Stamp Tax on Construction Land & Vertical Property: CAAD Ruling on Verba 28.1 TGIS Constitutionality

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), José Nunes Barata and Ricardo Marques Candeias, appointed by the Deontological Council of the Administrative Arbitration Centre, hereby agree to form an Arbitral Tribunal:

I – REPORT

On 29 July 2015, A…, S.A., a Public Company, with registered office at Rua…, n.º…, in Porto (…-…), registered at the Commercial Registration Office of Porto under the unique registration number and legal person …, filed a request for the constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated RJAT), seeking the declaration of illegality of the acts of assessment of Stamp Tax ("IS"), further identified below:

To support its request, the Applicant alleges, in summary, that item 28.1 of the TGIS is unconstitutional in light of the principle of equality and contributive capacity, a defect that will taint the assessments in question. Additionally, and with regard to the assessment of IS on the matricular article …, of the parish of …, the Applicant further considers that it is illegal, as it applies to a VPT calculated after verification of the tax event, violating the applicable assessment rules, namely as provided in article 113 of the Code of IMI.

On 29-07-2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the AT.

By petition of 06-10-2015, the Applicant proceeded with the Expansion of cause of action regarding the assessments of IS on the urban property to which matricular article … of the parish of … refers, on the grounds that the assessments of IS underlying collection documents nos. 2015…, 2015 … and 2015 … suffer from illegality due to errors in the factual and legal premises, by virtue of the property in question being improperly described as an urban property in full ownership without floors or divisions susceptible to independent use, when, in reality, it is an urban property susceptible to independent use.

The Applicant did not appoint an arbitrator, so, under the provisions of subparagraph a) of article 6(2) and subparagraph a) of article 11(1) of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 13-10-2015, the parties were notified of these appointments and manifested no intention to refuse any of them.

In compliance with the provision of subparagraph c) of article 11(1) of the RJAT, the collective Arbitral Tribunal was constituted on 28-10-2015.

On 03-12-2015, the Respondent, duly notified for this purpose, filed its reply defending itself solely by way of objection.

Considering that there was no need for the production of additional evidence beyond the documentary evidence already incorporated in the case file, that there was no matter of exception on which the parties needed to pronounce themselves, and that in arbitral proceedings the general procedural principles of procedural economy and prohibition of useless acts apply, under the provisions of subparagraphs c) and e) of article 16 and article 29(2), both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

Having been granted a period for the presentation of written submissions, the parties opted not to present them.

A period of 30 days was fixed for the rendering of the final decision, after the expiry of the period fixed for the presentation of submissions by the AT.

The Arbitral Tribunal is materially competent and regularly constituted, under the terms of articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, under the terms of articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Thus, there is no obstacle to the examination of the merits of the case.

Everything considered, it is necessary to render

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

a) The Applicant was, at the date of the tax events, a credit institution, subject to supervision by the Bank of Portugal, which heads the B… Group, a financial group, multidisciplinary, centred on banking activity, endowed with a complete range of financial services and products for business clients, institutional clients and individuals.

b) The Applicant was, at the date of the tax events, the sole owner of the land for construction registered in the property matrix of … under matricular article … .

c) The Applicant was, at the date of the tax events, also the sole owner of the urban property in the regime of full ownership for use as housing with matricular article … of the Parish … - … .

d) The Applicant was, at the date of the tax events, still the sole owner of the lands for construction registered in the urban property matrix of … under matricular articles…, …, …, … and … .

e) The Applicant was, at the date of the tax events, still owner of …/100000 of the land for construction registered in the property matrix of … under the article … .

f) The Applicant was, at the date of the tax events, finally, owner of the urban property in the regime of full ownership registered in the urban property matrix of … under the article… .

g) This latter was, at the same date, an urban property susceptible to independent use.

h) The description contained in the respective urban property record was as follows:

i) In the report of the Appraiser issued following a request for 2nd Assessment of said urban property, and dated 27 July 2014, it is stated that:

"The urban property subject to the current evaluation process is registered in the Urban Property Matrix as a property in full ownership without floors or divisions susceptible to independent use. However, it was found from the information provided by the taxpayer, combined with evidence collected during the inspection of the site, that the property, although not constituted in horizontal property ownership, has a basement for collective parking, a ground floor with two commercial establishments, two upper floors, each with three apartments (types T3 and T4) and a top floor with one apartment (type T4).

Accordingly, the property should be registered as a property in full ownership with floors or divisions susceptible to independent use, with a description of each of the identified fractions, so that subsequently the property can be evaluated fraction by fraction, in accordance with the characteristics of each of them."

j) With the request for a second assessment, plans of the property in question were attached.

k) Through the collection documents identified in the Report above, the Applicant was notified of the first and second instalments of the assessments of IS - item 28.1 of the TGIS - on the urban properties described above, totalling the amount of Stamp Tax assessed of €209,519.99.

l) The Applicant paid the amounts corresponding to the first and second instalments of the aforementioned assessments.

m) The applicant also proceeded to pay collection documents nos. 2015 …, 2015 … and 2015 …, relating to assessment of IS - Item 28.1 of the TGIS, for the years 2012 to 2014 on the urban property registered in the property matrix of … under article … .

n) In the assessment of IS on the property to which matricular article …, of the parish of …, refers, for the year 2012, the AT used as VPT the tax patrimonial value calculated on 27/03/2013 as part of the general assessment of properties.

o) On 18-01-2016 the Applicant was notified of the Assessment of urban property no. … (renumbering due to the change in description), in the course of which said property came to be described as Property in Full Ownership with floors or divisions susceptible to independent use, each floor or fraction susceptible to independent use being described and assessed individually, in accordance with the same rules that determine in the Code of IMI the registration, description and assessment of urban properties constituted in horizontal property ownership.

p) Three of the floors or divisions susceptible to independent use were considered for use as services, consuming a permillage of 545.74, with the remainder corresponding to the parts or fractions effectively intended for housing.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Justification of the Factual Matters Proven and Not Proven

With respect to the factual matters, the Tribunal does not need to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish the proven from the unproven matters (cf. article 123(2) of the CPPT and article 607(3) of the CPC, applicable by virtue of article 29(1), subparagraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established in view of the various plausible solutions of the legal question(s) (cf. former article 511(1) of the CPC, corresponding to current article 596, applicable by virtue of article 29(1), subparagraph e), of the RJAT).

Thus, having regard to the positions assumed by the parties, in light of article 110(7) of the CPPT, the documentary evidence and the expert report attached to the case file, the facts listed above were considered proven, with relevance to the decision, bearing in mind that, as was written in the Judgment of the TCA-South of 26-06-2014, rendered in case 07148/13, "the probative value of the report of the tax inspection (...) may have probative force if the assertions contained therein are not impugned."

B. ON THE LAW

The first issue raised by the Applicant concerns, exclusively, the constitutionality of item 28.1 of the TGIS, in light of the principle of equality and contributive capacity.

This matter was the subject of a recent decision of the CC, in judgment 590/2015, which, with all due respect, is transcribed as follows:

"12. Let us then proceed to assess the parameter of constitutionality to which the appellant dedicated the majority of its argument, founded on the principles of tax equality and contributive capacity (articles 13, 103 and 104 of the Constitution).

The constitutional principle of tax equality, as a specific expression of the general structuring principle of equality (article 13 of the Constitution), is realized "in the generality and uniformity of taxes. Generality means that all citizens are bound to pay taxes (…); in turn, uniformity means that the distribution of taxes among citizens obeys the same identical criterion for all" (TEIXEIRA RIBEIRO, Lessons on Public Finances, 5th edition, p. 261). And such criterion, as underscored by CASALTA NABAIS, is found in the principle of contributive capacity: "This thus implies equal tax for those with equal contributive capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributive capacity in proportion to that difference (vertical equality)" (Tax Law, 7th edition, 2012, p. 155). As a presupposition and criterion of taxation, the principle of contributive capacity "on the one hand, constituting the ratio or reason for taxation, removes the tax legislator from arbitrariness, obliging him, in the selection and articulation of tax facts, to adhere to revelations of contributive capacity, that is, to erect as the object and taxable matter of each tax a certain economic presupposition that is a manifestation of such capacity and is present in the various legal hypotheses of the respective tax" (CASALTA NABAIS, op. cit., p. 157).

The Constitutional Court has thus affirmed, as evidenced by Judgment No. 84/2003:

"The principle of contributive capacity expresses and concretizes the principle of tax or fiscal equality in its aspect of 'uniformity' – the duty of all to pay taxes according to the same criterion – with contributive capacity filling the unitary criterion of taxation", understanding such criterion as being that in which "the incidence and distribution of taxes – of 'fiscal taxes' more precisely – should be made according to the economic capacity or 'capacity to spend' (…) of each and not according to what each might eventually receive in public goods or services (benefit criterion). (…) Despite the silence of the Constitution, it is widely understood in the doctrine that 'contributive capacity' remains a basic criterion of our 'fiscal Constitution', and it can (or should) be arrived at through the structuring principles of the fiscal system formulated in articles 103 and 104 of the CRP (…)".

This Court has, however, stressed that the principle of contributive capacity does not dispense with the concurrence of other constitutional principles. As was stated in Judgment No. 711/2006, "it is clear that the 'principle of contributive capacity' must be compatible with other principles with constitutional dignity, such as the principle of the Social State, the legislator's freedom of configuration, and certain requirements of practicability and cognoscibility of the tax fact, equally indispensable for the fulfilment of the objectives of the tax system". And it continues: "To ascertain, however, the existence of a particularism sufficiently distinct to justify an inequality of legal regime, and to decide on the circumstances and factors to be considered as relevant in such ascertainment, is a task that primarily falls to the legislator, who holds primacy in the concretization of constitutional principles and the corresponding freedom of configuration. Thus, the principle of equality presents itself fundamentally to legal operators, in the context of the review of constitutionality, as a negative principle (…) - as prohibition of arbitrariness".

In sum, as synthesized in Judgment No. 695/2014, "the principle of tax equality may be concretized through different aspects: a first, lies in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating equally taxpayers who are in equal situations and differently those who are in different situations, to the extent of the difference, to be assessed by contributive capacity; a last, lies in the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that are devoid of rational foundation".

13. The argument of the appellant places itself on this latter ground, responding negatively to the question about the reason for the taxation under review, fundamentally by assuming, in its view, a character of being unsystematic and arbitrary, from the consideration that the taxation of real property should be effected through IMT and IMI, and by discriminating without rational foundation taxpayers with the same contributive capacity. Without reason, it must be said.

14. First of all, from the registration of the taxation under analysis within the scope of Stamp Tax, and not in other species of taxes, does not result, in itself, an infraction of any parameter of constitutionality. Even if one were to conclude for the introduction of a factor of incoherence, or even of imbalance, in the system of taxation of real property, as the appellant claims, mere unsystematicity of the questioned rule is not apt to determine constitutional censure (cf., even in other fields of regulation, Judgments no. 353/2010 and 324/2013).

It should be noted, nonetheless, that the incidence of Stamp Tax, marked by heterogeneity, refers here, as regards the essential elements of the assessment of the tax, notably as to the normative criteria defining the patrimonial value to be considered, to the regulation contained in the Code of IMI, ensuring, or at least promoting, a certain degree of harmony between the various legislative bodies in the field of real property taxation. Doctrine even attributes to it the condition of "additional IMI rate", intended to "discriminate properties of higher patrimonial value and subject them to a more onerous tax regime than the rest" (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 504), explaining the creation of a new tax fact subject to Stamp Tax, beyond the heterogeneity that marks this tax, by the need to increase the tax revenues of the State, since IMI revenue reverts to the municipalities and Stamp Tax is a revenue of the State (op. cit., p. 506).

Other paths could surely be conceived within the legislator's reach, possibly through recourse to other tax species, but it is equally certain that the option taken is inscribed within the broad margin of configuration of the fiscal legislator, being incapable of founding autonomous constitutional censure.

15. Nor is there found in the rule of incidence under examination an arbitrary fiscal measure, because devoid of rational foundation. As was seen, the legislative change had the purpose of broadening the taxation of property, making it fall more intensely on ownership that, by its value considerably higher than that of the generality of urban properties with housing use, reveals greater indicators of wealth and, as such, is susceptible to founding the imposition of an increased contribution for the correction of public accounts to its holders, in realization of the aforementioned "principle of equity in austerity".

The appellant claims that the rule in question is "inequitable" and presents two hypothetical cases which, in its view, make patent the violation of the principles of tax equality and contributive capacity.

15.1. The first case compares two taxpayers, where one owns "property valued at approximately one million and two hundred and fifty thousand euros" and bears Stamp Tax by virtue of the rule of incidence of item no. 28, and another which, by "owning property valued at 20 million euros but has no, in that set, any property with tax patrimonial value exceeding 1 million" bears no taxation. From this follows, it contends, a "vertical inequality" between taxpayers without justifying reason.

However, the proposed comparison is not admissible, as it departs, in the tertium comparationis selected, from the structure of the rule under analysis. The taxation resulting from the rule of incidence lodged in item no. 28 assumes the nature of a partial tax (thus, JOSÉ MARIA FERNANDES PIRES, op. cit., p. 507), taking as the taxable base the urban property used for housing, calculating its respective tax patrimonial value per relevant legal and economic unit. It does not constitute a general tax on property, or even a tax on all real property, in such terms as to found a comparison rooted in a view of personalization of the tax and from a base that attends to all the property of the tax subject.

15.2. It should be noted that the Constitution does not impose on the legislator the creation of a general tax on property, assigning to taxation on property the function of contributing to equality among citizens (article 104(3) of the Constitution), with the legislator being free as to the solution to adopt. It may, as pointed out by CASALTA NABAIS, in pursuit of such constitutional objective, "proceed to discriminate property, taxing the highest and exempting the lowest or adopting progressive rates" (op. cit., p. 436). And, even if one might extract from the principle of contributive capacity a model of a general tax on property with a taxable base extended to all manifestations of wealth, the obstacles of practicability that oppose it are apt to lead in reality to the creation of inequalities among taxpayers. As stated by SÉRGIO VASQUES (Contributive Capacity, Income and Property, in Taxation, 2005a, no. 23, p. 44):

"[T]here where taxes of this nature have been instituted – and there are not many cases – their application has been marred by the grossest fraud, producing thereby an inequality among taxpayers that cannot be tolerated. The equality of a tax is measured by the results of its application and when the legislator knows in advance that it cannot tax a certain manifestation of wealth with effective equality, it should then refrain from subjecting it to tax.

We can therefore conclude by saying that the principle of contributive capacity has useful and precise content in the configuration of taxes on property but that the model to which it points, that of a tax on global net property, produces in practice greater breaks of equality than the gains it brings. When it is asserted that there is no room in modern tax systems for a tax on global property alongside VAT and the tax on personal income, this will certainly be true – not by force of the principle of contributive capacity, which calls for it, but for reasons of practicability that are foreign to it."

15.3. Thus, the assessment of compliance with the principle of fiscal equality in its material dimension lacks reference to the unit of property for use as housing, which entails the conclusion that in the first case there is no arbitrary discrimination among taxpayers in the uniform operation of the relevant substantive criterion, translated in the attribution to each property with housing use of a tax patrimonial value equal to or exceeding €1,000,000.00.

As, furthermore, there persists an effective connection between the tax obligation and the economic presupposition selected as the object of the tax, without infringing the principle of contributive capacity, whose scope, not being excluded, diminishes in the field of taxation on property, in contrast to what happens in taxation on income (thus, SÉRGIO VASQUES, Manual of Tax Law, Coimbra, 2011, p. 254). Indeed, the appellant does not dispute that the tax patrimonial value on which the incidence of the tax depends is reached only by urban properties of housing vocation of higher economic significance, externalizing levels of wealth corresponding to the highest standards of Portuguese society.

15.4. The second case, according to the appellant demonstrative of inequality on the horizontal plane, compares the taxation imposed on it, as owner of a property whose tax patrimonial value exceeds "by little" the amount of €1,000,000.00, with the non-taxation of a hypothetical taxpayer who was owner of 10 properties, whose tax patrimonial value stood at €990,000.00.

It should be noted that the existence of distinct application results before very approximate values – by excess or by defect – of a quantitative expression stipulated normatively as a limit – positive or negative – of any legal effect is connatural to its fixation by the legislator. Either in the definition of tax incidence, either in the enactment of exemptions or tax benefits based on value criteria, it is always possible to find examples of taxpayers with differentiated treatment based on a very reduced quantitative variation.

Because it must necessarily be so, the differentiation in the second hypothesis posed does not show itself devoid of rational foundation, in accordance with the scope, structure and nature of the rule under analysis: aimed at increasing the taxation of properties with housing use of high value, the fiscal measure could not fail to determine, by imperative of the principle of fiscal legality, the concrete tax patrimonial value from which a special rate of Stamp Tax would begin to apply to such properties, which also excludes, on this point, the verification of arbitrariness on the part of the legislator.

Principle of Proportionality

16. With regard to the violation of the principle of proportionality, pointed out by the appellant in the final part of the petition transcribed in point 2 as a corollary of the violation of the principles discussed above, the appellant's lack of reason is manifest.

Indeed, the appellant sustains in submissions, even if for another parameter, that there is not found, in the species, an adequate means-end relationship, inasmuch as the revenue collected with this tax has "any relevant significance", the amount collected in 2012 being "necessarily a meagre revenue" (cf. pages 16 and 17 of the submissions, at pages 301 and 302 of the case file).

The reasoning takes, however, as a premise something that does not correspond to the purpose of the rule: the legislator did not aim to achieve only through this means the objective of correction of public accounts, admittedly difficult. It intended, as was seen, to broaden the taxable base to the wealth externalized in the ownership of urban properties intended for housing of high value and, from the perspective of promotion of budgetary consolidation, as an instrument for obtaining more revenue and, correspondingly, for relief of the effort that might come to fall on other sources of revenue or on the reduction of public spending, with a view to meeting the goals of public deficit, there is no doubt that the sums of Stamp Tax collected by virtue of the incidence provided for in item no. 28, whatever their amount, are apt and suitable to accomplish the objectives of expanded distribution of the effort in a period of additional fiscal and financial sacrifices that the legislator sought to achieve. As, while a fiscal measure aimed at affecting more intensely the holders of rights of fruition over urban properties of housing vocation and of higher value, within reach only of those with high economic strength, no reasons are discerned to conclude by disrespect for the dimensions of necessity or just measure, contained in the principle of proportionality."

Thus, endorsing in entirety the justification of the jurisprudence that has just been transcribed, it is considered that, on this point, the arbitral request should be denied.

*

Additionally, the Applicant questions the factual and legal grounds of the assessments of IS relating to the property registered in the urban property matrix of … under article … .

Upon examination of the facts established as proven, it is verified that the property in question was, at the date of the tax event, in the regime of full ownership, and that it was an urban property susceptible to independent use.

Furthermore, it is verified that the same property was identified in the respective property matrix as an urban property for housing, notwithstanding the same property matrix stating that it contained in the basement and on the ground floor divisions intended for commerce.

Moreover, on 18-01-2016 the Applicant was notified of the assessment of the same urban property (renumbered due to the change in description), in the course of which said property came to be described as Property in Full Ownership with floors or divisions susceptible to independent use, each floor or fraction susceptible to independent use being described and assessed individually, it being the case that three of the floors or divisions susceptible to independent use were considered for use as services, consuming a permillage of 545.74, with the remainder corresponding to the parts or fractions effectively intended for housing.

On this point, it was stated in the Judgment of the Supreme Administrative Court of 09-09-2015, rendered in case no. 047/15:

"I - With respect to properties in vertical ownership, for purposes of the incidence of Stamp Tax (Item 28.1 of the TGIS, in the wording of Law No. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: housing use and the VPT contained in the matrix equal to or exceeding € 1,000,000.

II - Where a property is constituted in vertical ownership, the incidence of IS should be determined, not by the VPT resulting from the sum of the VPT of all floors or divisions susceptible to independent use (individualized in the matricular article), but by the VPT attributed to each of those floors or divisions intended for housing."

As follows from the jurisprudence that has just been cited, and from prior arbitral jurisprudence, where a property is constituted in vertical ownership, the incidence of IS should be determined by the VPT attributed to each of those floors or divisions intended for housing.

Now, in the case at hand, that is not what occurred.

Indeed, with it expressly stated in the property matrix that the property in question consisted of divisions for use in commerce, the AT, instead of individualizing the parts or divisions for housing use, chose to apply IS to the value of the property as a whole, thereby encompassing the parts for use in commerce which – obviously – are not covered by the incidence of the rules of items 28 and 28.1 of the TGIS, applicable, which refer to properties "with housing use".

As was stated in the Judgment of CAAD rendered in arbitral case 474/2015-T:

"30. It is thus important to take into account that the subjection to IS of properties with housing use resulted from the addition of item 28 of the TGIS, effected by article 4 of Law 55-A/2012, of 29/10, which typified the following tax facts:

"28 – Ownership, usufruct or right of surface of urban properties whose tax patrimonial value contained in the matrix, under the terms of the Code of the Municipal Tax on Real Property (IMI Code), is equal to or exceeding € 1,000,000.00 – on the tax patrimonial value for purposes of IMI:

28-1 – For property with housing use – 1%

28.2 – For property, when the taxable persons are not natural persons and are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5%."

31. Law 55-A/2012 says nothing about the qualification of the concepts at issue, namely, as to the concept of "property with housing use." But article 67(2) of the CIS, added by said Law, provides that "to matters not regulated in this Code concerning item 28 of the General Table, the IMI Code applies subsidiarily."

The rule of incidence refers, therefore, to urban properties, the concept of which is as results from the provision in article 2 of the IMI Code, with the determination of the VPT being subject to the terms provided in article 38 et seq. of the same Code. Consulting the IMI Code, it is found that its article 6 only indicates the different species of urban properties, among which it mentions housing properties (see subparagraph a) of no. 1), clarifying in no. 2 of the same article that "housing, 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 destination each of these purposes."

From the normative provisions referred to we can conclude that, from the perspective of the legislator, what matters is not the legal-formal rigor of the concrete situation of the property (it is irrelevant whether it is constituted in vertical or horizontal property ownership) but rather its normal use, the purpose to which the property is actually intended.

32. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership was not relevant, as no reference or distinction is made between them. An identical conclusion is drawn from the reference that the legislator introduced in matters of IS to the IMI Code. Now, this tax establishes as criterion for properties in vertical ownership the attribution of a VPT to each of the independent parts or divisions. What is relevant is therefore the material truth underlying its existence as an urban property and its use, that is, "with housing use".

Using the criterion that the law itself introduced in article 67(2) of the CIS, "to matters not regulated in this Code concerning item 28 of the General Table, the IMI Code applies subsidiarily."

From the provision in no. 4 of article 2 of the IMI Code, it results that "For purposes of this tax, each autonomous fraction, under the horizontal property regime, is considered as constituting a property." Adding further article 12(3) of the IMI Code that "Each floor or part of a property susceptible to independent use is considered separately in the matricular registration which also determines its respective tax patrimonial value". (emphasis in original)."

Thus, one of the two incidence elements, outlined by the aforementioned Judgment of the STA of 09-09-2015, is defective, even if only partially, so that the tax acts in question should be annulled, leaving prejudiced the examination of the issue raised by the Applicant, solely with respect to the assessment for 2012, relating to the property in question, arising from the use therein, as VPT, of the tax patrimonial value calculated on 27/03/2013 as part of the general assessment of properties.

*

The Applicant combines, with the request for annulment of the tax acts that are the subject of these proceedings, the request for condemnation of the ATA to payment of indemnification interest.

Given the success of the annulment request, the instalments relating to the tax acts annulled that prove to have been paid by the Applicant should be refunded, if necessary in execution of judgment. In the case at hand, it is manifest that the illegality of the acts of assessment, whose amount the Applicant paid, is attributable to the Respondent, who, on its own initiative, performed them without legal support.

Consequently, the Applicant has the right to indemnification interest, under the terms of articles 43(1) of the LGT and 61 of the CPPT. Indemnification interest is owed from the dates of the payments made, and calculated on the basis of their respective value, until their complete refund to the Applicant, at the legal rate, under the terms of articles 43(1) and (4) and article 35(10) of the LGT, article 61 of the CPPT and article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (without prejudice to any subsequent alterations of the legal rate).

Furthermore, in harmony with the provision of subparagraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge applies binds the Tax Administration from the end of the period provided for appeal or challenge, the latter being required, in the exact terms of the success of the arbitral decision in favour of the taxable person and until the end of the period provided for spontaneous execution of the decisions of judicial tax courts, to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for this purpose", which is in harmony with the provision in article 100 of the LGT [applicable by virtue of the provision in subparagraph a) of article 29(1) of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of a complaint, judicial challenge or appeal in favour of the taxable person, to immediate and complete restoration of the legality of the act or situation subject to the dispute, including the payment of indemnification interest, if applicable, from the end of the period of execution of the decision".

Although article 2(1), subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral tribunals operating within CAAD, making no reference to condemnatory decisions, it should be understood that the powers attributed in judicial challenge proceedings to tax courts are included within its jurisdiction, this being the interpretation that harmonizes with the meaning of the legislative authorization on which the Government based itself for approving the RJAT and in which it proclaims, as a first directive, that "the tax arbitration process must constitute an alternative procedural means to judicial challenge proceedings and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge process, despite being essentially a process of annulment of tax acts, admits the condemnation of the tax administration to payment of indemnification interest, as is apparent from article 43(1) of the LGT, which establishes that "indemnification interest is owed when it is determined, in informal resolution or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due" and from article 61(4) of the CPPT (in the wording given by Law No. 55-A/2010, of 31 December, corresponding to no. 2 in the original wording), which states that "if the decision recognizing the right to indemnification interest is judicial, the payment period is counted from the beginning of the period for its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT in stating that "payment of interest, regardless of its nature, is owed in accordance with the terms provided in the general tax law and the Tax Procedure and Process Code" should be understood as permitting the recognition of the right to indemnification interest in arbitral proceedings. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the disputed assessment acts, there is provision for refund of the tax, by virtue of the aforementioned articles 24(1)(b) of the RJAT and 100 of the LGT, as such is essential to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed", in the portion corresponding to the correction that was found to be illegal.

Thus, the Respondent should give execution to the present judgment, under the terms of article 24(1) of the RJAT, determining the amount to be refunded to the Applicant and calculating the respective indemnification interest, at the legal rate applicable to civil debts, under the terms of articles 35(10) and 43(1) and (5) of the LGT, article 61 of the CPPT, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or decree or decrees that succeed it).

The indemnification interest is owed from the dates of the payments made until the date of processing of the credit note, in which they are included (article 61(5) of the CPPT).

*

C. DECISION

Accordingly, in this Arbitral Tribunal it is judged that the arbitral request is partially upheld and, in consequence:

a) The assessments of Stamp Tax for the years 2012 to 2014 on the urban property registered in the property matrix of … under the article… are annulled;

b) The Respondent is condemned to pay indemnification interest on the payments that have been made by force of the annulled tax acts, as follows from article 100 of the General Tax Law;

c) The parties are condemned in the costs of the proceedings, in the proportion of their respective lack of success, fixing the amount of €706.80 at the charge of the Respondent and €3,577.20 at the charge of the Applicant.

D. Value of the Proceedings

The value of the proceedings is fixed at €209,529.99, under the terms of article 97-A(1)(a) of the Tax Procedure and Process Code, applicable by virtue of subparagraphs a) and b) of article 29(1) of the RJAT and no. 2 of article 3 of the Regulations of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €4,284.00, under the terms of Table I of the Regulations of Costs in Tax Arbitration Proceedings, to be paid by the parties in the proportion of their respective lack of success, fixed above, inasmuch as the request was partially upheld, under the terms of article 12(2) and article 22(4), both of the RJAT, and article 4(4) of the said Regulations.

Notify.

Lisbon, 3 February 2016

The Presiding Arbitrator

(José Pedro Carvalho - Rapporteur)

The Arbitrator Member

(José Nunes Barata)

The Arbitrator Member

(Ricardo Marques Candeias)

[1] Available at www.dgsi.pt, as is the remaining jurisprudence cited without mention of source.

[2] Available at http://www.tribunalconstitucional.pt/tc/acordaos/20150590.html.

[3] Available for consultation at www.caad.org.pt.