Stamp Tax on Residential Properties Over €1M: CAAD Ruling 517/2014-T on Verba 28.1 TGIS

CAAD: Tax Arbitration

Case No. 517/2014-T

Arbitral Award

I. Report

1. A.., taxpayer number …, resident at Avenue …, in Cascais, requested from the Administrative Arbitration Centre (CAAD), on 25 July 2014, the establishment of an arbitral tribunal in tax matters, pursuant to the provisions of articles 10, nos 1 and 2 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration "LFTA"), with the Tax and Customs Authority (TCA) as respondent, for the purpose of declaring the illegality and consequent annulment of the Stamp Duty (SD) assessment act corresponding to document no. 2013…, in the amount of €5,129.25 (five thousand, one hundred and twenty-nine euros and twenty-five cents).

2. The Claimant opted not to appoint an arbitrator.

3. The request for establishment of an arbitral tribunal was accepted by the President of CAAD on 28 July 2014 and automatically notified to the TCA on the same date.

4. The Signatory was designated by the President of the Deontological Council of CAAD as arbitrator of a single arbitral tribunal, pursuant to the provisions of article 6 of the LFTA.

5. The Signatory communicated to the President of the Deontological Council of CAAD acceptance of the appointment, within the legal period, pursuant to the provisions of article 4 of the Deontological Code of CAAD.

6. The Parties were notified of the designation of the Signatory on 11 September 2014, pursuant to article 11, no. 1, paragraphs a) and b) of the LFTA, and did not object thereto.

7. The single arbitral tribunal was thus regularly established on 26 September 2014, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the LFTA.

8. The TCA was notified by arbitral order of 2 October 2014 to submit its response within 30 days.

9. The TCA submitted its response on 30 October 2014, and likewise requested waiver of the meeting referred to in article 18 of the LFTA.

10. By arbitral order of 14 November 2014, the Claimant was notified to pronounce on the waiver of that meeting, and did not submit a response.

11. The Arbitral Tribunal is materially competent, pursuant to article 2, no. 1, paragraph a) of the LFTA.

12. The Parties have legal standing and capacity and are legitimate (articles 4 and 10, no. 2 of the LFTA and article 1 of Ordinance no. 112-A/2011, of 22 March).

13. The proceedings are not affected by defects that would render them invalid.

II. The Claimant's Application

The Claimant presented a request for an arbitral award for the purpose of declaring the illegality and consequent annulment of the Stamp Duty assessment act corresponding to document no. 2013…, in the amount of €5,129.25 (five thousand, one hundred and twenty-nine euros and twenty-five cents), as well as of the express denial of the administrative complaint it filed regarding the same.

To this end, and in summary, it presented the following allegations:

1. The Claimant is the owner of an urban property registered in the urban tax roll of the Union of Parishes of Cascais and Estoril, municipality of Cascais, under article …, which has a residential use.

2. It was notified on 17.10.2013 of the Stamp Duty assessment no. 2013…, in the amount of €5,129.25, having as legal basis article 6, no. 1, paragraph f) of Law no. 55-A/2012, of 29 October, with reference to the property identified above, which has a tax property value (TPV) of €1,025,850.35 (one million, twenty-five thousand, eight hundred and fifty euros and thirty-five cents).

3. The Claimant proceeded to pay the tax.

4. The Claimant considers that the assessment in question is illegal as it is based on a provision that violates article 13 of the Constitution of the Portuguese Republic (CPR), which translates into the principle of equality, in the aspect of contributory capacity, in that, in summary, and citing some doctrine and a CAAD decision:

a. A taxpayer who holds 10 residential properties, each with a TPV of €100,000.00, is in an objectively comparable situation with a taxpayer who owns a single residential property with a TPV of €1,000,000.00;

b. Both have equal contributory capacity with regard to property;

c. In a logic of real estate profitability, the taxpayer with 10 properties is potentially in a more advantageous situation, as it is permitted to lease 9 properties, using the 10th for its own residence;

d. Whereas the taxpayer with only 1 property can only lease that same property, not even remaining with one available for its own residence, or, in the contrary logic, remaining with that property for residence, will not be able to undertake the corresponding real estate profitability;

e. From a perspective of contributory capacity, the two situations reveal equal contributory capacity between taxpayers;

f. The two taxpayers are in an objectively comparable situation and should therefore merit identical tax treatment as regards property taxation;

g. However, such identical tax treatment does not occur, since one is only taxed under Real Estate Tax (RET), the other is taxed under Real Estate Tax and Stamp Duty;

h. Furthermore, it is not admissible to make a distinction between properties with residential use and other properties with other uses;

i. Since a company that has as its registered office or factory an urban property with TPV exceeding €1,000,000.00 does not have a different contributory capacity from an individual taxpayer who has a property with residential use;

j. Being this differentiated treatment of objectively comparable situations clearly violative of the principle of contributory capacity as an aspect of the principle of equality, provided for in articles 13 and 104, no. 3 of the CPR.

k. Consequently, article 6, no. 1, paragraph f) of Law no. 55-A/2012, of 29 October, and item 28 of the General Stamp Duty Table will be materially unconstitutional;

l. Which thus vitiates the acts carried out under those provisions.

1. The Claimant further considers that the assessment in question is illegal as issued under a provision that violates article 13 of the Constitution of the Portuguese Republic (CPR), which translates into the principle of equality, in the aspect of coherence of the tax system, in that, in summary:

a. There is a situation of multiple taxation of the same taxable event, which is the ownership of the property;

b. There is a situation of internal double taxation, due to the identity of the taxable event and plurality of tax provisions;

c. Identity of the taxable event because there is identity of the object (ownership of immovable property), of the subject, of the tax period (2012) and of the tax (taking into account here not the absolute identity of the tax but its nature as a property tax);

d. Plurality of tax provisions because the ownership of immovable property (the same taxable event) falls within the scope of two distinct tax provisions;

e. The taxation of property must contribute to equality among citizens; and there is no equality in this case, since if a taxpayer has 10 properties with TPV of €100,000.00 each, it will only be taxed under Real Estate Tax, but if it has a property with TPV of €1,000,001.00, it will be taxed under Real Estate Tax and Stamp Duty;

f. This constitutes an unjustified and discriminatory tax burden between taxpayers with equal contributory capacity and with property of equal value, which is a flagrant violation of the principle of coherence of the tax system as an aspect of the principle of equality.

g. Consequently, article 6, no. 1, paragraph f) of Law no. 55-A/2012, of 29 October, and item 28 of the General Stamp Duty Table will be materially unconstitutional;

h. Which thus vitiates the acts carried out under those provisions.

1. The Claimant thus requests the annulment of the Stamp Duty assessment identified, the reimbursement of the tax paid and the condemnation of the TCA to pay indemnity interest.

III. The Respondent's Reply

1. The TCA states that the Claimant does not contest the subjection to Stamp Duty of item 28.1 of the General Stamp Duty Table, the assessment in question not suffering from any defect of illegality based on the TPV of the property.

2. The Claimant does not seek the declaration of illegality of any assessment act, but rather the non-application of the provision of item 28 of the General Stamp Duty Table on grounds of alleged unconstitutionality.

3. The first question raised by the TCA as respondent is that of the manifest lack of framing of the Claimant's claim within arbitral jurisdiction.

4. The competence of arbitral jurisdiction is exhausted in the appraisal of claims for declaration of illegality of assessment acts for taxes, self-assessments, withholdings at source and payments on account and declaration of illegality of acts fixing the taxable base when not giving rise to the assessment of any tax, of acts of determination of the taxable base and of acts fixing property values.

5. It would be forbidden to the Arbitral Tribunal to appraise the alleged violation of the constitutional principle of equality of item 28 of the General Stamp Duty Table in the manner formulated by the Claimant, as it is not based on the concrete situation of the case under appraisal and the applicable legislation.

6. The situation of the Claimant's property falls squarely within the scope of the provision in question and, according to it, the tax is levied on the TPV used for Real Estate Tax purposes.

7. Article 2, no. 4 of the Stamp Duty Code provides that the taxpayers subject to the tax are those subject to Real Estate Tax, pursuant to article 8 of the Real Estate Tax Code, being on these that the burden of Stamp Duty falls (article 3, no. 3, paragraph u) of the Real Estate Tax Code).

8. A type of scope according to which the TPV of urban properties on which the application of item 28.1 of the General Stamp Duty Table depends is the TPV registered in the roll of the urban property with residential use is the only one that has expression in the law, so the Stamp Duty assessment impugned would not violate the literal wording of item 28.1 of the General Stamp Duty Table.

9. Any other interpretation would violate the letter and spirit of item 28.1 of the General Stamp Duty Table and the principle of legality of the essential elements of the tax provided for in article 103, no. 2 of the CPR.

10. The legislator may subject properties with different TPV to a distinct legal tax framework, hence discriminatory, without such discrimination necessarily having to be considered arbitrary, and may even be imposed by the need to impose coherence to the tax system.

11. The ratio legis resulting from the content of the bill presented to the Parliament would be only the taxation of high-value properties, this measure being justified in the principles of equity and tax fairness, which would justify the aggravation of the static taxation of high-value residential urban properties, the so-called luxury properties.

12. It would be contrary to the letter and spirit of the law to impose the interpretation and differentiated treatment between taxpayers with 1 property of €1,000,000.00 and with 10 properties of €100,000.00 each, as the Claimant claims.

13. Constitutional conforming interpretation cannot override the general criteria for interpretation and application of laws.

14. When the content of the provision is unequivocal, as is that of item 28.1 of the General Stamp Duty Table, there is no room for constitutional conforming interpretation.

15. The alleged unconstitutionality of item 28.1 of the General Stamp Duty Table is incapable of being remedied through constitutional conforming interpretation and would violate the principle of formal legality enshrined in article 103, no. 2 of the CPR, without any expression in the established law.

16. The assessment act impugned did not violate any legal provision or constitutional principle, so it should be upheld.

IV. Questions to be Decided

Considering the facts and matters of law contained in the request for an arbitral award presented by the Claimant and the reply of the Respondent, the fundamental question to be decided by this Arbitral Tribunal is whether the Stamp Duty assessment in question is illegal as it was issued under a provision violating article 13 of the CPR, the principle of equality, in the aspects of contributory capacity and coherence of the tax system (namely, article 6, no. 1, paragraph f) of Law no. 55-A/2012, of 29 October and item 28 of the General Stamp Duty Table as amended by that same law).

V. Facts

With relevance for the appraisal of the application, the following facts are taken as proven, based on documents attached to the proceedings, and not contested by the Respondent:

a. The Claimant is the owner of an urban property registered in the urban tax roll of the Union of Parishes of Cascais and Estoril, municipality of Cascais, under article …, which has a residential use;

b. The Claimant was notified on 17.10.2013 of the Stamp Duty assessment no. 2013…, in the amount of €5,129.25, having as legal basis article 6, no. 1, paragraph f) of Law no. 55-A/2012, of 29 October, with reference to the property identified above;

c. The urban property in question has a tax property value (TPV) of €1,025,850.35 (one million, twenty-five thousand, eight hundred and fifty euros and thirty-five cents);

d. The Claimant proceeded to pay the tax;

e. The Claimant filed an administrative complaint of the Stamp Duty assessment act on 31.03.2014;

f. The Claimant was notified of the express denial of that administrative complaint on 15.05.2014;

g. There are no other facts with relevance for the proceedings that are not considered proven;

h. The conviction as to the facts taken as proven was based on the documentary evidence indicated, submitted by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent.

VI. Legal Matters

A. First Preliminary Question: Competence of the Arbitral Tribunal

The Respondent alleges the lack of framing of the Claimant's claim within arbitral jurisdiction, as the competence of arbitral jurisdiction is exhausted in the appraisal of claims for declaration of illegality of assessment acts for taxes, self-assessments, withholdings at source and payments on account and declaration of illegality of acts fixing the taxable base when not giving rise to the assessment of any tax, of acts of determination of the taxable base and of acts fixing property values.

It would thus be forbidden to the Arbitral Tribunal to appraise the alleged violation of the constitutional principle of equality of item 28 of the General Stamp Duty Table in the manner formulated by the Claimant, as it is not based on the concrete situation of the case under appraisal and the applicable legislation.

As this is a question which, if considered thus, determines the dismissal of the instant proceedings, it is addressed first, pursuant to the provisions of article 29, no. 1, paragraphs a) and e) of the LFTA, article 13 of the Code of Procedure in Administrative Courts and article 608, no. 1, article 96, paragraph a) and article 99, no. 1, all of the Code of Civil Procedure.

In its request for an arbitral award, the Claimant requests the declaration of illegality of the Stamp Duty assessment no. 2013…, in the amount of €5,129.25, on the grounds that it is illegal as it was issued under provisions violating constitutionally enshrined principles.

This is to say that the Claimant requested the appraisal by the Arbitral Tribunal concerning a concrete tax act, namely, a tax assessment that was notified to it, on the grounds that it is illegal.

Now, as the Respondent rightly states, the Arbitral Tribunal is competent to appraise the claim for declaration of illegality of tax assessment acts, pursuant to the provisions of article 2, no. 1, paragraph a) of the LFTA.

And what the Claimant alleges is that the act of tax assessment, in this case Stamp Duty, is illegal because it was issued under a provision which is itself unconstitutional, that is, the act will have been issued without a valid legal norm underlying it and, therefore, consequently, it will be an unlawful assessment.

It is thus concluded that what is in issue is a concrete act to which a defect of illegality is imputed, a fact which may be appraised by the Arbitral Tribunal, and not a request for appraisal of abstract review of a provision, purely and simply, for which it would have no competence (which is exclusively attributed to the Constitutional Court).

All courts, whatever their category (see article 209, no. 2 of the CPR, which expressly refers to arbitral tribunals as a category of court), exercise concrete review of constitutionality ("In proceedings submitted to judgment, courts cannot apply provisions that infringe the Constitution or the principles enshrined therein", article 204 of the CPR). And arbitral tribunals undoubtedly exercise the jurisdictional function[1], so they consequently have competence to decline to apply a provision they consider unconstitutional, on the one hand, as well as competence to apply a provision that a party has deemed unconstitutional, on the other hand. Furthermore, there may be application of the provisions of article 280 of the CPR, with recourse available to the Constitutional Court from decisions of courts (any courts) that refuse to apply a provision they consider unconstitutional or that apply a provision whose unconstitutionality has been raised – a question already perfectly resolved by the provisions of article 25, no. 1 of the LFTA.

In view of the foregoing, the Arbitral Tribunal finds that the material incompetence alleged by the Respondent is not sustained, so it will appraise and decide the question submitted, in the manner indicated.

B. Second Preliminary Question: Express Denial by the TCA

The Claimant filed an administrative complaint of the assessment now in issue, essentially on the same grounds on which it presents its request for an arbitral award, and the TCA denied its claim.

It may be noted, as a preliminary matter, that no other result could have followed from that administrative complaint, as the TCA is bound by law (article 55 of the General Tax Code), and cannot – has neither legitimacy nor competence to – decline to apply a provision on grounds of unconstitutionality. As mentioned in the preceding point, and for what is relevant in the present situation, only courts have this function of concrete review of the constitutionality of provisions – not administrative organs.

As Jorge Miranda[2] states, "we do not believe, however, that it is possible to recognize to administrative organs a power of control – necessarily concrete – analogous to that of courts (…).

On the one hand, the structure of direct and indirect Administration, (linked to the Government and regional governments) is not comparable with the structure, marked by independence, of courts and would be little suited to the development of the guarantee. On the other hand, by contrast, the multifaceted structure of autonomous Administration (…) could bring serious inconveniences of insecurity and inefficacy. (…)

If the Constitution affirms the duty of administrative activity to conform to constitutional provisions and principles and if acts of administration that offend rights, freedoms and guarantees are null, and not voidable (therefore, not capable of being cured) the courts must decide on that conformity."

In the same sense, Gomes Canotilho[3] states that the "problem of the power-duty of rejection of unconstitutional laws (provisions) by administration is complex, as it puts us before the question of the binding of administration by the principle of constitutionality (…) and by the principle of legality, that is, the subordination of administration to law. (…) the basic principle is to refuse to administration in general and to administrative agents in particular any power of control of the constitutionality of laws, even if the application thereof results in the violation of fundamental rights."

Thus, the TCA had no possibility to analyse, appraise and decide favorably on the administrative complaint filed by the Claimant, in so far as, as mentioned, it is bound by the principle of legality, on the one hand, and lacks legitimacy for the appraisal of the constitutionality of provisions, on the other.

C. Appraisal

For the appraisal of the questions to be decided, it is important to analyze article 4 of Law no. 55-A/2012, of 29 October, which added to the General Stamp Duty Table, annexed to the Stamp Duty Code, item no. 28, with the following wording:

"28 — Ownership, usufruct or surface right of urban properties the tax property value of which recorded in the roll, pursuant to the Real Estate Tax Code, is equal to or exceeding €1,000,000 — on the tax property value used for Real Estate Tax purposes:

28.1 — For property with residential use — 1%;

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

It is also important to know article 6, no. 1, paragraph f) of the same Law no. 55-A/2012, of 29 October, a transitional provision defined for the year 2012, and under which the assessment in issue was issued, which establishes that:

"In 2012, the following rules must be observed with reference to the assessment of the Stamp Duty provided for in item no. 28 of the respective General Table:

f) The applicable rates are as follows:

i. Properties with residential use valued pursuant to the Real Estate Tax Code: 0.5%;

ii. Properties with residential use not yet valued pursuant to the Real Estate Tax Code: 0.8%;

iii. Urban properties when the taxpayers who are not individuals are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the ordinance approved by the Minister of Finance: 7.5%."

a. Violation of the principle of equality – contributory capacity

In this connection, it is thus important to ascertain whether item 28 of the General Stamp Duty Table introduced by Law no. 55-A/2012, of 29 October, as well as article 6, no. 1, paragraph f) of that Law are, or are not, violative of the principle of equality, constitutionally enshrined (article 13 of the CPR).

As Casalta Nabais[4] states, cited furthermore by the Claimant, "the principle of tax equality has always been inherent above all the idea of generality or universality, according to which all citizens are bound by the duty to pay taxes, and of uniformity, requiring that such duty be measured by the same criterion – the criterion of contributory capacity. This thus implies equal tax for those with equal contributory capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributory capacity in proportion to this difference (vertical equality)".

On the principle of contributory capacity, and for its relevance to the case at hand, we permit ourselves to cite a recent Constitutional Court Award[5]:

"The principle of contributory capacity represents a certain conception of the tax system according to which 'each taxpayer must pay in accordance with their capacity', thus opposing a conception based on the benefit principle, which would determine the duty of 'each one to pay in accordance with the benefits it receives from the State'.

Being certain that the Constitution does not explicitly refer to the principle of contributory capacity, there is consistent doctrinal and jurisprudential construction around that concept.

Sousa Franco (Public Finance and Financial Law, vol. ii, cited, pp. 186-187), is peremptory in the assertion that contributory capacity underlies the tax Constitution, extracting itself from 'the strong personalization of income tax, taking into account the situation of the family unit, a factor that seems to be essential – but not the only one – so that it can be considered that a system effectively takes into account contributory faculties'. Saldanha Sanches (op. cit., p. 227), analyzing the structure of the Portuguese tax system resulting from articles 103 and 104 of the Constitution, concludes that there is an 'indirect definition of contributory capacity as a structuring principle of the system through the taxation of income'. Casalta Nabais (op. cit., pp. 445 et seq.) asserts that the principle of contributory capacity is extracted from the principle of equality, established in article 13 of the Constitution. Also Sérgio Vasques (Manual of Tax Law, Coimbra, 2011, p. 251), considers that the principle of contributory capacity represents 'the material criterion of equality appropriate to taxes'.

The Constitutional Court, focusing on a set of provisions of the General Tax Code relating to the indirect assessment of the taxable base, through 'indirect methods' or 'presumptions', began by asserting that the principle of contributory capacity does not have express constitutional recognition, stressing the difficulty in 'drawing very clear and certain legal consequences from the principle of contributory capacity, translated in a judgment of constitutional inadmissibility of a certain or certain solutions adopted by the tax legislator', concluding that, in the case there in issue, the principle of contributory capacity was not even a 'relevant constitutional parameter' (Award no. 84/2003).

But it was more affirmative in later jurisprudence. Referring to the constitutional admissibility of provisions establishing presumptions in tax matters, it came to accept the understanding that contributory capacity, despite its lack of express recognition in the Constitution, is nothing more than 'the (qualified) expression of the principle of equality, understood in a material sense, in the domain of taxes, that is, equality in tax' (see Awards nos 211/2003, 452/2003 and 601/2004).

It is thus to be reaffirmed that the principle of contributory capacity is implicitly enshrined in the Constitution, as a corollary of the principles of equality and tax justice and from which flows a command to the ordinary legislator in the sense of architecting the tax system with a view to the contributory capacities of each one.

The most elementary proposition that flows from the principle of contributory capacity concerns the way of organizing taxation, which must necessarily be oriented towards the selection of taxable events that reveal the greater or lesser contributory capacity of the subject, pointing out, from the outset, income tax, as the most apt to reflect the economic strength of taxpayers. But, as Saldanha Sanches (op. cit., p. 228) notes, the principle of contributory capacity suffers from a relative 'structural indeterminacy', which creates problems in its application, when confronted with a concrete legislative solution. This indeterminacy results from the fact that, on the one hand, the concept of contributory capacity does not fit into an exact and precise definition, but corresponds to an organizing principle of the tax legal system." (emphasis ours).

It is in this context that we should thus appraise whether the provisions cited above are violative of the principle of equality, as set forth concerning the concept of contributory capacity, by resulting in unjustified differences in treatment between taxpayers who are in the same conditions, thus finding an unjustified arbitrariness in the definition of the legal concepts at issue.

The statement of grounds contained in Bill Proposal no. 96/XII – 2nd, of 21/09/2012 (which gave rise to the aforementioned Law no. 55-A/2012), states that:

"The pursuit of the public interest, in view of the country's economic and financial situation, demands a consolidation effort that will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat the budget deficit.

These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment programme. The Government is strongly committed to ensuring that the distribution of those sacrifices is made by all and not only by those who live from the income of their work. In accordance with that purpose, this statute broadens the taxation of capital income and property, equitably covering a broad set of sectors of Portuguese society.

In these terms, the taxation of capital income and securities gains will be increased, with the respective rates going from 25% to 26.5% in Personal Income Tax. The rates of taxation applicable to income obtained from, or transferred to, tax havens are also increased to 35%.

On the other hand, a rate in Stamp Duty is created applicable to urban residential properties the tax property value of which is equal to or exceeding one million euros." (emphasis ours).

From what we cite, it follows, at least, the intention to encompass all by the indicated provisions. Let us go deeper, in order to understand if all are indeed encompassed.

As recorded in the Official Journal of Parliament, I Series, no. 9/XII, 2nd legislative session, of 11 October 2012, the State Secretary for Tax Affairs presented this legislative innovation in the following terms:

"This proposal has three essential pillars: the creation of special taxation on urban properties valued at over 1 million euros; (…).

First, the Government proposes the creation of a special rate to tax high-value residential urban properties. For the first time in Portugal, special taxation is created on high-value properties for residential purposes. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses valued at equal to or more than 1 million euros." (emphasis ours).

As indicated previously, the principle of equality, when referred to the principle of contributory capacity, prohibits arbitrary and unjustified definitions of taxes. But, for taxation on property, the principle of contributory capacity is not of simple and complex application. Casalta Nabais (op. cit. p. 151) even states: "Although it does not provide us with an answer to problems such as that of the (in)admissibility of the taxation of capital or property or of double (or multiple) taxation, the principle of contributory capacity has, however, important merits. On the one hand, constituting the ratio or cause of taxation, this principle keeps the tax legislator away from arbitrariness, obliging it, in the selection and articulation of taxable events, to adhere to manifestations of contributory capacity, that is, to raise to the object and taxable base of each tax a certain economic presupposition that is a manifestation of that capacity and is present in the various legal hypotheses of the respective tax." And it continues, on property taxation (p. 177): "the Constitution only requires that it constitute an instrument of equality among citizens. The reduction of inequalities is thus the constitutional objective of property taxation, an objective that opens the door to the legislator to proceed, in particular, to the discrimination of property, taxing the highest ones (…)".

The taxation of property must contribute to equality among citizens (article 104, no. 3 of the CPR). The discussion of this measure in Parliament, as appears from a reading of the Official Journal of Parliament, was conducted in the sense of considering it as a measure of taxation on luxury goods.

Thus, in this perspective, while always framing the principle of contributory capacity alleged by the Claimant:

a. The Arbitral Tribunal does not consider that a taxpayer with a residential property with TPV exceeding €1,000,000.00 necessarily has equal contributory capacity to one who has ten properties, each with TPV of €100,000.00.

In fact, it is not clear and certain that whoever is an owner of a property for residence with TPV exceeding €1,000,000.00 has the same capacity or income as whoever has ten properties in the terms indicated.

It is manifest that being the owner of a high-value property will be, according to the legislator, a manifestation of luxury. And that was, precisely, the legislator's objective, which expressed itself clearly in that sense: to tax "high-value houses" and not to tax property which, together, reaches such value. The legislator understood, in a manner not considered arbitrary, to establish a quantitative criterion, in terms of value (tax value, and not market value), that would allow it to consider the existence of special contributory capacity.

The reduction of inequalities (with the legislator intending to distribute the sacrifices imposed by austerity to all) allows the discrimination of property, as already indicated.

And the Claimant's argument regarding real estate profitability is not accepted: in fact, and as stated, the legislator's logic was not to tax investment. Moreover, the income resulting from real estate profitability, and the holding of properties for investment and profitability, is in itself the object of taxation. What was intended, in this connection, was exclusively to define that ownership of properties for residential purposes of value exceeding the indicated amount demonstrates that the respective owner has special contributory capacity: one can acquire a single property under these conditions and assign it to one's own residence. Naturally, residing in a property with TPV exceeding €1,000,000.00 will not be, for the generality of citizens and taxpayers, the same as residing in one with TPV of €100,000.00.

The two situations are not, objectively, comparable.

b. Nor is it considered that the situations indicated by the Claimant relating to commercial and industrial companies are comparable.

If a company has as its registered office a property with TPV exceeding €1,000,000.00 and such property has residential use, it will be, like any individual, subject to this tax in question.

If a company has a property intended for industry with TPV exceeding €1,000,000.00, it will not be subject to Stamp Duty, item 28, in so far as it is not the consideration of property of high value assigned to residence that is in issue. Its economic function is, obviously, completely different, and such fact does not make it so that necessarily contributory capacity is equal.

If the economic assignment of the property and its respective social function are different, it can – and should – the situation be treated differently, as indeed the principle of equality itself imposes.

There is no arbitrariness on the part of the legislator:

1. The legislator referred to the need to distribute sacrifices among all, and not only among those who live exclusively from their work, in the sense of taxing property and not only income;

2. The legislator set objective criteria for this purpose: properties for residential use with TPV exceeding €1,000,000.00;

3. The legislator understood – and assumed – that whoever was the owner of such properties, with such economic function, being able to reside in and enjoy the same, would have superior contributory capacity relative to those who are owners of properties with TPV below (even if their total determines equal value);

4. The legislator did not place on the same footing, for the purposes of this tax, because the economic and social functions are completely different, owners of properties with identical TPV but with different assignments, that is, treated unequally what is unequal.

As stated by the doctrine, the principle of contributory capacity does not allow, by itself, a concrete, determined and precise definition of what its application means in a tax like that at issue. But the Arbitral Tribunal understands, in this concrete case, that unequal treatment was given to what is unequal, thus fulfilling the design of the principle of equality, on the one hand, and on the other that there was no arbitrary definition in the concepts forming what would be, for the purpose, special contributory capacity. If on the one hand, the principle of contributory capacity allows the discrimination of property, on the other, it forbids the arbitrariness of the legislator. Now, the Arbitral Tribunal understands that there is no, in the case, arbitrariness, as indicated.

The provisions were approved, as cited, in pursuit of the public interest and in a manifest perspective of seeking fair distribution of sacrifices, "equitably covering a broad set of sectors of Portuguese society". And for that purpose, an economic presupposition was defined as a manifestation of the contributory capacity required for the payment of the tax that is understood to be valid.

As stated in the Award of the Constitutional Court no. 620/04, "The Constitutional Court has frequently had the opportunity to pronounce on the meaning and scope of the constitutional principle of equality. Recently still, in Award no. 232/03 (Official Journal, I Series A, of 17 June 2003), drawn up in Plenary, in proceedings of preventive review, a synthesis of the abundant constitutional jurisprudence on this matter was made. From this jurisprudence it follows that the principle of equality requires that what is essentially equal be treated as equal and what is essentially different be treated as different, not preventing differentiation of treatment, but only arbitrary discrimination, unreasonableness, that is, distinctions of treatment that do not have justification and sufficiently material foundation.

Thus, as written in Award no. 187/01 (Official Journal, II series, of 26 June 2001), 'as a principle of prohibition of arbitrariness in establishing the distinction, the principle of equality thus tolerates the provision of differentiations in the legal treatment of situations that appear, under one or more points of view, identical, provided that, on the other hand, they are supported in a justification or reasonable foundation, under a point of view that can be considered relevant'.

More, 'it is also important to highlight that, as has been repeatedly stated, following the Opinion of the Constitutional Commission no. 458, of 25 November 1982, (Appendix to the Official Journal, of 23 August 1983), 'the Constitutional Court in assessing the compatibility of a legislative provision with the principle of equality, should not call into question the freedom of configuration of the legislator or the legislative discretion. It should refrain from [substituting itself for] the legislator, weighing the situation as if it were in its place and imposing its own idea of what would be, in the case, the 'reasonable', 'fair' and 'opportune' solution. Its control must be only of a negative character, consisting of knowing whether the legislator's option presents itself intolerable or inadmissible from a legal-constitutional perspective, for not finding for it any material foundation'."

Consequently, and as set out above, the Claimant's claim does not proceed, in so far as the provisions at issue (article 6, no. 1, paragraph f) of Law no. 55-A/2012, of 29 October, and item 28 of the General Stamp Duty Table, as amended by that same Law) are not, in the understanding of this Arbitral Tribunal, violative of the principle of equality in the aspect of contributory capacity, in the manner and with the grounds alleged by the Claimant.

b. Violation of the principle of equality – tax coherence and multiple taxation

The Claimant alleges that there is a situation of internal double taxation. First, because there is identity of the taxable event, and second, because there is plurality of tax provisions.

Identity of the taxable event because there is:

i. identity of the object;

ii. identity of the subject;

iii. identity of the tax period;

iv. identity of the tax.

Plurality of tax provisions, in so far as there is taxation under Real Estate Tax and under Stamp Duty.

Cases of double taxation are generally designated as cases of concurrence of provisions. There will be concurrence of provisions when the same fact falls within the scope of two distinct tax provisions, giving rise to the constitution of more than one tax obligation.

Appraising:

i. As to the object: in fact, Real Estate Tax taxes the ownership of immovable property, regardless of value, Stamp Duty, in this case, taxes the ownership of immovable property for residential use of high value. There may, apparently, be identity of the object in cases of immovable property for residential use.

ii. As to the subject: it is the same taxable subject, the respective owner of the immovable property (in this case), pursuant to the provisions of article 8 of the Real Estate Tax Code and article 2, no. 4 of the Stamp Duty Code.

iii. Tax period: in the case at hand, the period is the same, and in others it will be also, as the assessment is carried out in accordance with the same rules.

iv. Identity of the tax: as is easily apparent, the situation does not refer to the same tax (Real Estate Tax and Stamp Duty). In truth, from the respective material aspects and calculation bases, one cannot derive their identity. Moreover, if one were to consider it thus, several would be the cases in which double taxation would take place – namely those provided for in the General Stamp Duty Table.

In this connection, see the provisions in the Award of the Central Administrative Court of the South, of 10-07-2014: "With Law 150/99, of 11/9, and subsequent reform of property (see Decree-Law 287/2003, of 12/11), the tax in analysis changed its essential nature from a tax on documents, coming to assert itself as a true tax on operations which, independently of the form of their materialization, reveal income or wealth. With specific reference to immovable property, the determination of its taxable value came to be based on the new system of evaluations contained in the Real Estate Tax Code (see preamble of Decree-Law 287/2003, of 12/11; José Maria Fernandes Pires, Lessons on Taxes on Property and Stamp Duty, Almedina, 2011, p. 359 et seq.)" (emphasis ours).

The tax provisions that contemplate the taxable event are those relating to actual scope, which define its objective elements. Such actual scope is, in this case, different, so there will not be plurality of provisions regarding the same fact.

But even if it were not considered thus, and as has already been appraised by the Constitutional Court, double taxation is not constitutionally prohibited[6]. There is no explicit prohibition in the CPR for that purpose. Moreover, Casalta Nabais also states[7]: "double taxation qua tale is not constitutionally prohibited, being the same contestable if and to the extent that it involves the violation of legal-constitutional principles or specific constitutional provisions, which may be interpreted in that sense, as seems to be the case with our Constitution which requires uniqueness in the taxation of personal income. (...) Also in the so-called superposition of taxes (or economic double taxation) (...) one can appeal to the idea of systematics to ascertain if the legislator, in establishing it, was coherent with itself, conforming to the legal system it adopted and thus respecting the material logic of the system".

And in the case at hand, the legislator was, apparently, coherent.

It is not the task of the Arbitral Tribunal, in this connection, to appraise what the possible alternatives that the legislator could have enshrined to tax as it intended, as the Claimant seems to indicate, or the wisdom of the solution found. It is the task of the Arbitral Tribunal to appraise the existence of the alleged legal double taxation, which is understood not to exist, as indicated, on the one hand, and that, even if it existed, would not be constitutionally prohibited.

Additionally, nothing constitutionally prevents – without reference to appraisal of alternative options – that the same goods be the object of different taxes. The legislator's intention with item 28.1 of the General Stamp Duty Table was the taxation of what it understood to be special contributory capacity and such is not, in the understanding of the Arbitral Tribunal, in conflict with any requirement of coherence of the tax system.

The Claimant's claim does not thus proceed as to the illegality of the assessment at issue as issued under a provision violating the principle of equality in the aspect of system coherence and multiple taxation, which does not occur.

VII. Indemnity Interest

As the Claimant's claim does not proceed, its request for restitution of the tax paid plus indemnity interest will consequently not proceed.

VIII. Decision

In these terms, and based on the grounds set out, the Arbitral Tribunal decides to dismiss the request for an arbitral award, with the assessment impugned being upheld.

Value of the proceedings: €5,129.25 (five thousand, one hundred and twenty-nine euros and twenty-five cents).

Costs: Pursuant to the provisions of article 22, no. 4 of the LFTA, and in accordance with the Costs Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €612.00 (six hundred and twelve euros), at the expense of the Respondent.

Lisbon, 30 January 2015

The Arbitrator

Ana Pedrosa Augusto

[1] See, for example, the Award of the Constitutional Court no. 42/2014, available at http://www.tribunalconstitucional.pt/tc/acordaos/20140042.html, in which it is expressly stated that it is "established understanding that Arbitral Tribunals exercise the jurisdictional function (see Awards nos. 230/86, 52/92, 250/96, 506/96 and 181/2007, among others)".

[2] Jorge Miranda, "Manual of Constitutional Law, Volume II, Constitution and Constitutionality", 3rd edition (reprint), Coimbra Editora, Coimbra, 1996, p. 431 and 432.

[3] J.J. Gomes Canotilho, "Constitutional Law and Theory of the Constitution", 7th edition (8th reprint), Almedina, Coimbra, 2003, p. 443-445.

[4] Nabais, José Casalta, "Tax Law", Almedina, Coimbra, 6th edition, 2010, p. 149.

[5] Award of the Constitutional Court no. 187/2013, available at http://www.oa.pt/upl/{2ae5b806-a7b2-4ed6-bd13-6241d5d1eae8}.pdf, as well as on the Constitutional Court's own website.

[6] Award of the Constitutional Court no. 338/2006.

[7] Nabais, José Casalta, "The Fundamental Duty to Pay Taxes: Contribution to the Constitutional Understanding of the Contemporary Tax State", Almedina, Coimbra, 1998, pp. 602-603.