 %.

2 – In 2013, the assessment of stamp tax provided for in item no. 28 of the respective General Table must fall on the same tax patrimonial value used for purposes of assessment of municipal property tax to be carried out in that year.

3 – The failure to deliver, in full or in part, within the indicated deadline, of the amounts assessed as stamp tax constitutes a tax violation, punished in accordance with the law."

The wording used in the said item 28.1 and in sub-paragraphs i) and ii) of paragraph f) of number 1 of article 6 of Law no. 55-A/2012 used a concept that is not used in any other tax legislation, in these precise terms, which is that of "property with residential dedication".

Namely in the CIMI, which in various norms of the Code of Stamp Tax introduced by that Law is indicated as a diploma of subsidiary application regarding the tax provided for in the said item no. 28 [articles 2, number 4, 3, number 3, paragraph u), 5, paragraph u), 23, number 7, and 46 and 67 of the CIS], such a concept with that designation is not used.

Law no. 83-C/2013, of 31 December, which came into force on 1 January 2014, altered the wording of that rule (item no. 28.1), giving it the following wording:

"28.1 - Per residential property or per land for construction whose authorized or planned building is for residential purposes, in accordance with the provisions of the Code of IMI – 1 %"

In the case at hand, there are assessments of Stamp Tax relating to the year 2014, whose payment periods took place in 2015, through three installments, due in April, July and November.

Considering the application of the principle of tempus regit actum, according to which the legal diploma that is in force on the date of the fact (in casu, tax fact) should apply, the resolution of this dispute cannot fail to obey the legislative wording in force, that is, the law in force in 2014.

Such wording of the legal rule brought by Law no. 83-C/2013, of 31 December, brought, among other amendments to the basis of incidence of the Stamp Tax, the express provision of land for construction whose authorized or planned building is for residential purposes.

Thus, the concept of property for purposes of incidence of stamp tax now encompasses, without room for hesitation, land for construction, whose authorized or planned building is for residential construction.

A conclusion that could not be drawn from the prior version – applicable until 2013 - as, in fact, results objectively not only from numerous arbitral decisions, but equally from the jurisprudence of our superior courts.

It happens that the wording in force from 2014 and still in force on the present date regarding Item 28.1 of the GSTT is unequivocal in making item 28.1 of the stamp tax table include within the scope of subjection to that item of the Stamp Tax table, land for construction, provided that authorized or licensed for residential construction.

Now, in that matter the Claimant does not appear to dissent, raising nothing regarding the possible non-incidence on such species of urban properties.

In this conformity, the question of incidence or not of Stamp Tax on land for construction appears to be presently settled, since from the letter of the law it clearly results in the provision of the incidence of Item 28.1 of the GSTT regarding land for construction with building authorized or planned be for residential construction.

Nevertheless, the Claimant raises issues relating to the nonconformity of such rule with the Constitution, imputing to it the violation of article 13 - Principle of Equality – and articles 103 and 104 - Principle of Contributory Capacity.

Given the reasoning contained in the request for arbitral ruling in question, it is necessary to ascertain whether there remains any reason of a constitutional nature that requires its non-application to the case at hand.

Being as it is, the Arbitral Tribunal bound to the law, it must be interpreted in conformity with the rules of interpretation and application of legal rules and in conformity with the Constitution.

Being that, article 11 of the General Tax Law establishes the essential rules for the interpretation of tax laws as follows:

Article 11

Interpretation

"1. In determining the meaning of fiscal rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

1. Whenever, in fiscal rules, terms proper to other branches of law are used, they must be interpreted in the same sense that they have there, unless otherwise directly from the law.

2. Persisting doubt about the meaning of the incidence rules to apply, account must be taken of the economic substance of the tax facts.

3. The gaps resulting from tax rules covered by the reservation of law of the Assembly of the Republic are not susceptible to supplementation by analogy."

On the other hand, the general principles of interpretation of laws, to which number 1 of article 11 of the LGT refers, are established in article 9 of the Civil Code, which provides as follows:

Article 9

Interpretation of law

"1. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

1. The legislator's thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot, however, be considered by the interpreter.

2. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express his thought in adequate terms."

Having as a reference the principles arising from the above-cited rules, it is necessary to appreciate their application to the case at hand, attending to the constitutional principles allegedly violated - articles 13, 103 and 104 of the CRP - by the rule of incidence contained in Item 28.1 of the GSTT.

The major amendment introduced by the legislator with the 2014 Budget Law consisted of the alteration of the reference concept for tax incidence, which ceased to be that of "property with residential dedication", the legislator having altered and broadened the scope of incidence to residential properties or land for construction, provided that the authorized or planned building is for residential purposes, in accordance with the provisions of the CIMI.

Such a rule appears clear and permits no doubt about the legislator's purposes to include land for construction whose building is intended for residential purposes within the scope of incidence of the tax. In this sense, the property at issue in the present proceedings fulfills the legal conditions for its qualification as an object of tax incidence.

It is certain that interpretation should not be limited to the letter of the law, but the applier of the legal rule cannot reach an interpretation that deviates from or even contradicts what clearly results from it. It should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied, so as to achieve the "ratio legis", the meaning and scope of the rule, should this raise doubts about the legislator's thought.

The legislator was clear in the intention to introduce within the scope of incidence of the rule contained in item 28.1 of the GSTT land for construction, if the planned or authorized building is residential construction. The reasons of fiscal policy, underlying this provision, may be open to criticism but appear clear, starting from the point of departure expressed in the preparatory works, which point in the direction of taxing properties of higher patrimonial value, intended for residential use (built or to be built) of "luxury". This very fact explains the elevated value to which the legislator resorted as a quantitative criterion from which the incidence of the tax is verified.

But, the Claimant alleges that the rule in question, as it results from the current version, violates constitutional principles of equality and contributory capacity, and should, therefore, not be applied and the tax assessments annulled.

The introduction into the tax legal order of the present Item 28.1 of the GSTT had as a relevant factor the manifestation of contributory capacity relating to residential urban properties and land for construction apt for such residential purpose, of elevated value, more rigorously, of value equal to or superior to €1,000,000.00, on which Stamp Tax came to apply.

The legislator thus intended to introduce a mechanism of taxation on wealth externalized in the ownership, usufruct or right of surface on every residential property or land for construction capable of such residential purpose, having the legislative criterion applied such Stamp Tax to the above-mentioned species of urban properties, whose VPT is equal to or superior to €1,000,000.00.

Such a conclusion can be drawn from the analysis of the discussion of draft law no. 96/XII in the Assembly of the Republic, available for consultation in the Diary of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.

The substantiation of the measure designated "special tax on the highest-value residential urban properties" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense form the holders of properties of elevated value intended for residential use, with Stamp Tax being imposed, by means of Item 28.1 of the GSTT.

Subsequently and perhaps in view of various jurisprudential decisions to the effect of not considering within the scope of the forecast of the rule of incidence land for construction, the legislator came to amend the wording of such Item 281 of the GSTT, including land for construction whose authorized or planned building is for residential purposes, having done so, as already mentioned above, in an interpretatively unequivocal manner and free of doubts as to its scope.

In this manner, it appears clear that the legislator understood that this value (one million euros or superior, in urban properties of residential purpose), translates a contributory capacity above average and, as such, susceptible to determine a special contribution to guarantee the fair distribution of fiscal effort.

But no less evident, it translates a line of legislative choice that intended to burden specifically urban properties of residential purpose.

Note that the tax patrimonial value is, since the reform of taxation on assets carried out in 2003, measured on the basis of objective elements, such as area, location, among others.

This means to affirm that and independently of the ideological considerations that may be made on such political choice, the legislator had a concrete and defined objective: to subject to Stamp Tax taxation urban residential properties of highest value, which in practice translated into the fixing of a threshold measurable through VPT: value equal to or superior to € 1,000,000.00.

And it is by rooting in this finding that the issue relating to the violation of the principle of equality in its material aspect relating to contributory capacity must be evaluated.

As has been uniformly established both by doctrine and by jurisprudence (from the very Constitutional Court), the principle of equality implies that unequal treatment be given to that which is not equal.

In this regard, the Central Administrative Court of the South, in an award of 14.11.2013, within the scope of case 6971/13, stated as follows:

"The principle of equality is one of the structuring principles of the Portuguese constitutional system, finding generic enshrining in article 13 of the C.R.P.

The most recent decisions of the Constitutional Court, in the aspect relevant here, correctly signal that the principle of equality requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that do not have justification and sufficient material foundation (cfr. J. J. Gomes Canotilho and Vital Moreira, Constitution of the Portuguese Republic annotated, 4th Edition, 1st Volume, Coimbra Publisher, 2007, p. 341; Award Constitutional Court 232/2003, of 13/5/2003; Award Constitutional Court 45/2010, of 3/2/2010)."

Now, saving due respect for the reasoning followed by the Claimant, the latter, in the example formulated by itself, starts from a presupposition of equality in the comparison made regarding whoever may be the holder of ten residential urban properties with a summed value equal to or superior to € 1,000,000.00, which is in fact not fulfilled.

This is because, in the hypothetical comparative formulation, one is not even dealing with the holding, whether by title of ownership, usufruct or right of surface of a single residential urban property whose VPT equals or exceeds € 1,000,000.00.

What taints from the outset any judgment of comparability on the basis of equality, such as the exercise carried out by the Claimant.

Being that, furthermore, as set forth above, the legislative intent appears clear in the sense of making an additional tax effort fall on residential real estate assets of high value, albeit potential as in the case of land for construction, in the achievement of the objectives of the fiscal system, in the unfavorable economic situation that the Country is experiencing.

And to assess such elevated value, the legislator equipped itself with an objective criterion: residential urban property and land for construction with authorization or forecast of such residential purpose, of tax patrimonial value equal to or superior to € 1,000,000.00.

Being that and here equally relevant, the fixing of such VPT is effected on the basis of objective elements that influence the value of the properties (see article 45 and number 3 of article 42, both of the CIMI) and still taking into consideration majorative and minorative factors (such as those contained in the tables of article 43 of the CIMI, in the case of residential urban properties) provided for in the law, which result not only from general application but also uniformity and which permit, with a high degree of confidence, to avert any appreciation of a subjective nature in the appraisal of the property in question.

Nevertheless and not losing sight of the hypothesis equated by the Claimant and used to give substance to its comparative reasoning and conclusion, all the more so because the emphasis of the violation of the principle of equality is placed on the aspect of contributory capacity, one cannot fail to observe that on the same quantum often falls a distinct level of taxation depending on the nature or the form underlying its origin, without that meaning, necessarily, any violation of the principle of equality, in any of its aspects.

The same being the case, as it is, with taxes on assets, as is the case with IMT, in which the acquisition of urban property intended for own permanent residence, depending on the greater or lesser tax patrimonial value thereof, is subject to a greater or lesser (which may even be zero) effective rate of IMT, depending on the greater or lesser VPT of the property subject to transmission.

Returning to the comparison erected by the Claimant as an apparent demonstration of the violation of the principle of equality, in its aspect of contributory capacity, one cannot fail to note that the contributory capacity of someone who onerosely acquires a residential urban property with a VPT of € 1,000,000.00 is not necessarily identical to that of the taxpayer who acquires ten residential urban properties with a VPT of € 100,000.00.

First, because of the significant financial burden that results from the fiscal component that such or such acquisitions (respectively) involve at the level of IMT (example of onerous acquisition).

That is, while the acquisition of each of the 10 residential urban properties with VPT of € 100,000.00 would entail subjection to an IMT rate of less than 1% of that same VPT, in the case of the onerous acquisition of a property with a VPT of € 1,000,000.00 the effective rate of IMT would be exponentially superior to the rate of the properties with VPT of € 100,000.00.

Wherefore, the comparison that has been serving as the basis for the Claimant's argument does not lead, as follows from the above example, to a conclusion according to which contributory capacity will necessarily have to be identical in both situations.

We conclude and second, in the wake of what Sérgio Vasques does, in Contributory Capacity, Income and Patrimony, published in the Tax Law Forum Magazine, of Sept./Oct. of 2004, page 27, according to which: "In truth, a tax cannot be said to correspond with the principle of contributory capacity simply by applying to wealth but only when it falls on wealth in a determined manner.

In what manner? In a manner that reflects the general economic force of the taxpayer, the resources of his personal and family life that leave him available for the payment of the tax. The tax should only begin where this economic force begins, operating the capacity as a presupposition of taxation, and should terminate where it also terminates, thus serving contributory capacity as a limit to the tax."

Now, it does not appear absolutely immaterial to be the owner (usufructuary or holder of right of surface) of an urban property with a VPT of € 1,000,000.00 or of ten properties with a VPT of € 1,000,000.00 each.

And from this issue stems, in our perspective, an unvalidatable presupposition to which the reasoning expended by the Claimant resorts, which results from the fact of appearing to center Item 28.1 of the GSTT in the sense that through this it is intended to tax the entirety of a whole real estate assets in the holding of the same taxpayer, when, in truth, it does not appear to be the object of such item of the GSTT, much less the legislative objective underlying it.

That is, saving due respect for understanding to the contrary, item 28.1 of the GSTT does not intend to make a general taxation fall on the whole real estate assets of each of the taxpayers, because if it were thus, immediately the wording of the precept would have to be diametrically distinct.

Instead, item 28.1 of the GSTT and in our understanding, the objective defined by the legislator for this, was to subject to taxation each and every one of the residential urban properties and land for construction apt to that same residential purpose of higher value, belonging to a said premium or said luxury segment.

But such taxation on the referred properties of said elevated value could not be effectuated without resorting to criteria of appraisal that root from the very endogenous characteristics of those same properties.

Reason for which the legislator erected the concept of tax patrimonial value as a concept of determination for the appraisal of each of those residential properties, having as minimum basis for such taxation through Item 28.1 whenever the VPT is equal to or superior to one million euros.

Accordingly, any comparative exercise of residential urban properties that do not even reach that threshold or parameter of objective comparability of one million euros are not in our view apt to such reasoning, inasmuch as the legislative purpose appears to be clearly that of subjecting to taxation each and every one of the residential urban properties and land for construction apt to such purpose that, by their characteristics (location, construction areas, etc.) exceed the threshold of one million euros, objectively defined by the legislator.

Making such latter fall, by reason of their differentiating characteristics, densified in its VPT an additional effort at the level of the tax burden of its holder.

In any case, one does not discern that by the simple fact of a taxpayer being holder of ten residential urban properties (or land for construction whose planned or authorized building is for residential purposes) with a VPT of € 100,000.00 each, necessarily has to have a contributory capacity identical to that of the taxpayer who is holder of a residential urban property with a VPT of € 1,000,000.00 (being that as already mentioned it is not the intention of the rule to tax the entirety of the residential real estate assets).

Wherefore, in view of the above, the grounds adduced by the Claimant do not hold regarding the violation of the principle of equality (and capacity) contributory, in the perspective of horizontal equality by the wording applicable to the tax acts now impugned.

On the other hand, regarding the principle of equality, in the vertical perspective, the Claimant considers that the fixing of such threshold of € 1,000,000.00 embodies violation of such constitutional principle, inasmuch as it permits that Item 28.1.1 of the GSTT does not fall on a residential urban property or land for construction with such purpose with a VPT of € 950,000.00, for example.

From the standpoint of the choices of political power, the subjection to taxation of the tax reality brought about by Item 28.1 of the GSTT encloses a choice and universal option and apparently rational, based on criteria of objectivity and uniformity and which avert any idea of arbitrariness in the distinctions made by the legislator.

The legislative choice that underlies Item 28.1 of the GSTT translates a line of political guidance that intended to burden specifically residential urban properties and land for construction with such aptness, of elevated value, convening them thus specially to participate in the effort to guarantee the financial needs of the State and of the Social State through a fair distribution of fiscal effort.

Now, as results from award no. 306/10, rendered by the Constitutional Court on 14/7/2010, published in the Official Gazette, 2nd Series, no. 186, of 23/9/2010, "On the other hand, the Court has also considered that the principle of contributory capacity must be compatible with other principles with constitutional dignity, such as the principle of the Social State, the freedom of legislative conformation, and certain requirements of practicability and cognoscibility of the tax fact, indispensable also for the fulfillment of the objectives of the fiscal system (the cited Award no. 142/04).

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

In sum, the principle of tax equality can be concretized through diverse aspects: a first, is in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating equally those taxpayers who find themselves in equal situations and differently those who find themselves in different situations, in the measure of the difference, to be assessed by contributory capacity; a final, is in the prohibition of arbitrariness, in forbidding the introduction of discriminations between taxpayers that are devoid of rational foundation (cfr. Rogério Fernandes Ferreira/Sérgio Vasques, op. cit., p. 974)."

Now, it is in light of the jurisprudence that has just been cited, that we cannot fail to conclude there is no existing in the wording of Item 28.1 relating to the case at hand, any violation of the principle of equality contained in articles 13, 103 and 104, in the aspect of contributory capacity, since although the solution of fixing the VPT from which there is subjection to Item 28.1 of the GSTT might eventually from the point of view of political-legislative be other, one does not discern that the same results arbitrary or manifestly nonconformable with the legislative purpose, which is embodied in the taxation of residential urban properties and land for construction apt to that same purpose and aptness of elevated or premium value.

The current wording of Item 28.1 of the GSTT appears apt to assure the fulfillment of that same legislative purpose, with a base objectively measurable through VPT, establishing as minimum VPT for purposes of subjection to Item 28.1 of the GSTT the value of € 1,000,000.00, a threshold that is apt, in the context of the national real estate economy, to not subject to tax the overwhelming majority of the real estate stock of the Country, precisely due to its tax value being inferior to such threshold.

And the establishment of such quantitative criterion by the legislator does not appear as configuring any violation of the principle of equality in the aspect of contributory capacity, since the legislative criterion, based on a method of appraisal absolutely objective, assures an absolute equality of taxpayers in subjection to such tax, not resulting, as it is, from such constitutional principles the imperativeness of a taxation based on the progressivity of the tax.

Wherefore, also in this segment, the argument expended by the Claimant cannot proceed.

On the other hand, regarding the alleged violation of the principle of equality, also in the horizontal aspect, insofar as the legislator chose to subject to Stamp Tax residential urban properties or land for construction apt to such purpose and not those which are intended for commerce, industry or services, equally one does not discern subsisting any nonconformability with the Constitution.

Being that, specifically, in matters of contributory capacity it stands out evident that the solution adopted treats distinctly different real estate realities on the basis of objective and rational criterion (tax patrimonial value and current or potential purpose of that same real estate assets) convening only the residential urban properties and land for construction with such purpose, which by their own characteristics have a higher VPT (equal to or superior to € 1,000,000.00) for the payment of such item and preserving the other properties of lower value of such additional contribution to the tax effort.

In this regard and as and in accordance with the reiterated and uniform sense of the jurisprudence of the Constitutional Court: "only can be censured, on the basis of violation of the principle of equality, the regime choices made by ordinary legislation in those cases in which it is proven that they result in differences of treatment between persons that do not find justification in reasonable, perceptible or intelligible grounds, taking into account the constitutional purposes which, with the measure of the difference, are pursued" (Award of the Constitutional Court no. 47/2010).

The legislative choice that Item 28.1 of the GSTT encloses, in the sense of limiting the taxation in Stamp Tax to «residential urban properties and land for construction» [document truncated]

[Note: The document appears to continue beyond what was provided. This translation covers the complete text through the section on legal findings regarding the principle of equality in its horizontal aspect.]