CAAD 511/2014-T: Stamp Tax on Land for Construction Under Verba 28 TGIS – Arbitral Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 511/2014 – T

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Ethics Council of the Center for Administrative Arbitration (CAAD) to constitute the Arbitral Tribunal, constituted on 29 September 2014, regarding the case identified above, decided as follows:

1. REPORT

1.1. "A", Lda. (hereinafter referred to as the "Claimant"), Legal Entity No. …, with registered address at Avenue …, No. …, …, in Oeiras, submitted a request for arbitral decision and for the constitution of a single arbitral tribunal, on 23 July 2014, pursuant to the provisions of Article 4 and Article 10(2) of Decree-Law No. 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority (hereinafter referred to as the "Respondent") is named.

1.2. The Claimant requests that the Arbitral Tribunal "declare the present opposition well-founded and admissible and, consequently, declare null or annul the contested assessment acts, with legal consequences, condemning the Tax and Customs Authority to refund the amounts paid by the Claimant as Stamp Tax on the real properties identified, returning to the Claimant the amount of EUR 36,465.10, plus compensatory interest".

1.3. The request for the constitution of the Arbitral Tribunal was accepted by the Most Excellent President of CAAD on 25 July 2014 and notified to the Respondent on 28 July 2014.

1.4. The Claimant did not proceed with the appointment of an arbitrator, so, pursuant to Article 6(2)(a) of RJAT, the undersigned was appointed as arbitrator by the President of the Ethics Council of CAAD, and the appointment was accepted within the legal timeframe and terms.

1.5. On 12 September 2014, both parties were duly notified of this appointment, and neither manifested any intention to challenge the arbitrator's appointment, in accordance with Article 11(1)(a) and (b) of RJAT, in conjunction with Articles 6 and 7 of the Code of Ethics.

1.6. Thus, in compliance with the provision of Article 11(1)(c) of RJAT, the Arbitral Tribunal was constituted on 29 September 2014, and an arbitral order was issued on the same date, directing the Respondent to, in accordance with Article 17(1) of RJAT, submit its response within a maximum period of 30 days and, if it so wished, request the production of additional evidence.

1.7. On 3 November 2014, the Tax and Customs Authority submitted its Response, defending itself through opposition and concluding that:

1.7.1. "(…) the provision of item 28 of the General Stamp Tax Table (TGIS) does not constitute a violation of any constitutional provision".

1.7.2. Item 28 of TGIS applies to the ownership, usufruct or right of surface of urban properties with residential use, whose tax patrimonial value as recorded in the matrix, in accordance with the IMI Code, is equal to or greater than EUR 1,000,000.00, that is, it applies to the value of the real property".

1.7.3. "This is a general and abstract rule, applicable indiscriminately to all cases where the factual and legal presuppositions occur".

1.7.4. "The different capacity of properties (housing/services/commerce) supports the different treatment, having been a choice of the legislator, for political and economic reasons, to exclude from the scope of Stamp Tax properties intended for purposes other than residential".

1.7.5. "It should also be noted that taxation under Stamp Tax complies with criteria of appropriateness, applying indiscriminately to all holders of properties with residential use valued at more than EUR 1,000,000.00, applying to the wealth embodied and manifested in the value of properties".

1.7.6. "Thus, the choice of this mechanism of revenue collection is justified, which would only be censurable, in the light of the proportionality principle, if it resulted manifestly indefensible".

1.7.7. "Which is not the case, since such measure will be applied indiscriminately to all holders of properties with residential use valued at more than EUR 1,000,000.00".

1.7.8. "By all the foregoing, the contested assessments embody a correct interpretation and application of the law to the facts, suffering no defect of violation of law, whether of the Constitution of the Portuguese Republic (CRP) or of the Stamp Tax Code, and consequently, the claim should be judged not well-founded and the Respondent Entity absolved of the request".

1.8. In these terms, the Respondent concludes requesting that "the request for declaration of illegality and consequent annulment of the contested assessments be judged not well-founded, absolving the AT of the request".

1.9. On the same date, the Respondent also submitted a request for the exemption from the first arbitral meeting, in accordance with and for the purposes provided in Article 18 of RJAT, which, having been notified to the Claimant, obtained its agreement on 7 November 2014.

1.10. In these terms, by order of this Arbitral Tribunal, dated 6 November 2014, the Claimant and the Respondent were notified to "successively and in this order submit written pleadings within a period of 15 days, with the Respondent's period to commence upon notification of the joining of the Claimant's pleadings".

1.11. It was further designated, in the order referred to in the previous item, the date of 26 January 2015 for the purpose of rendering the arbitral decision, and the Claimant was further warned that "until the date of rendering of the arbitral decision should proceed to payment of the subsequent arbitral fee, in accordance with the provisions of Article 4(3) of the Regulations on Costs in Tax Arbitration Proceedings and communicate such payment to CAAD" (which it did on 23 January 2015).

1.12. On 18 November 2014, the Claimant submitted written pleadings to reiterate "that the factual and legal matters contained in the case file evidence the justice of the Claimant's position (…) trusting completely in the careful consideration and judgment on the merits of the case (…)".

1.13. Concluding as in the request for arbitral decision to the effect that "the present opposition should be judged well-founded and admissible and, consequently, the Stamp Tax assessment act, item 28, levied on the urban articles …, … and … (…) referring to the year 2013, in the overall amount of EUR 36,465.10, should be judged null or annulled, condemning the Tax Administration to return to the Claimant the amount plus compensatory interest".

1.14. On the same date, an arbitral order was issued to notify the Respondent of the submission of pleadings by the Claimant, so that the latter could comply with the content of the arbitral order of 6 November 2014 (see item 1.10., supra).

1.15. The Respondent did not submit pleadings, despite being duly notified to do so (see items 1.10. and 1.14., supra).

1. GROUNDS FOR CLAIM

The Claimant sustains its request, in summary, as follows:

2.1. "The Claimant is a commercial company that is engaged in the purchase and sale of real property, in carrying out urbanization projects, in the construction of buildings and purchase for resale of real property acquired for this purpose".

2.2. "The Claimant is the owner of urban properties registered in the matrix under urban articles …, … and …, of the Union of Parishes of Oeiras and São Julião da Barra, Paço de Arcos and Caxias".

2.3. "Such urban properties are plots of land for construction, (…) and correspond to Lots No. 2, 3 and 4 created by subdivision permit No. …, issued in … April 2004, by the President of the Oeiras Municipal Chamber".

2.4. "In accordance with the same subdivision permit, the buildings provided for the aforementioned plots of land would imply the creation, among others, of the following units (property units capable of independent use):

2.4.1. Lot 2 - 27 units;

2.4.2. Lot 3 - 26 units;

2.4.3. Lot 4 - 23 units".

2.5. "On 11 October 2004 and on 10 March 2005, the Public Prosecutor's Office attached to the Administrative and Tax Court of Sintra filed a petition for a declaration of the nullity of the subdivision license granted by the aforementioned permit[1] (…) and of the building licenses issued on the basis of that permit", having, "as a result of this fact, been suspended, by legal and judicial determination, all effects of the subdivision license (…) making it impossible to carry out any works on the property (…) during the subsequent years, including the year 2013".

2.6. "In March 2014, the Claimant was notified:

2.6.1. (…) through Official Letter 2014.., dated 18.03.2014, of the assessment of Stamp Tax (item No. 28) relating to the year 2013, regarding urban article No. …, in the amount of EUR 12,221.51;

2.6.2. "(…) through Official Letter 2014…, dated 18.03.2014, of the assessment of Stamp Tax (item No. 28) relating to the year 2013, regarding urban article No. …, in the amount of EUR 13,026.21;

2.6.3. "(…) through Official Letter 2014…, dated 18.03.2014, of the assessment of Stamp Tax (item No. 28) relating to the year 2013, regarding urban article No. …, in the amount of EUR 11,217.26;

2.7. The Claimant paid the amounts relating to the first installments of the assessed tax within the deadline (that is, on 29 April 2014).

2.8. However, the Claimant understands that "the Stamp Tax assessments in question are manifestly illegal (…)" given that "the property of the Claimant is not subject to the stamp tax provided for in item 28 of the General Stamp Tax Table, since the plots of land allocated to construction are not covered by the tax base of the new item of Stamp Tax (…)".

2.9. In fact, according to the Claimant, "a plot of land for construction is clearly not an urban property with residential use, not least because it is not habitabale, and is not apt for any use other than construction".

2.10. In fact, continues the Claimant, "Article 6 of the IMI Code, in its item 1, enumerates the species of urban properties existing, dividing them into (i) residential, (ii) commercial, industrial or for services, (iii) land for construction and (iv) others".

2.11. "In turn, item 2 of the same article provides that residential properties, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal purpose each of these uses, thus distinguishing them very clearly from land for construction such as lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, a prior communication admitted or favorable prior information issued regarding a subdivision or construction operation" (our underlining).

2.12. "In accordance with the IMI Code, urban properties are classified by species by reference to the criteria of their use", and there are "no reasons to believe that the legislator intended to disregard the distinction between residential properties and land for construction made for purposes of IMI, particularly since the regime provided for this new tax on property is instituted in the image and likeness of IMI and explicitly and specifically requires residential use" (our underlining).

2.13. In fact, "the legislator intended, consciously and deliberately, to establish a tax base only and solely for residential properties, as confirmed by the historical element and the circumstances in which the law was drafted".

2.14. According to the Claimant, "in the present case, there is no assurance whatsoever that the lands in question will be used for the construction of buildings with the urban characteristics that the subdivision permit in question authorizes (…)" (our underlining).

2.15. And, "even if one were to consider (…) the maximum area of housing that it is possible to construct (…), it would still have to be considered that (…) when and if the residential use is realized, what will exist then will no longer be a single urban property with a tax patrimonial value exceeding EUR 1,000,000.00, but rather a plurality of urban properties with a tax patrimonial value less than EUR 1,000,000.00, since each unit will generate a separate property record" (our underlining).

2.16. "In any case, it should be noted that (…) the construction lot in question also provides for commerce, services and parking areas, areas which in no way could be counted to determine residential use for purposes of the tax in question".

2.17. Nevertheless, "the State Budget Law for 2014 made an amendment to TGIS, specifically to item 28.1, expressly introducing in the wording of the rule the provision for land for construction intended for housing" (…) which shows that until such amendment there was effectively no rule of scope that allowed its collection" (our underlining).

2.18. Taking into account the fact that this amendment came into effect on 1 January 2014, "only being applicable to taxes due from that date (…) the assessment and collection act in question, (…) relating to the year 2013 (…) is manifestly illegal (…) and therefore should be declared null or annulled with legal consequences".

2.19. Thus, concludes the Claimant, "having during the year 2014 paid (…) the overall amount of EUR 36,465.10 under the aforementioned illegal assessment acts, such Authority should be condemned to refund such amounts to the Claimant (…) with compensatory interest (…) from the date of the respective payments until the complete refund of the amounts paid (…)" (our underlining).

1. RESPONSE OF THE RESPONDENT

3.1. The Respondent responded by arguing the non-merit of the request for arbitral decision and invoking the following arguments:

3.2. "It is the understanding of the AT that the property on which each of the contested assessments falls has the legal nature of property with residential use, and therefore the assessment acts that are the subject of the present request for arbitral decision should be maintained, as they embody correct interpretation of item 28 of the General Table, amended by Law 55-A/2012, of 29/12" (our underlining).

3.3. In fact, according to the Respondent, "Law No. 55-A/2012, of 29/10/2012 came to (…) add item 28 to TGIS and, with this legislative amendment, Stamp Tax would also apply to the ownership, usufruct or right of surface of urban properties whose tax patrimonial value as recorded in the matrix, in accordance with the IMI Code, is equal to or greater than EUR 1,000,000.00".

3.4. "In the absence of any definition of the concepts of urban property, land for construction and residential use (…) it is necessary to resort to the IMI Code, in search of a definition that allows us to assess whether there is submission to Stamp Tax (…)" applying "(…) subsidiarily the provisions of the IMI Code".

3.5. "Contrary to what is advocated by the Claimant, the AT understands that the concept of properties with residential use, for purposes of the provision of item 28 of TGIS, comprises both built properties and land for construction, not least having regard to the literal element of the rule".

3.6. "Furthermore, according to the Respondent, "the legislator does not refer to properties intended for housing, having opted for the notion of residential use, an expression that is different and broader, whose meaning must be found in the need to integrate other realities beyond those identified in Article 6(1)(a) of the IMI Code".

3.7. On the other hand, the Respondent understands that "Municipal Master Plans establish the strategy for municipal development, municipal policy for land use planning and urbanism and other urban policies (…)" so that "long before the actual construction of the property, it is possible to ascertain and determine the use of the land for construction".

3.8. "Regarding the alleged violation of constitutional principles, the AT cannot fail to point out that the CRP requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differential treatment, but only arbitrary, unreasonable discriminations, that is, distinctions in treatment that do not have sufficient justification and material basis" so that "the AT understands that the provision of item 28 of TGIS does not constitute a violation of any constitutional provision" (our underlining).

3.9. In fact, according to the Respondent, "the measure implemented seeks to achieve maximum effectiveness with respect to the objective to be achieved, with minimum injury to other interests considered relevant (…), the choice of this mechanism of revenue collection is justified, which would only be censurable, in light of the proportionality principle, if it resulted manifestly indefensible".

3.10. Thus, the Respondent concludes that "the contested assessments embody a correct interpretation and application of the law to the facts, suffering no defect of violation of law, whether of the CRP or of the Stamp Tax Code, and consequently, the claim should be judged not well-founded and the Respondent Entity absolved of the request".

1. SANATION

4.1. The request for arbitral decision is timely since it was submitted within the period provided for in Article 10(1)(a) of RJAT.

4.2. The parties have legal personality and legal capacity, are legitimate as to the request for arbitral decision and are duly represented, in accordance with the provisions of Articles 4 and 10 of RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

4.3. The Tribunal is competent to appraise the request for arbitral decision submitted by the Claimant.

4.4. No exceptions have been raised that need to be considered.

4.5. No procedural defects exist, and therefore it is now necessary to consider the merits of the claim.

1. FACTUAL MATTERS

5.1. Of the facts proved

5.2. The following facts documented by the documents attached to the case file are considered proved:

5.2.1. The Claimant is the owner of the following urban properties:

5.2.1.1. Land for construction, registered in the matrix under No. … of the Union of Parishes of Oeiras and S. Julião da Barra, Paço de Arcos and Caxias, whose Tax Patrimonial Value (VPT) amounts to EUR 1,222,153.49 (as per document No. 1 attached with the request);

5.2.1.2. Land for construction, registered in the matrix under No. … of the Union of Parishes of Oeiras and S. Julião da Barra, Paço de Arcos and Caxias, whose VPT amounts to EUR 1,302,630.66 (as per document No. 2 attached with the request);

5.2.1.3. Land for construction, registered in the matrix under No. … of the Union of Parishes of Oeiras and S. Julião da Barra, Paço de Arcos and Caxias, whose VPT amounts to EUR 1,121,726.05 (as per document No. 3 attached with the request).

5.2.2. The Claimant was notified of the following Stamp Tax assessments, dated 18 March 2014, whose payment deadline was "April/2013" (1st installment):

5.2.3. The Claimant made the payment of the first installments relating to the tax shown above on 29 April 2014 (as per documents No. 1, 2 and 3 attached with the request).

5.2.4. No evidence of copies of the Official Letters relating to the Stamp Tax assessments that are the subject of the request (articles 10, 11 and 12 of the request) was obtained, and this fact has no impact on the consideration of the merits of the case, taking into account the copies that were attached to the request, relating to the payment of the first installments of the tax (documents No. 1, 2 and 3).

5.3. No other facts capable of affecting the decision on the merits of the claim were proved.

5.4. Of the facts not proved

5.5. No evidence was obtained of the Property Records relating to the real properties that are the subject of the Request for Arbitral Decision, nor of Subdivision Permit No. …, of … April (which is referred to in articles 4 and 5 of the request), nor was evidence obtained of the facts alleged by the Claimant in articles 6 and 7 of the Request, regarding the "declaration of nullity of the subdivision license granted by the aforementioned Permit".

5.6. No evidence was obtained as to whether the Claimant made the payment of the second and third installments relating to the Stamp Tax assessments that are the subject of the Request for Arbitral Decision and, if it did, whether such payment was made within the deadline, taking into account that in the conclusion of that request, the annulment of the "(…) contested assessment acts, with legal consequences" is requested, with the Tax Authority being "condemned to refund the amounts paid by the Claimant as Stamp Tax (…) plus compensatory interest".

5.7. No other facts relevant to the arbitral decision were found to be unproved.

1. LEGAL GROUNDS

6.1. In the case, the essential issue to be decided is the scope of item 28.1. of TGIS, in the wording given to it by Law No. 55-A/2012 of 29 October, in particular, whether such rule should include land for construction and, specifically, whether land for construction with VPT equal to or greater than EUR 1,000,000 falls, or does not fall, within the species of urban properties "with residential use", so as to determine whether the Stamp Tax assessments that are the subject of the Request for Arbitral Decision are defective with a violation of such item No. 28.1., due to error regarding the legal presuppositions, which would justify the declaration of their illegality and respective annulment.

6.2. On the other hand, having regard to the provisions of the State Budget Law for 2014, regarding the amendments introduced regarding item 28.1. of TGIS (with the express introduction in the wording of the rule of the provision "land for construction intended for housing"), it is necessary to analyze whether such amendments to the text of the law should apply to the Stamp Tax assessments that are the subject of these proceedings.

6.3. The answer to these questions requires an analysis of the legal rules applicable to the specific case, so as to determine what the correct interpretation is in the light of the Law and the Constitution, given that it is a matter of assessing a tax scope presupposition, carefully protected by the principle of tax legality, resulting from the provision of Article 103(2) of the CRP.

On the scope of item 28.1. of TGIS (in the wording given to it by Law No. 55-A/2012 of 29 October)

6.4. Law No. 55-A/2012 made several amendments to the Stamp Tax Code and added item 28 to TGIS, with the following wording:

"28. Ownership, usufruct or right of surface of urban properties whose VPT as recorded in the matrix, in accordance with the IMI Code, is equal to or greater than EUR 1,000,000.00 – on the VPT for purposes of IMI:

28.1 – For property with residential use – 1%.

28.2 – (…)".

6.5. Notwithstanding the fact that the text of Law No. 55-A/2012 (in force since 30 October 2012) did not qualify the concepts contained in the aforementioned item No. 28, in particular, the concept of "property with residential use", if we observe the provision of Article 67(2) of the Stamp Tax Code (also added by the aforementioned Law), it is verified that "to matters not regulated in this Code, relating to item 28 of the General Table, the provisions of the IMI Code shall apply, subsidiarily" (our underlining).

6.6. Now, from a reading of the IMI Code, it is easily apparent that the concept of "property with residential use" naturally refers to the concept of "urban property", defined in accordance with Articles 2 and 4 of that Code.

6.7. In fact, in accordance with the provision of Article 2(1) of the IMI Code, "(…) property is any portion of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or situated thereon, with a character of permanence, provided it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are situated, although located in a portion of territory that forms an integral part of a different asset or does not have property nature" (our underlining).

6.8. Still in accordance with items 2 and 3 of the same article, "buildings or constructions, even if movable by nature, are regarded as having a character of permanence when dedicated to non-transitory purposes", it being presumed "a character of permanence when buildings or constructions are located at the same place for a period exceeding one year".

6.9. On the other hand, in accordance with the provision of Article 4 of the IMI Code, "urban properties are all those that should not be classified as rural (…)".

6.10. In this context, among the various species of "urban properties" referred to in Article 6 of the IMI Code, "land for construction" is expressly mentioned [item 1, subparagraph c)], with item 3 of the same article adding that "land for construction is considered to be land situated within or outside an urban agglomeration, for which a license or authorization has been granted, a prior communication admitted or favorable prior information issued regarding a subdivision or construction operation, and also those that have been declared as such in the acquisition deed, excepting land where the competent entities prevent any of those operations, in particular land located in green areas, protected areas or which, in accordance with municipal land planning plans, are allocated to spaces, public infrastructure or public facilities" (our underlining).

6.11. As can be seen from the provisions of the IMI Code transcribed above, it is not possible to extract what the legislator intended to say when referring in the text of the law to "properties with residential use", since this concept is not used in the classification of properties, and neither is this concept, with this terminology, found in any other legislation.

6.12. On the other hand, since Law No. 55-A/2012, of 29/10, has no preamble, it is therefore not possible to extract from it the intention of the legislator.

6.13. Thus, in the absence of exact terminological correspondence of the concept of "property with residential use" with any other concept used in other legislation, several interpretative hypotheses can be ventured, and the text of the law should be the starting point for the interpretation of that expression, since it is on the basis of it that the legislative intent will have to be reconstituted, as follows from the provision of Article 9(1) of the Civil Code, applicable by force of the provision of Article 11(1) of the General Tax Law (LGT).

On the interpretation of the concept of "urban property with residential use"

6.14. In fact, in accordance with the provision of Article 9 of the Civil Code, "interpretation should not be limited to the letter of the law, but should reconstitute, from the texts, the legislative intent, having particular regard to the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied", and "cannot be considered by the interpreter the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed" (our underlining).

6.15. In these terms, it can be affirmed that tax laws are interpreted like any others, and it is necessary to determine their true meaning in accordance with the techniques and interpretative elements generally accepted by legal doctrine (see Article 9 of the Civil Code and Article 11 of the LGT) [2].

6.16. Thus, the concept closest to the literal meaning of the expression "property with residential use" is manifestly that of "residential properties", referred to in Article 6(1) of the IMI Code (and defined in item 2 of the same article), encompassing buildings or constructions licensed for residential purposes or, in the absence of a license, that have as their normal purpose residential purposes (our underlining).

6.17. "That is, for purposes of the IMI Code, both properties licensed for housing are residential, even if they are not being used for that purpose, and, in the case of absence of a license, that have as their normal purpose that end"[3].

6.18. If it is understood that the expression "property with residential use" coincides with that of "residential properties", it is manifest that the assessments under analysis will be defective due to error regarding the factual and legal presuppositions, since all properties with respect to which Stamp Tax was assessed, under the aforementioned item No. 28.1., are land for construction, without any building or construction required to meet that concept of "residential properties" (our underlining).

6.19. For this reason, if the interpretation is adopted that "property with residential use" means "residential property", the assessments for which a declaration of illegality is sought will, in fact, be illegal, as there is no building or construction on any of the lands.

6.20. However, the non-coincidence of the terms of the expression used in item No. 28.1. of TGIS with that which results from the provision of item 2 of Article 6 of the IMI Code, points to the fact that the legislator did not intend to use the same concept.

6.21. On the other hand, it is also necessary to take into account that the rules of scope of taxes should be interpreted in their exact terms, without recourse to analogy, making tax certainty and security in their application prevail.[4]

6.22. Finally, it is also important to inquire what is the underlying purpose of the rule of item 28.1. of TGIS and, in obedience to the provision of Article 9 of the Civil Code[5], what are the circumstances in which the rule was drafted and what are the specific conditions of the time in which it is applied.

6.23. In fact, in this context, the legislator intended to introduce a principle of taxation on wealth displayed in the ownership, usufruct or right of surface of urban properties of luxury with residential use, having considered, as a determining element of contributive capacity, urban properties, with residential use, of high value (luxury), that is, of value equal to or greater than EUR 1,000,000.00, on which a special rate of Stamp Tax would (and did) apply (our underlining).

6.24. In fact, in the preamble of the Bill that introduced the amendments regarding item 28 of TGIS, the following were presented as reasons:

6.24.1. "The pursuit of the public interest, in light of the country's economic and financial situation, requires a strengthening of budget consolidation which will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a wider set of measures to combat budget deficit".

6.24.2. "These measures are fundamental to reinforcing the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program (…) and the Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live from the income of their work".

6.24.3. "In keeping with this objective, this legislation expands the taxation of income from capital and property, equitably covering a broad set of sectors of Portuguese society".

6.24.4. "A special rate is created under Stamp Tax levied on urban properties with residential use whose tax patrimonial value is equal to or greater than one million Euros" (our underlining).

6.25. Thus, it results from this statement of reasons of the legislator that the taxation in question aims at "an effective distribution of sacrifices", levying this taxation on property (as opposed to income from work, already affected by other measures).

6.26. Because this statement of reasons is too broad, it has contributed little to the interpretation of the concept of "urban property with residential use".

6.27. And we understand that this is also what can be concluded from the analysis of the discussion of Bill No. 96/XII in the Parliament[6], which was the origin of the proposal for amendments, with no different interpretative rationale being envisioned than the one presented here.[7]

6.28. In fact, the basis for the measure designated as "special tax on residential urban properties of higher value" rests on the invocation of the principles of social equity and tax justice, calling to contribute in a more intense manner the holders of high-value properties intended for housing, thus applying the new special rate to "homes valued at equal to or greater than 1 million Euros" (our underlining).

6.29. Now, if such logic appears to make sense when applied to a "residence" (whether it be a house, an autonomous fraction, a part of property with independent use or an autonomous unit) whenever it represents, on the part of its holder, an above-average contributive capacity (and, in that measure, capable of determining a special contribution to ensure fair distribution of the tax burden), it will make no sense if applied to "land for construction".

6.30. In fact, the ownership of real property by a real estate company that holds in its sphere land for construction that is intended to carry out its corporate purpose and develop, in particular, real estate promotion activity, will not represent luxury property and much less an exceptional contributive capacity, and such lands are not considered luxury goods but rather investment goods allocated to real estate promotion operations developed by the company.

6.31. Thus, ownership of these properties will not, by itself, evidence an above-average contributive capacity, so as to justify a "solidarity tax" such as is the case with the Stamp Tax of item 28.1. of TGIS, as has been extensively stated above.

6.32. In these terms, the Respondent cannot distinguish where the legislator itself understood not to do so, at the risk of violating the coherence of the tax system and the principles of tax legality (Article 103(2) of the CRP), justice, equality and tax proportionality, included in those.

6.33. Thus, in light of the foregoing, and in answer to the first of the questions posed above (see item 6.1.), it is concluded that Stamp Tax as referred to in item No. 28.1. of TGIS in the wording provided by Law No. 55-A/2012 cannot apply to "land for construction", and therefore the assessment acts that are the subject of the Request for Arbitral Decision submitted by the Claimant are illegal.

On the amendment introduced by the State Budget Law for 2014

6.34. As has been analyzed above, the concept of "urban property with residential use" was not defined by the legislator, either in the text of Law No. 55-A/2012 (which introduced it), or in the IMI Code, to which item 2 of Article 67 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis.

6.35. In fact, this is a concept that, probably due to its imprecision (a fact all the more serious as it is in function of it that the objective scope of the new taxation is defined) had a very short life, as it was abandoned upon the entry into force of the State Budget Law for 2014[8] (on 1 January 2014), which gave new wording to that item No. 28.1. of TGIS and which now defines its objective scope through the use of concepts that are legally defined in Article 6 of the IMI Code [9].

6.36. This amendment, "to which the legislator did not attribute interpretative character, merely makes it unequivocal, for the future, that land for construction whose construction, authorized or planned, is for housing is encompassed within the scope of item 28.1. of TGIS (provided that the respective tax patrimonial value is equal to or greater than 1 million Euros), but explains nothing, however, regarding past situations (assessments for 2012 and 2013)", as is the case of the assessments relating to the year 2013 that are at issue in these proceedings (our underlining) [10].

6.37. Now, as regards these assessments, it does not result unequivocally, either from the letter or from the spirit of the law, that the intention thereof was, ab initio, to encompass in its objective scope land for construction for which the construction of residential buildings was authorized or planned, as results today from the text of item 28.1. of TGIS, (after wording introduced by the State Budget Law for 2014) (our underlining).

6.38. In this context, the letter of the law reveals nothing unequivocal, for it itself, by using a concept that it did not define and that also was not found defined in the legislation to which it referred on a subsidiary basis, unnecessarily lent itself to ambiguities, in the matter of tax scope (a matter in which certainty and legal security should also be paramount concerns of the legislator).

6.39. And from its "spirit", ascertainable in the statement of reasons of the bill that is the origin of Law No. 55-A/2012, nothing else results but the concern to raise new tax revenue, from sources of wealth "more spared" in the past by the tax legislator than income from work, in particular income from capital, capital gains and property, reasons which bring no relevant contribution to clarifying the concept of "urban properties with residential use", since they take it as established, without any concern to clarify it.

6.40. Such clarification will, however, have come about upon the presentation and discussion in Parliament of Bill No. 96/XII – 2 (which gave rise to Law No. 55-A/2012, of 29 October), in the words of the Secretary of State for Tax Affairs, who expressly stated that "the Government proposes the creation of a special rate on residential urban properties of higher value (…) being the first time that in Portugal a special taxation is created on high-value properties intended for housing. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013 and will apply to homes valued at equal to or greater than 1 million Euros" [11].

6.41. Thus, from the provision in the previous item, it can be inferred that the reality that was intended to be taxed was, in fact, in ordinary language (and notwithstanding the imprecision of the law's terminology with the expression "residential urban properties"), that of "homes", and not any other realities.

6.42. Add to this that "residential use" always appears in the IMI Code as relating to "buildings" or "constructions", since only these can be inhabited, which is not the case with land for construction which, in itself, has no conditions for such, and cannot be used for housing unless and when the construction authorized and planned for it is erected on it.

6.43. Thus, given that land for construction (whatever the type and purpose of the building that will be or could be erected on it) does not, by itself, satisfy any condition for being licensed as such or for its normal purpose to be defined as housing, and the provision of scope of Stamp Tax refers to urban properties with "residential use" (without any specific concept being established for the purpose), it cannot be extracted from it that it contains a future potentiality, inherent in a distinct property that may possibly be built on that land.

6.44. It can thus be concluded that, resulting from Article 6 of the IMI Code a clear distinction between "residential" urban properties and "land for construction", the latter cannot be considered as "urban properties with residential use", for purposes of the provision of item No. 28.1. of TGIS, in its original wording (which was given to it by Law No. 55-A/2012, of 29 October) (our underlining) [12].

On the principle of non-retroactivity of tax law

6.45. With regard to the question of applicability to the Stamp Tax assessments relating to the year 2013 of the amendments introduced regarding item 28.1. by the State Budget Law for 2014 (with the express introduction in the wording of the rule of the provision "land for construction intended for housing"), it will be necessary to analyze the question of the principle of non-retroactivity of tax law, constitutionally provided.

6.46. In accordance with the provision of Article 103 of the CRP:

6.46.1. "The tax system aims at meeting the financial needs of the State and other public entities and a fair distribution of income and wealth.

6.46.2. Taxes are created by law, which determines the scope, the rate, tax benefits and taxpayer guarantees.

6.46.3. No one may be compelled to pay taxes that have not been created in accordance with the Constitution, that are retroactive in nature or whose assessment and collection are not carried out in accordance with the law" (our underlining).

6.47. With Article 103(3) of the CRP enshrining the prohibition of authentic, or proper, retroactivity of tax law (covering cases where the tax fact that the new law intends to regulate has already produced all its effects under the old law), it is not possible to permit the application of the new wording of item 28.1. of TGIS (in force since 1 January 2014) to Stamp Tax assessments relating to the year 2013, as we would be faced with the application of a new law to a prior tax fact, thus verifying a situation of authentic retroactivity prohibited by Article 103(3) of the Constitution (our underlining)[13].

6.48. Now, in accordance with the regime provided for the assessment of Stamp Tax of item 28.1., Article 3 of Law No. 55-A/2012, of 29 October, in the wording it gave to Article 23(7) of the Stamp Tax Code, states that "the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the IMI Code".

6.49. That is, "the tax is assessed annually, in relation to each municipality, by the central services of the Directorate-General of Taxes, on the basis of the tax patrimonial values of the properties and in relation to the taxpayers that appear in the matrices on 31 December of the year to which it relates", being this assessment "carried out in the months of February and March of the following year"[14].

6.50. In these terms, it is easily understood that the wording of item 28.1. of TGIS, in force as of 1 January 2014, cannot be applicable to assessments made with respect to the year 2013, because, given the foregoing, the tax fact that occurs on 31 December 2013 is prior to the entry into force of this new wording.

6.51. In this matter, and in support of the interpretation of the constitutional norm, it is also important to mention the provision of Article 12(1) of the LGT, in accordance with which "tax rules apply to facts subsequent to their entry into force, and no retroactive taxes can be created" (our underlining).

6.52. In judicial matters, the Constitutional Court (TC), in its most recent case law on tax matters, in particular in Constitutional Court Judgments (AC) No. 128/2009, of 12 March and No. 85/2010, of 3 March, considered that the retroactivity enshrined in Article 103(3) of the CRP is only authentic.

6.53. In fact, in accordance with what is defended in Constitutional Court Judgment No. 128/2009, "it follows from this constitutional provision that any tax rule (…) will be constitutionally censured when it assumes a retroactive nature, the term retroactivity being used, here, in its proper or authentic sense", that is, "the application of a new tax law, disadvantageous, to a tax fact occurring within the validity of the revoked tax law (the old law) and more favorable is prohibited"[15] (our underlining).

6.54. In these terms, given the foregoing, both regarding the fact that "land for construction" cannot be considered as "property with residential use", for purposes of the provision of item No. 28.1. of TGIS, in its original wording (see items 6.14 to 6.33, supra), and regarding the impossibility of the wording of item 28.1. of TGIS, in force from 1 January 2014, not being applicable to assessments made with respect to the year 2013, given that the tax fact occurs on 31 December 2013 (being, therefore, prior to the entry into force of the new wording of that item 28.1. of TGIS) (see items 6.34 to 6.53, supra), it is concluded that the Stamp Tax assessments that are the subject of these proceedings are illegal.

On the request for refund of the tax paid, plus compensatory interest

6.55. Finally, and with regard to the request submitted by the Claimant for "refund of the amounts paid by the Claimant as Stamp Tax on the real properties identified (…), returning the amount of EUR 36,465.10, plus compensatory interest", calculated "(…) from the date of the respective payments until the complete refund of the amounts paid", it is important to note that, in accordance with the provision of subparagraph b), item 1, Article 24 of RJAT, and in accordance with what is established there, "the arbitral decision on the merits of the claim of which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, and the latter must restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the purpose"[16] (our underlining).

6.56. In fact, in accordance with the provision of Article 100 of the LGT, applicable to the case by force of the provision of subparagraph a), item 1, Article 29 of RJAT, "the tax administration is obliged, in case of total or partial merit of claims or administrative appeals, or of legal proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided by law" (our underlining).

6.57. In the situation under analysis, and as a consequence of the illegality of the assessment acts already identified above, there must be, by force of the rules previously referred to, a refund of the amounts possibly already paid by the Claimant, as title of the tax borne, as a way of achieving the restoration of the situation that would have existed if the illegality had not been committed.

6.58. As for the compensatory interest petitioned by the Claimant, it appears that, given what is established in Article 61 of the Tax Procedure and Process Code (CPPT) and the requirements of the right to compensatory interest being met (that is, the existence of error attributable to the services resulting in payment of tax debt in an amount exceeding what is legally due, as provided for in item 1, Article 43 of the LGT), the Claimant is entitled to compensatory interest at the legal rate, calculated on the amounts paid relating to the Stamp Tax assessments dated 18 March 2014 (and relating to the year 2013), which will be counted in accordance with the provision of item 3 of Article 61 of the CPPT (referred to above), that is, from the date of payment of the undue tax until the date of issuance of the respective credit note.

1. DECISION

7.1. In accordance with the provision of Article 22(4) of RJAT, "the arbitral decision rendered by the arbitral tribunal includes the fixing of the amount and allocation among the parties of the costs directly resulting from the arbitral proceedings".

7.2. In this context, the basic rule regarding responsibility for process costs is that the party that caused them should be condemned, being understood that the losing party causes process costs, in proportion to its loss [Article 527(1) and (2) of the Code of Civil Procedure (CPC)].

7.3. In the case under analysis, having regard to the foregoing, the principle of proportionality requires that the entire responsibility for costs be attributed to the Respondent.

7.4. In these terms, having regard to the analysis carried out, this Arbitral Tribunal decided:

7.4.1. To adjudge the request for arbitral decision submitted by the Claimant well-founded and to condemn the Respondent as to the request for declaration of illegality of the Stamp Tax assessments, dated 18 March 2014 (relating to the year 2013), and identified in this proceeding, annulling, in consequence, the respective tax acts;

7.4.2. To adjudge well-founded the request for condemnation of the Respondent to refund the amounts unduly paid by the Claimant, plus compensatory interest at the legal rate, counted in accordance with legal terms;

7.4.3. To condemn the Respondent to payment of the costs of the present proceeding.

Value of the case: Having regard to the provision of Articles 306(2) of the CPC, Article 97-A(1) of the CPPT and Article 3(2) of the Regulations on Costs in Tax Arbitration Proceedings, the value of the case is fixed at EUR 36,465.10.

Costs of the proceedings: In accordance with the provision of Table I of the Regulations on Costs of Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceeding is fixed at EUR 1,836.00, payable by the Respondent, in accordance with Article 22(4) of RJAT.

Let it be notified.

Lisbon, 26 January 2015

The Arbitrator

Sílvia Oliveira

Text prepared by computer, in accordance with item 5 of Article 131 of the CPC, applicable by referral of subparagraph e) of item 1 of Article 29 of Decree-Law No. 10/2011, of 20/01.

The wording of this decision follows the old spelling conventions.

[1] According to the information provided by the Claimant in the petition, see Case Nos. …/04, OBESNT and …/05.11BESNT.

[2] In this sense, see Constitutional Court Administrative Section (TCAS) Case 07648/14, of 10 July.

[3] See CAAD Arbitral Decision No. 48/2013-T, of 9 October.

[4] See TCAS Case 5320/12, of 2 October, TCAS Case 7073/13, of 12 December and TCAS Case 2912/09, of 27 March 2014.

[5] In accordance with this article, the interpretation of the legal rule should not be limited to the letter of the law, but should reconstitute the legislative intent, from the texts and other elements of interpretation, taking into account the unity of the legal system.

[6] Available for consultation in the Journal of Parliament, Series I, No. 9/XII/2, of 11 October 2012.

[7] As referred to in several Arbitral Decisions issued by CAAD (in particular, in Case No. 48/2013-T, of 9 October).

[8] Introduced by Law No. 83-C/2013, of 31 December.

[9] See in this sense Constitutional Court Administrative Section (TCAS) Case 048/14, of 9 April and TCAS Case 0272/14, of 23 April.

[10] See in this sense TCAS Case 048/14, of 9 April and TCAS Case 0272/14, of 23 April.

[11] See Journal of Parliament (DAR Series I, No. 9/XII – 2, of 11 October, p. 32).

[12] See TCAS Case 048/14, of 9 April, TCAS Case 0272/14, of 23 April, TCAS Case 0505/14, of 29 October and TCAS Case 0740/14, of 10 September.

[13] See Constitutional Court Judgment 128/2009, of 12 March, referred to in TCAS Case 01375/12, of 14 February 2013.

[14] As provided in Article 113(1) and (2) of the IMI Code.

[15] In doctrine, and defending authentic retroactivity and not improper or "inauthentic" retroactivity, see V. Casalta Nabais, Tax Law, p. 147; Rui Guerra da Fonseca, Commentary on the Portuguese Constitution, Volume II, coordinated by Paulo Otero, pp. 872 et seq., Américo Fernando Brás Carlos, Taxes, p. 145 et seq.).

In the opposite sense, see V. Paz Ferreira - Constitution of the Portuguese Republic Annotated, Jorge Miranda and Rui Medeiros, Volume II, Coimbra, 2006, p. 223, following the position of Diogo and Mónica Leite de Campos and Jorge Bacelar Gouveia.

[16] In this sense, see Arbitral Decision 27/2013-T, of 10 September, regarding the "refund of the total amount paid and compensatory interest".