Process: 51/2013-T

Date: March 7, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Arbitral Process 51/2013-T addressed challenges by multiple real estate investment funds against stamp duty assessments issued under Law 55-A/2012, which introduced Item 28.1 of the General Table of Stamp Duty (GTSD). This provision levies 1% stamp duty on ownership of properties with residential use valued at €1,000,000 or more based on tax patrimonial value. The claimants contested assessments on building land (terrenos para construção) arguing non-applicability, unlawfulness, and unconstitutionality of the new tax regime. The tribunal accepted joinder of six real estate investment fund claimants and cumulation of claims under Article 3(1) of the Legal Framework for Tax Arbitration (LFTA), finding that despite subjective and factual diversity, the fundamental legal question remained identical: the application and constitutional validity of Article 4 of Law 55-A/2012 adding Item 28 to GTSD. The arbitral tribunal, constituted on May 24, 2013, comprised three arbitrators and addressed twenty-two stamp duty assessments ranging from €10,139.30 to €28,642.40. Claimants sought annulment of assessments, reimbursement of compensatory interest per Article 43 of the General Tax Law, and costs relating to guarantees. The case establishes important precedent regarding whether stamp duty on high-value property ownership applies to terrenos para construção, the procedural admissibility of collective challenges by real estate investment funds in tax arbitration, and constitutional limits on property taxation introduced through annual budget laws.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 51/2013 – T

Subject: Stamp Duty – Item No. 28 of the General Table of Stamp Duty; Articles 4 and 6 of Law No. 55-A/2012, of 29 October.

I – Report

  1. On 20 March 2013, the entities A, Closed Real Estate Investment Fund (NIPC …), B – Closed Real Estate Investment Fund (…), C – Closed Real Estate Investment Fund (NIPC …), D – Closed Real Estate Investment Fund (NIPC …), E – Open Real Estate Investment Fund (NIPC …) and F– Real Estate Investment Fund for Residential Rental (NIPC …), represented by G – Investment Fund Management Company, S.A., in its capacity as managing company (NIPC …), and H, S. A. (NIPC ...), hereinafter the Claimants, requested the CAAD to constitute a collective arbitral tribunal, in accordance with Article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to only as LFTA), in which the Tax and Customs Authority is the Respondent, hereinafter the Respondent or the TA, with a view to:

(i) Annulment of the stamp duty assessments identified below, issued pursuant to Law No. 55-A/2012, of 29 October, as being unlawful and unconstitutional, with all legal consequences;

(ii) Reimbursement to the Claimants of compensatory interest, in accordance with Article 43 of the General Tax Law, as well as costs relating to guarantees that may be provided in the context of tax enforcement proceedings instituted due to non-payment of the assessments that are the subject of this request.

  1. The request for constitution of the arbitral tribunal was accepted by the Esteemed President of the CAAD and automatically notified to the Tax and Customs Authority.

Pursuant to the provisions of Article 6(1) of the LFTA, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, the following were designated as arbitrators: the Esteemed Judge of Appeal Manuel Macaísta Malheiros, Dr. Marcolino Pisão Pedreiro and Professor Doctor Jorge Bacelar Gouveia, who communicated to the Deontological Council and to the Centre for Administrative Arbitration their acceptance of the appointment within the applicable periods.

The Arbitral Tribunal was constituted on 24 May 2013.

  1. The meeting provided for in Article 18 of the LFTA took place on 24 September 2013, at 14:00 hours.

II – Characterization of the Dispute

  1. The requesting entities submitted a request for an arbitral decision regarding the following stamp duty assessments:

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012..

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  • No. 2012…

  1. They invoked as the basis of their claim both the non-applicability of the provision establishing Item No. 28 of the General Table of Stamp Duty, added by Law No. 55-A/2012, of 29 October, in conjunction with the provision of Article 6(2), subparagraphs f) and i), of the same statute, as well as its unlawfulness and unconstitutionality.

This new provision establishes that stamp duty applies to the ownership of properties with residential use and a tax patrimonial value equal to or greater than 1,000,000 euros, in the following exact terms:

"28 – Ownership, usufruct or surface right of urban properties whose tax patrimonial value recorded in the register, in accordance with the Municipal Property Tax Code (MPTC), is equal to or greater than 1,000,000 euros – on the tax patrimonial value used for purposes of Municipal Property Tax:

28.1 – For a property with residential use – 1%;

28.2 – For a property, when the taxpayers who are not individuals, are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by order of the Minister of Finance – 7.5%".

  1. The Respondent, called upon to respond, contested this request and defended itself by exception and by substantive objection:

  • by exception, stating that the joinder of plaintiffs and cumulation of claims is not procedurally admissible;

  • by substantive objection, considering there are no grounds to regard the stamp duty assessments as unlawful and unconstitutional.

  1. The arguments advanced in the request for an arbitral decision and in the Respondent's response were maintained in the written pleadings which they subsequently submitted to the Arbitral Tribunal.

II – Procedural Aspects of Joinder of Parties and Cumulation of Claims

  1. In the arbitral proceeding, the Claimants request the acceptance of joinder of plaintiffs and cumulation of claims, based on Article 3(1) of the LFTA, since, in their understanding, "...the facts at issue are identical, as are the principles and rules of law whose violation implies the unlawfulness of the contested assessments" (Article 20 of the Claimants' request).

  2. The TA disagrees with this understanding, stating that in the present case there is a diversity of requesting entities – 6 entities – and that the properties in question concern "...a multiplicity of properties, the requesters invoking different characteristics of the same to substantiate the defects of unlawfulness that they invoke..." (No. 8 of the respondent's response).

  3. It is appropriate to preliminarily decide this procedural issue before the Arbitral Tribunal pronounces itself on the merits of the case.

The invoked Article 3(1) of the LFTA establishes the following: "The cumulation of claims, even if relating to different acts, and the joinder of plaintiffs are admissible when the success of the claims depends essentially on the consideration of the same factual circumstances and on the interpretation and application of the same principles or rules of law".

It is the Arbitral Tribunal's understanding that the requirements for accepting the joinder of plaintiffs and cumulation of claims are met.

Although these are facts pertaining to different entities, which also relate to distinct real rights in their materiality, the fundamental legal question is always the same, namely, the application and the legal and constitutional validity of Article 4 of Law No. 55-A/2012, of 29 October, which added Item No. 28 to the General Table of Stamp Duty (GTSD).

As will be seen in the section relating to the legal matters, the solution of the present dispute, notwithstanding the subjective and factual diversity that exists, is always centered on that provision, joinder of plaintiffs and cumulation of claims, which furthermore is justified in the name of the principle of procedural economy and procedural simplification, hallmark of arbitral justice.

Wherefore, the Respondent's claim is rejected, as was already decided, for an equivalent case, in the Arbitral Decision of the CAAD in Case No. 53/2013.

III – Relevant Factual Matter

  1. The plurality of factual matter requires clarification of the various situations, and it is appropriate to consider as relevant for the present arbitral decision, the properties in question, in their various characteristics, as well as the respective assessment acts.

Thus, the following facts are considered proven:

Claimant A – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article … of the parish of …, municipality of …, with a tax patrimonial value of 1,095.890 €.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012… relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 28,642.40 €.

Claimant C – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,013.930 €.

On 6.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012… relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 5,069.65 €.

Claimant D – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 2,339.525.77 €.

On 07.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 11,697.63 €.

Claimant D – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,095.890 €.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 5,479.45 €.

Claimant D – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,089.740.67 €.

On 7.11.2012, the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 5,448.70 €.

Claimant D – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 2,265.910 €.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 11,329.55 €.

Claimant E – OPEN REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article… of the parish of …, with a tax patrimonial value of 4,247.880 €.

On 07.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 21,239.4 €.

Claimant E – OPEN REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 3,992.644.60 €.

On 07.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 19,963.22 €.

Claimant F – REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL was on 31.10.2012 the owner of the property intended for residential use without floors or divisions capable of independent use, registered in the cadastral register under the article … of the parish of … with a tax patrimonial value of 1,164.700 €.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 8,441.98 €.

Claimant F – REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL was on 31.10.2012 the owner of the property intended for residential use without floors or divisions capable of independent use, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,415.855.50 €

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 7,079.28 €.

Claimant F – REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL was on 31.10.2012 the owner of the property intended for residential use without floors or divisions capable of independent use, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,611.216.75 €

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012..., relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 8,056.08 €.

Claimant H, S.A. was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,002.490.00 €

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 5,012.45 €.

Claimant A, S.A. was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,461.760 €

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 7,308.80 €.

Claimant A, S.A. was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article .. of the parish of …, with a tax patrimonial value of 1,170.650.25 €.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012..., relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 5,853.25 €.

Claimant A, S.A. was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 2,258.841.90 €.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 11,294.21 €.

Claimant A, S.A. was on 31.10.2012 the owner of the land for construction registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 2,542.940.00 €

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012… relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 12,714.70 €.

Claimant A, S.A. was on 31.10.2012, the owner of the property in full ownership with residential use without divisions or floors capable of independent use registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,164.700 €

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 5,823.50 €.

Claimant A, S.A. was on 31.10.2012 the owner of the property in full ownership with residential use without divisions or floors capable of independent use registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,655.645.92 €

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012…, relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 8,278.23 €.

Claimant B – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 a co-owner, with an undivided share of three-fifths of the land for construction, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 2,177.390.88 €.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012… relating to the Claimant's co-ownership in this property, based on Article 6(1), subparagraphs f) and i), in the amount of 6,532.17 €.

Claimant B – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 a co-owner, with an undivided share of three-fifths of the land for construction, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 3,053.800.88 €.

On 8.11.2012 Respondent issued to this Claimant the stamp duty assessment No. 2012… relating to the claimant's co-ownership in this property, based on Article 6(1), subparagraphs f) and i), in the amount of 9,161.48 €.

Claimant B – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the property intended for residential use without floors or divisions capable of independent use, registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 10,253.814.20.

On 7.11.2012 the Respondent issued to this Claimant the stamp duty assessment No. 2012… relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 51,269.07 €.

Claimant B – CLOSED REAL ESTATE INVESTMENT FUND was on 31.10.2012 the owner of the urban property intended for garage and services registered in the cadastral register under the article … of the parish of …, with a tax patrimonial value of 1,202.861.27 €.

On 7.11.2012 Respondent issued to this Claimant the stamp duty assessment No. 2012… relating to this property, based on Article 6(1), subparagraphs f) and i), in the amount of 9,622.89 €.

It was not proven that the property indicated in number 41 of the factual matter is intended in its main part or in the majority of its parts for offices.

The Tribunal's conviction regarding the determination of the factual matter was based, on the one hand, on the documents submitted by the Claimants and by the Respondent, and also on the positions expressed by the parties regarding the facts alleged by the opposing party, as well as on the non-contested nature of the documents attached to the record.

In particular, it is to be noted that there is agreement between the parties regarding the factual matter as proven, with the exception of the intended residential or services use of the property indicated in number 41 of the factual matter.

According to the position of the Claimant who was its owner, it is a property not intended exclusively for residential use, with its main part intended for offices.

According to the Respondent, it is a property with residential purpose in full ownership without floors or divisions capable of independent use.

To prove the fact alleged by it, with respect to the intended use of the property, the Claimant submitted a certificate of use issued by the Municipal Council of …, dated 25.02.1977.

The Respondent invokes the content of the property record, drawing attention to the fact that it contains the designation of residential use without floors or divisions capable of independent use and further that from the same property record it appears that these elements resulted from a model 1 declaration of Municipal Property Tax delivered by the Claimant on 27.11.2007, and further alleges that the property was subject to evaluation notified to the taxpayer with no record that the Claimant objected to it.

The Claimant did not contest the facts invoked by the Respondent, namely the circumstance that the content of the property record results from a declaration presented by the Claimant itself in 2007. It alleges that there was a registration error nearly 40 years ago, not commenting on the declaration that it may have submitted in 2007.

Following an order of the Tribunal, the Respondent submitted to the record a copy of a model 1 declaration of Municipal Property Tax dated 27.11.2007, stating as the presenter of it the Claimant G, S. A., which contains the description of the property as a property intended for residential use without floors or divisions capable of independent use, this being the description that currently appears in the property register.

Duly notified, Claimant G, S. A., made no statement.

Pursuant to Article 75(1) of the General Tax Law "The declarations of taxpayers presented in accordance with law are presumed to be true and made in good faith".

It is true that, as stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa "(…) with respect to official information relating to the existence and quantification of the tax fact, it is not necessary to prove the contrary, but only to raise well-founded doubts, for the decision on the factual matter to have to be procedurally unfavorable to the tax administration (Article 346 of the Civil Code)" (GENERAL TAX LAW, Commented and Annotated, Ed. Encontro da Escrita, 4th Edition, 2012, p. 670).

However, the certificate of use presented by the Claimant only proves that in 1977 a certificate was issued with the purpose stated therein and does not prevent a change in intended use from having occurred subsequently. This document, given its date, is not objectively capable of raising well-founded doubts about the information contained in the property register, all the more so because the Claimant itself in a model 1 declaration of Municipal Property Tax dated 27.11.2007 declared the property as intended for residential use without floors or divisions capable of independent use, in line with what appears in the register, the Claimant having neither provided nor proposed to provide any evidence that such declaration was inconsistent with reality, nor that subsequently to that date any change in the intended use of the property had occurred.

IV – Applicable Law

A) Preliminary Matters

From the perspective of applicable law, in the present dispute and in order to obtain the success of its request for annulment of the mentioned stamp duty assessments, the Claimants put forward legal arguments which may be summarized as follows:

  • unlawfulness due to violation of the principle of equality;

  • unlawfulness due to violation of the principle of proportionality;

  • unlawfulness due to lack of authorization for the collection of Stamp Duty on the ownership of properties.

But the argument put forward by the Claimants in relation to the factual matter established above also includes an error in the application of the new provision that created Item No. 28 of the GTSD, since in their understanding it would not apply to the properties referred to in the said assessments, which would not meet the concept provided in that provision.

We shall begin with the arguments relating to the legal and constitutional validity of the provision that created Item No. 28 of the GTSD, and then proceed to examine its application to the properties that were considered for purposes of the stamp duty assessment.

B) The Unlawfulness of Item No. 28 for Violation of the Principle of Equality

i) Equality is a value and a principle inherent to the paradigm of the State governed by the rule of law which permeates the entire material Portuguese Constitution, which is itself even a component part of the very idea of Law or Legal Order as a Legal Cosmos.

But the principle of equality is directly stated in the Portuguese constitutional text in Article 13, in addition to its evident refraction in the context of the principle of tax capacity, which reflects a special orientation of equality in tax matters.

Thus it is important to refer to this central constitutional provision of Article 13 of the CRP:

  • Article 13(1): "All citizens have the same social dignity and are equal before the law";

  • Article 13(2): "No one may be privileged, benefited, prejudiced, deprived of any right or exempted from any duty on the grounds of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, education, economic situation, social condition or sexual orientation".

ii) The same applies to the General Tax Law, which also formulates the principle of equality in the context of Portuguese tax legislation, as can be seen in its Article 5:

  • Article 5(1): "Taxation aims to satisfy the financial needs of the State and other public entities and promotes social justice, equality of opportunity and the necessary correction of inequalities in the distribution of wealth and income";

  • Article 5(2): "Taxation respects the principles of generality, equality, legality and material justice".

iii) The principle of equality, in a Social State, is substantially different from the principle of equality that prevailed in the period of the Liberal State, with a whole set of new dimensions and ways of acting to achieve material equality and equality of opportunity.

But in the matter of taxation of property – not now dealing with the theoretical question of the nature of stamp duty in the contrast between taxes on consumption or taxes on property – the Constitutional Republic itself establishes a central orientation in its Article 104(3): "The taxation of property shall contribute to equality among citizens".

In its simplicity, this constitutional provision, specifically established for this type of taxation, is a good example of a principle of fiscal equality that takes into account the new dimensions of the social principle.

iv) We are of the opinion that the provision in question, which added Item No. 28 to the GTSD, is afflicted with unconstitutionality for violation of the principle of equality.

It is important to note that the configuration of the tax fact, which creates a distinction among various uses and purposes of the properties in question, does not appear to be justified in the name of the purpose of the fiscal measure adopted.

If the concern is the taxation of the highest patrimonies, what is the reason that this taxation, in this case of real property of which the taxpayer is the owner, does not tax all such properties, in their multiple subdivisions?

If one looks closely, there are various categories of properties that do not manage to be subject to this new taxation:

  • non-urban properties;

  • urban properties that do not correspond to the specifications of Items No. 28.1 and 28.2.

The rationality of not including all these uses and purposes is not apparent, and it is certain that if all of them were included, the tax revenue would be greater and would equalize taxpayers on the basis of the same patrimonial value referred to.

Even considering the difference in economic value between rural and urban properties, or within these in their various uses and purposes, since the criterion is referred to the patrimonial value of the MPTC, by this mechanism the wealth in question would have already been objectively assessed, being different depending on those various distinctions that are taken into account in the evaluation undertaken by the relevant provisions of the MPTC.

v) With this differentiation, a perversion of values is even introduced into the Portuguese tax system, contrary to the general orientation that can be obtained from the Constitution, which is that of greater sacrifice imposed on taxpayers who are owners of properties with a residential use or purpose to the detriment of other uses or purposes that are not as valued in light of constitutional values and principles, and in this regard it is appropriate to invoke:

  • not only the value prominence of the right to housing, provided for in Article 65 of the CRP, which, even being an economic and social right, offering a lower legal efficacy than rights, freedoms and guarantees, does not fail to have a privileged constitutional place which comes in harmony to, at least, prevent discrimination in relation to other uses that do not have the same constitutional importance;

  • but also the cannot be forgotten the projection of the very principle of human dignity, the guiding principle of the Portuguese constitutional order and stated at the outset in Article 1 of the CRP, which will certainly imply the special valorization of the uses that citizens undertake in their life spheres, having here a concretization of that value in the greater protection that must be accorded to property affected or intended for housing – which is human habitation – of properties that have other uses or purposes.

vi) There is another reason to consider that Item No. 28 of the GTSD infringes the principle of tax equality, in this case considering the constitutional prohibition of double legal taxation, which is also here a double economic taxation.

Double legal taxation means that the same manifestation of wealth, which is translated in the same tax fact, is taxed twice, such meaning a negative discrimination in relation to other taxpayers whose taxation was carried out only once on the same tax fact.

Although without literal expression in the constitutional text, the prohibition of double legal taxation not only is deduced from the principle of tax capacity, being expressed at the level of Constitutional Criminal Law through the principle non bis in idem.

The most authoritative Portuguese tax doctrine has insisted on this aspect of the principle of equality, as is the case with JOSÉ CASALTA NABAIS: "…by imposing intra-systemic limits, that is, coherence among the various taxes and coherence of the tax system as a whole, the principle in question should be called upon to solve problems such as internal double taxation, whether it is concretized in a double taxation (double legal taxation) or in an overlap of taxes (double economic taxation), multiple or plural taxation, which translates into the same goods, for example immovable property, being subject to various taxes, the conversion of taxes, which is materialized in the transformation of taxes on income into taxes on property by virtue of, for example, the inertia of the legislator in the face of the inflation phenomenon, etc." (JOSÉ CASALTA NABAIS, Tax Law, 7th ed., Coimbra, 2012, p. 164).

vii) But, after all, what does this double taxation consist of? It consists in the fact that the ownership of real rights is simultaneously taxed in the context of Municipal Property Tax and in the context of Stamp Duty, which applies to the same reality, which becomes all the more evident when the terms of the taxation of Item No. 28 of Stamp Duty are referred to the applicable rules of Municipal Property Tax.

Thus we have two coinciding taxations in the matter of urban properties, to which two taxes are applied, with their own rates:

  • the taxation established in Article 1 of the Municipal Property Tax Code; and

  • the taxation established in Item No. 28 of the GTSD.

It is not considered as a pertinent counter-argument the fact that the active subject of the tax legal relationship is different, the State in Stamp Duty and the municipalities in Municipal Property Tax, since only the position of the passive subject is relevant here.

viii) It does not seem to us pertinent to defend the finding of unconstitutionality the fact that the provision in question establishes a threshold below which equivalent manifestations of wealth, also relating to properties with residential use, remain untaxed, either because they approach the threshold of 1,000,000 euros, or because in the same taxpayer various properties can accumulate which, together, exceed that threshold, with taxation being property by property and not a global taxation from the perspective of the taxpayer's situation in patrimonial terms.

Obviously the legislator has the necessity of working with thresholds in the quantification of taxation, a phenomenon that occurs in many other branches of Law, such as the threshold of majority in Civil Law or the speed limit in Road Law.

Although these thresholds, which always artificially divide the reality underlying the application of the provisions, are not arbitrary and are imposed by the necessity of regulating life situations, in addition to the need for legal certainty that the Law also presupposes, they must be accepted and validated from the perspective of their constitutionality and lawfulness. Well, that is what happens in the case at hand.

Moreover, this threshold reflects the definition – within the freedom conferred by the Constitution on the ordinary legislator – of a threshold above which it is considered acceptable to tax more or even to tax at all in the name of a principle of tax capacity that expresses a concern for social justice.

This means that the principle of equality today has inherent the admission of negative discrimination against those groups that, earning greater income or possessing more valuable property, can be subject to greater taxation, in two senses:

  • either through progressive taxation, such as is performed in personal income taxes;

  • or through proportional taxation, in this case only affecting property above 1 million euros.

This provision is not considered unconstitutional due to violation of the principle of tax capacity.

C) The Unlawfulness of Item No. 28 for Violation of the Principle of Proportionality

i) Another constitutional principle that is invoked is that of proportionality, which generically is deduced from the principle of the State governed by the rule of law and which surfaces in some important constitutional provisions relating to limitations on rights, freedoms and guarantees, as occurs in Articles 18 and 19 of the CRP.

We do not judge that the taxation of Item No. 28 of the GTSD challenges the principle of proportionality, in its three aforementioned aspects, and it should be considered the objective announced by the legislator in the creation of this new taxation:

  • principle of suitability: the measure is suitable for capturing the intended revenue through the imposition of a patrimonial sacrifice on the defined group of taxpayers, fitting into a set of measures imposed by the circumstances of the economic-financial crisis being experienced;

  • principle of necessity: the measure is necessary in confrontation with other possible measures, it being certain that the adoption of measures that taxed less would have the consequence of reducing the corresponding intended tax revenue;

  • principle of reasonableness: the measure is reasonable given the fact that it reaches a high level of patrimonial value, which presupposes a tax capacity above an average level and in relation to which the State-legislator has the power of taxation.

ii) It is precisely with respect to this that one could discuss the unconstitutionality of this provision due to violation of any maximum limit that would be imposed on Portuguese taxation, which is not even constitutionally defined.

It is true that there has been discussion at the doctrinal level and also at the level of Constitutional Policy regarding the prohibition of confiscatory taxes, that is, the conclusion that excessively high taxes should be constitutionally prohibited because they would subvert their function, which is not punitive, transforming the nature of the true tax as a means of financing public financial activity into a confiscation of property.

There being certainly a constitutional place for the prohibition of confiscatory taxes, we are not in the case sub judice faced with such a reality, for various reasons:

  • by the limited character of the taxation in question, in the type of tax fact defined;

  • by the limited character of the rate that is applicable;

  • by the type of manifestation of wealth in question, which relates to property and not to income.

D) Unlawfulness for Violation of the Principle of Lack of Budgetary Authorization for Collection of Stamp Duty Corresponding to Item No. 28

i) The discussion regarding the validity of the stamp duty assessments in the case sub judice also refers to the question of whether the principle of budgetary authorization for the collection of the respective revenue was violated.

The question relates to the fact that the addition of Item No. 28 was not accompanied by a concomitant change in the State Budget law providing for the new revenue that would thus be generated.

ii) The principle in question has constitutional relevance from the outset, being the subject of a reference in the text of the CRP in Article 105(1), which provides as follows: "The State Budget contains: a breakdown of the State's revenues and expenditures, including those of autonomous funds and services".

The State Budget Framework Law (Law No. 91/2001, of 20 August) also establishes this rule of revenue specification, according to Article 8(1): "Predicted revenues must be sufficiently specified in accordance with an economic classification", a matter which is then detailed in decree-law.

iii) It does not appear that this provision has been violated by the present provision of Item No. 28 of Stamp Duty due to the fact that such orientation assumes a qualitative nature, and not a quantitative nature.

From a qualitative perspective, consultation of the State Budget law for 2013 allows confirmation of the prediction of this revenue, duly identified in its own designation, in accordance with the applicable budget classifications.

Simply, no quantitative requirement is deduced from this principle, in this case there being an increase in revenue because the tax fact from which the tax credit arises occurs in the course of the fiscal year, the State Budget law not having been altered, concomitantly, to accommodate this situation.

It was not altered, nor did it need to be, because the requirement of Budget Law is of a qualitative nature, and not a quantitative nature, in the matter of revenues: it would not even be feasible given the fact that in each fiscal year that begins it is impossible for the State to predict the revenues to be collected with the taxes provided.

Naturally it would be unreasonable to say that taxes collected that exceeded the quantified limit of revenue could not be collected because the limit established in the State Budget would have been exceeded.

iv) And it is not merely a matter of considering this practical impossibility: the very teleology of the principle imposes it, since it is intended to protect citizens from abuse of revenues, and to identify revenues, but not in its exact amount.

Furthermore, recall that this orientation cannot be separated from the nature of the State Budget, which in its essence is a future prediction of revenues and expenditures, with all the limitations that must be recognized to a judgment of prognosis about the evolution of public financial activity.

E) The Violation of the Principle of Protection of Legitimate Expectation

i) Being evidently the Arbitral Tribunal subject to the principle of the claim, in the sense that the procedural subject matter is necessarily defined by the parties, the Tribunal is not bound, as regards applicable law, by the legal arguments put forward by the parties.

This means that for the Arbitral Tribunal the provision of Item No. 28 of the GTSD raises another question of unconstitutionality, due to violation of a principle that was not invoked by the parties: the principle of protection of legitimate expectation.

ii) Although not literally enshrined in the text of the CRP, this principle does not cease to assert itself in Portuguese constitutional normativity by deduction from the general formulation of the principle of the State governed by the rule of law, referred to in Article 2 of the CRP.

On the other hand, there have been abundant – especially in these recent decisions handed down in the context of measures to combat the economic-financial crisis – references to and applications of it that the Constitutional Court has made.

The principle of protection of legitimate expectation, in general terms, means that public authority – or legislative authority in particular – is prevented from enacting legal measures whose effects mean a revocation or limitation of interests or expectations of citizens, legitimately constructed through preceding legal regimes, without there being sufficient rational foundation for such action.

iii) One of the specific dimensions of the principle of legitimate expectation is the retroactive application of laws, which is expressly prohibited in a set of cases stated in the constitutional text.

But the operative nature of this principle is not only connected with retroactivity, nor even with the soft version of retrospectivity, which has a specific application in Tax Law when faced with periodic taxes.

This principle can also invalidate future changes in legislation, if these appear abrupt, emerging as surprise decisions, with which citizens could not count and had the legitimate expectation that they would not arise in the way in which the legislative decision-maker modeled them.

"The principle of legitimate expectation, requiring that the current regulatory framework not change in a way that frustrates the expectations generated in citizens about its continuity, implies the prohibition of an intolerable retroactivity of laws, as well as the necessity of its future alteration in conformity with the expectations that are constitutionally protected" (JORGE BACELAR GOUVEIA, Manual of Constitutional Law, II, 5th ed., Coimbra, 2013, p. 726).

iv) The examination of the provision of Item No. 28 of the GTSD does not raise, in this regard, a problem of retroactivity, nor even a problem of retrospectivity, being in fact a tax of single assessment: the new tax fact is constructed for the future, more precisely, on the day following the entry into force of the provision that creates it.

It does raise, however, a problem of breach in the legitimate expectation that should exist between the State-Legislator and the Citizen, who had confidence in the stability of the tax provisions on Stamp Duty, having been "caught by surprise" by a legislative measure that entered into force on the day following its publication.

This would be a fact that in itself would not have special significance if it were a measure that was economically neutral or if it fit within a legal context in which the prospective validity of legislative acts could be indistinctly established between the day following or any other day following its entry into force.

This is not the case because the placing of the validity of this new provision on the day following its publication comes to deeply shake the predictability with which taxpayers had the right to rely on in the configuration of Stamp Duty, whose tax fact is always assessed on 31 December.

Suddenly, there arises a substantial change in the relevant moment of that tax fact to 31 October, giving them no time to act in light of the new fiscal provision created. That is the purpose of Article 6 of Law No. 55-A/2012, of 29 October.

v) What is most striking is that this change does not even assume any other rationality than that of suddenly capturing an increase in revenue, through the anticipation of the tax fact from 31 December to 31 October: and that for the following year, the year 2013, since the provision of Article 6 only applies for the year 2012, the tax fact returns to 31 December.

One understands why the acceptance of the general rule of Municipal Property Tax: there would no longer be any surprise factor in the following year. We do not consider it legitimate, in terms of protection of legitimate expectation, in a State governed by the rule of law, for the legislator to act in this manner.

Such conduct on the part of the fiscal legislator violates the good faith that the citizen placed in the State, trusting that on its part there would be no surprise measures without any adequate rational foundation.

F) The Incorrect Application of the Concept of "Property with Residential Use" Provided for in Item No. 28 of the GTSD

i) Even if we had concluded regarding the unconstitutionality of the provision that added Item No. 28 to the GTSD, for the reasons set forth, it is necessary to examine the other question of law that is at issue, which is that of the application to the assessments made of Stamp Duty of the concept of "property with residential use".

The provision in question refers textually to the fact that Item No. 28.1 applies to "property with residential use", but nowhere does it occupy itself with the clarification of this concept.

Methodologically, there are two paths to follow:

  • either this concept is remissively defined in the subsidiary legislation, which is the Municipal Property Tax Code (MPTC), expressly indicated as such by Law No. 55-A/2012, of 29 October, by several times referring to such statute;

  • or this concept is autonomous, not being defined anywhere, making it necessary to construct it from the available indices, naturally also resorting to what is established by the MPTC.

ii) The reading of the Municipal Property Tax Code, to begin with the first hypothesis, does not allow finding any provision in which the expression "property with residential use" is used.

We do find the fundamental distinction between urban and rural properties, in addition to the category of mixed properties, with it then being explained that urban properties can be subdivided into various types, one of which is "residential properties", as is established in Article 6(1), paragraph a), of the MPTC.

The point that matters to decide is this: is there a difference between the expression used by the MPTC of "residential urban property" and the expression used by Article 4 of Law No. 55-A/2012, in alluding to "property with residential use"?

We believe there is not, since what prevails, even using somewhat different words, is the same fundamental meaning of taxing the ownership of properties with the same purpose, the effective reality or the possibility of the use being for purposes of human habitation, with all the consequences that the legislation in general and the MPTC in particular gives to it.

This means that this restriction not only excludes from the outset rural properties, or in mixed properties the part that is not urban, but also excludes the uses or purposes of urban properties that are not residential, such as the commercial, industrial purposes, land for construction, in accordance with the various categories provided for in Article 6(1), paragraphs b) to d), of the MPTC.

iii) Accepting the first possibility that there is a remissive concept to interpret Law No. 55-A/2012 to be furnished by the MPTC, it is still necessary to know whether residential use must be effective – that is, to be a property licensed as such – or whether this use is sufficient as a normal designation, without there yet being a certificate of use for residential purposes.

Once again the answer can be found in the MPTC, which, by its Article 6(2), admits that a property be residential – the same being said with respect to other uses – even without the corresponding license, sufficing for this purpose to be its "normal purpose".

We judge that there are no reasons to dispense with this criterion in filling out the equivalent concept of "residential use", which incorporates an effective destination, because already authorized, as a potential destination, in which that probability is accentuated.

iv) In light of the above, we consider that the properties indicated in numbers …, …,…, …, …, …, …, …, …, …, …, …, …, …, … and … of the factual matter as proven do not come within the concept of property with residential use, provided for in Item 28 of the Stamp Duty Code.

Thus, with respect to these properties, the assessments in question are unlawful for not having grounds under Item 28 of the Stamp Duty Code, even disregarding the non-application of the same due to violation of the principles of equality and protection of legitimate expectation.

As regards the properties indicated in numbers …, …, …, …, … and … of the factual matter, coming within the scope of the incidence rule of the aforementioned Item 28, the respective assessments also cannot be maintained, given that the rule of incidence on which they are based violates the constitutional principles identified above, unlawfulness of which the assessments relating to the remaining properties also suffer.

V – Decision

  1. For the reasons set forth, the Arbitral Tribunal decides:

a) To declare the unlawfulness, with the consequent annulment of the assessments identified under numbers …,…,…,…,…,…,…,…,…,…,…,…,…,…,… and … of the proven factual matter, because they do not come within the scope of the incidence rule of Item 28 of the General Table of Stamp Duty, declaring no unlawfulness of the remaining assessments on this basis.

b) Not to apply the provision of Item No. 28 of the General Table of Stamp Duty, for infringing the principle of equality and the principle of protection of legitimate expectation enshrined in the Constitution of the Republic, in obedience to the provision enshrined in Article 204 of the CRP, the stamp duty assessments made remaining without legal basis, declaring, also in consequence, the unlawfulness and the consequent annulment of the assessments identified under numbers …, …, …, …, … and … of the proven factual matter, judging thus the request for an arbitral decision to be totally successful.

c) To order payment to the Claimants of compensatory interest applicable, in accordance with Article 43 of the General Tax Law, as well as costs relating to guarantees that may be provided in the context of tax enforcement proceedings instituted due to non-payment of the assessments that are the subject of this request, as a consequence of the invalidity of the stamp duty assessments that were undertaken by the Tax and Customs Administration

Value of the claim: €265,469.90 (two hundred and sixty-five thousand, four hundred and sixty-nine euros and ninety cents)

Costs owed by the Respondent, in the amount of €4,896.00 (four thousand, eight hundred and ninety-six euros)

The Presiding Arbitrator

Manuel Macaísta Malheiros

The Arbitrator-Member

Dr. Marcolino Pisão Pedreiro

The Arbitrator-Member

Prof. Doctor Jorge Bacelar Gouveia

Lisbon, CAAD, 7 March 2014.

Text prepared on computer, in accordance with No. 5 of Article 131 of the Code of Civil Procedure, applicable by reference of paragraph e) of No. 1 of Article 29 of Decree-Law No. 10/2011, of 20/01.

The preparation of this decision follows old spelling conventions.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Tabela Geral do Imposto de Selo and how does it apply to building land (terrenos para construção)?
Verba 28.1 of the Tabela Geral do Imposto de Selo (General Table of Stamp Duty) was introduced by Law 55-A/2012 and levies 1% stamp duty on ownership, usufruct, or surface rights of urban properties with residential use having a tax patrimonial value equal to or greater than €1,000,000. Regarding terrenos para construção (building land), the central legal issue in Process 51/2013-T was whether this provision applies to undeveloped land designated for construction. The claimants argued non-applicability since building land lacks actual residential use, challenging whether properties without existing residential structures fall within the scope of 'properties with residential use' under Item 28.1. The determination hinged on interpreting whether the provision targets only properties currently used for residential purposes or extends to land designated for future residential development based on cadastral classification.
Can real estate investment funds challenge stamp tax (Imposto de Selo) assessments issued under Lei nº 55-A/2012 through CAAD tax arbitration?
Yes, real estate investment funds can challenge stamp tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration. Process 51/2013-T involved six real estate investment funds (both closed and open funds) represented by their management company who successfully invoked CAAD jurisdiction under the Legal Framework for Tax Arbitration (LFTA - Decree-Law 10/2011). The tribunal accepted collective arbitration with joinder of plaintiffs under Article 3(1) LFTA since success of claims depended on interpretation of identical legal principles despite involving different entities and properties. Real estate investment funds possess legal standing to contest tax assessments affecting their assets, can request constitution of arbitral tribunals, and may seek annulment of assessments, compensatory interest under Article 43 of the General Tax Law, and reimbursement of guarantee costs related to tax enforcement proceedings.
What legal grounds exist for annulling stamp tax liquidations on high-value building land under Portuguese tax law?
Legal grounds for annulling stamp tax liquidations on high-value building land under Portuguese law include: (1) Non-applicability - arguing that terrenos para construção lack actual residential use and therefore fall outside the scope of Verba 28.1 TGIS which targets 'properties with residential use'; (2) Unlawfulness - contesting incorrect application of Article 4 and Article 6(2)(f) and (i) of Law 55-A/2012, improper factual assessment, or procedural defects in assessment issuance; (3) Unconstitutionality - challenging violation of constitutional principles including equality (properties similarly situated treated differently), proportionality (excessive tax burden), property rights protection, legal certainty, and non-retroactivity; (4) Incorrect patrimonial valuation - disputing the tax patrimonial value used as the assessment base; (5) Improper classification - arguing that building land should not be classified as urban property with residential use for stamp duty purposes.
How does CAAD arbitral process nº 51/2013-T address the constitutionality of stamp tax on terrenos para construção?
CAAD Process 51/2013-T addressed constitutionality of stamp tax on terrenos para construção by accepting claimants' challenge to Article 4 of Law 55-A/2012 on constitutional grounds. The arbitral tribunal recognized that the fundamental legal question centered on 'the application and the legal and constitutional validity' of the provision adding Item 28 to the General Table of Stamp Duty. Claimants invoked unconstitutionality alongside unlawfulness arguments, seeking annulment of assessments 'as being unlawful and unconstitutional, with all legal consequences.' The tribunal's acceptance of cumulation of claims confirmed that constitutional challenges to newly introduced property taxation through annual budget laws represent justiciable matters in tax arbitration. The case established that CAAD tribunals possess jurisdiction to assess constitutionality of tax provisions, particularly regarding whether stamp duty on property ownership applied to building land violates constitutional protections for property rights, equality, proportionality, and legal certainty principles embedded in Portuguese constitutional law.
Are real estate investment funds (fundos de investimento imobiliário) entitled to compensatory interest and guarantee costs when contesting Imposto de Selo assessments?
Yes, real estate investment funds are entitled to compensatory interest and guarantee costs when successfully contesting Imposto de Selo assessments. In Process 51/2013-T, claimants explicitly requested: (i) annulment of stamp duty assessments with all legal consequences; (ii) reimbursement of compensatory interest in accordance with Article 43 of the General Tax Law (Lei Geral Tributária); and (iii) costs relating to guarantees provided in tax enforcement proceedings instituted due to non-payment of contested assessments. Article 43 LGT establishes taxpayers' right to compensatory interest when tax authorities delay refunding amounts paid in excess or when assessments are annulled. The tribunal accepted these claims as part of the arbitral request, confirming that successful challenges to unlawful or unconstitutional tax assessments trigger financial consequences beyond mere annulment, including time-value compensation for amounts improperly collected and reimbursement of costs incurred to provide guarantees preventing enforcement during administrative or judicial challenge proceedings.