Stamp Tax on Construction Land Under Verba 28.1 TGIS: CAAD Arbitration 522/2015-T

ARBITRAL DECISION

I. REPORT

1. On July 29, 2015, the commercial company A-..., Lda., VAT No...., with registered office at Rua..., No...., Lisbon, (hereinafter, Claimant), filed a request for the constitution of an arbitral tribunal, under the combined provisions of Articles 2, No. 1, paragraph a), and 10, Nos. 1, paragraph a), and 2, of Decree-Law No. 10/2011, of January 20, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of December 31 (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the assessment of Stamp Tax [Item 28.1 of the General Table of Stamp Tax (hereinafter, TGIS)] relating to the year 2014 and to the urban property (land for construction) registered under article... in the urban property register of the parish of..., council and district of Lisbon, property of the Claimant, subject of collection notices No. 2015..., in the amount of €7,709.73, relating to the first installment, and No. 2015..., in the amount of €7,709.71, relating to the second installment, with a total collection amount of €23,129.15.

The Claimant attached 6 (six) documents and declared its intention to attach 4 (four) documents, having not requested the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. In essence and in brief summary, the Claimant alleged the following (which we reproduce mostly by transcription):

• The Claimant carries out the activity of construction of buildings and purchase and sale of real property;

• The Claimant's property on which the contested assessment fell is a parcel of land for urban construction, for which the Lisbon Municipal Authority authorized the construction of a building with 17 floors (5 of which are basements) and a total construction area of 7,511 m² (of which 2,668 m² are intended for parking, 1,363 m² for commerce/offices and 3,480 m² intended for residential use);

• It was based on the areas indicated in the aforementioned plan that the land in question was registered in the respective urban property register on 01/03/2005 and subsequently evaluated on 27/05/2005;

• The land in question was intended, as of December 31, 2014 and also now, for construction, being fiscally a property of the species or type "land for construction," as declared in the deed by which the Claimant acquired it and is also indicated in the respective property record card;

• A quick analysis of the collection notices notified to the Claimant shows that those do not contain all the elements that should be mandatorily notified to the taxpayer under Articles 36, Nos. 1 and 2, and 39, No. 12, of the Tax Code of Procedures (CPPT), namely the indication of the author of the act and, in the event that he performed it in the exercise of delegation or subdelegation of powers, the capacity in which he decided, its sense and its date;

• What is at issue here, however, is the lack of author of the assessment, a defect that was reflected in the notification acts, but which is, in the first place, a defect of the tax act notified, that is, of the assessment;

• The Claimant was not notified of the tax act of assessment, but only of the collection notices;

• And it should not be said that the fact that the logo of the Tax and Customs Authority appears on the collection notice serves as an indication of the author of the act;

• An act without an author cannot serve as a tax act, as it lacks one of its essential elements (cf. article 123, No. 1, a) and g), of the Administrative Procedure Code (CPA));

• Not containing the assessment the indication of its author and the respective signature, even if typewritten, such assessment violates article 123, No. 1, a) and g) of the CPA, being null under article 133, No. 1, of the CPA, and grounds for challenge under article 99, paragraph d), of the CPPT;

• This concerns the assessment of Stamp Tax provided for in item 28.1 of the TGIS, relating to the year 2014, being a relatively new tax, assessed to the taxpayer without giving him the opportunity to state his position before the assessment, as prescribed by article 60, No. 1, al. a), of the General Tax Law (LGT);

• The omission of prior hearing constituted, in this case, the omission of an essential formality, projecting itself as a vitiating defect of the Assessment, which constitutes grounds for its annulment under article 99 of the CPPT, for violation of paragraph a) of No. 1 of article 60 of the LGT;

• The said Claimant's property was subject to IMI (Real Estate Tax) relating to the year 2014, which tax was assessed to the Claimant and paid by it as regards the 1st installment already due;

• The tax fact on which both IMI and IS fell was exactly the same;

• Also the period in question was exactly the same for the two taxes, that is, 2014 – the ownership of the property on December 31 of that year;

• IMI is a tax that falls on the patrimonial value of properties, the taxpayer being obligated to pay the tax if he holds the property on December 31 of the year to which it relates, being therefore a tax of the nature of a tax on real estate property;

• IS is a tax that can take on different natures, and with respect to item 28 of the TGIS it is all too evident that the tax takes on the same nature as IMI, that is, a tax on real estate property;

• Being faced with residential urban properties or land for construction whose authorized or planned construction is for residential purposes, with a TPC (patrimonial tax value) equal to or greater than €1,000,000, there is no doubt that both taxes, IMI and IS (item 28.1), tax the very same factual situation, the very same reality, the very same economic capacity;

• Both taxes are of identical nature, fall on the entirety of the TPC, same fact, same period, same holder, so that, with IMI paid, it would always be said that we would be faced with a situation of duplicate collection, which should be examined and, consequently, the IS assessment in question should be annulled, with all the legal consequences flowing therefrom;

• This tax incidence rule (item 28.1 of the TGIS, in the current wording introduced by the State Budget Law of 2014), according to which land for construction whose authorized or planned construction is for residential purposes, appears to be unconstitutional for violation of the constitutional principles of legality, justice and equality and impartiality, formulated in No. 2 of article 266, as well as articles 13 and 104, No. 3, all of the Constitution of the Portuguese Republic, which is why it should be disapplied;

• The Claimant's land subject to taxation is intended for the construction of residential purposes, together with commerce/services, so it does not directly fall within the provision of Item 28.1 of the TGIS;

• It cannot fail to be judged that the impugned tax act violates the rule provided for in Item 28.1 of the TGIS – insofar as the same does not provide for the taxation of land for construction whose authorized or planned construction is jointly for residential purposes and commerce/services, but only those "whose authorized or planned construction is for residential purposes" – and, as such, should be annulled;

• The Claimant paid, on 18/06/2015 and on 16/07/2015, the two first installments of the tax whose assessment it now contests;

• The Claimant is entitled to have the amounts paid reimbursed to it, as a consequence of the ruling on this arbitration request, increased by compensatory interest, under the provisions of Nos. 1 and 2 of article 43 of the General Tax Law and article 61 of the CPPT.

The Claimant concludes its initial pleading by requesting the following:

"In these terms, and in the rest of the Law that Your Excellency will wisely provide, it is requested that this arbitration request be received and judged as successful, as proven, declaring null or annulling the Assessment, for violation of the legal provisions and constitutional principles cited, all with the due legal consequences.

Furthermore, it is requested that, as a consequence of the ruling on this arbitration request, reimbursement be made of the amount of €15,419.44 (fifteen thousand four hundred nineteen euros and forty-four cents), which the Claimant has already paid, increased by compensatory interest counted from the dates of payment until actual reimbursement."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the AT on August 31, 2015.

2. The Claimant did not proceed to the appointment of an arbitrator, so, under the provisions of No. 1 of article 6 and paragraph a) of No. 1 of article 11 of the RJAT, the President of the CAAD Deontological Council designated the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the assignment within the applicable period.

3. On October 20, 2015, the parties were duly notified of this designation, having not expressed the will to reject the appointment of the arbitrator, under the combined provisions of article 11, No. 1, paragraphs b) and c), of the RJAT and articles 6 and 7 of the CAAD Deontological Code.

4. Thus, in accordance with what is prescribed in paragraph c) of No. 1 of article 11 of the RJAT, the singular Arbitral Tribunal was constituted on November 4, 2015.

5. On December 9, 2015, the Respondent, duly notified for this purpose, presented its Response in which it specifically contested the arguments raised by the Claimant and concluded that this action was unfounded, with its consequent dismissal of the claim.

The Respondent attached 3 (three) documents, having not requested the production of any other evidence.

On the same occasion, the Respondent informed that it would not proceed to attach its administrative file to the case, since the same is solely composed of the contested assessments (attached by the Claimant) and by the documents attached to the Response.

6.1. In essence and also briefly, it is important to extract the most relevant arguments on which the Respondent based its Response (which we reproduce mostly by transcription):

• The identified tax collection notices that were sent to the Claimant, in addition to containing all legally required elements, also contain the assessment of the tax (identification of the property and its patrimonial tax value, applicable rate and amount determined), means of defense and deadlines to react;

• The defect argued by the Claimant – non-indication of the author of the act and the lack of the respective signature – is a defect that, if considered substantiated, affects not the contested assessment, but rather the act of notification of the assessment, having, therefore, as consequence the nullity of the notification act, under article 39, No. 12, of the CPPT and the ineffectiveness of the underlying tax act;

• The contested assessment, insofar as it merely applies a fixed rate to the TPC that was set, as a result of the statement presented by the Claimant, and with the participation of the Claimant, falls within the scope of the exception provided for in paragraph a) of No. 2 of article 60 of the LGT, considering, in this case, that the Respondent was relieved of the obligation to notify the Claimant to exercise the right of prior hearing;

• The invoked duplicate collection does not exist, for there is no identity of the tax in the first place, as it is self-evident that we are faced with two distinct taxes, IMI and Stamp Tax, in this case, its item 28;

• The Constitution of the Portuguese Republic does not impose a single tax on property, nothing prevents the legislator, within the scope of its freedom of legislative configuration, from creating, in parallel to IMI, other taxes on property, falling on certain properties, notably item 28.1 of the TGIS;

• It is considered that there is no legal-constitutional obstacle to the legislator's choice to accumulate the two distinct taxes, in form and nature, be it noted, (IMI and IS) on certain properties;

• Furthermore, it is also highly debatable that the requirement of unity of the tax fact is met, insofar as, if in fact IMI taxes the holding of any real property per se indiscriminately, Stamp Tax focuses on the existence of real property in light of its allocation and its patrimonial tax value above a threshold of €1,000,000.00, as manifestations of a superior contributory capacity/wealth of certain property owners;

• Item 28 of the TGIS is a rule in conformity with the Constitution of the Portuguese Republic;

• It is, unequivocally, a rule of a general and abstract character, applicable indiscriminately in all cases in which the respective factual and legal presuppositions are met;

• The fact that the legislator establishes a value (€1,000,000.00) as a delimiting criterion of the incidence of the tax, below which the provision of the tax rule is not met, constitutes a legitimate choice by the legislator as to the setting of the material scope of the "luxury residential properties" that it intends to tax more heavily, especially since any other value of analogous magnitude would, in the same way, assume a character that is inherent to any quantitative fixing of a level or limit;

• Taxation under stamp tax is subject to the criterion of adequacy, to the exact extent that it aims at the taxation of the wealth embodied in the ownership of properties with residential use of high value and emerges in a context of economic crisis that cannot be ignored;

• The factual-legal reality selected by the legislator to constitute the basis of the incidence of item 28.1 of the TGIS is the property itself considered, in light of its allocation and its patrimonial tax value, not the global property assets of the taxpayers;

• We are faced with a legitimate criterion of rational and logical differentiation, in no way violating constitutional dictates, which imposes the limitation of the incidence of the taxation in question to luxury residential properties or with residential use, with exclusion and to the detriment of properties with strictly economic uses;

• The AT considers that the provision of item 28 of the TGIS does not embody any violation of the principle of equality provided for in article 13 of the Constitution;

• The Constitutional Court, in the context of Case No. 542/14, decided that the incidence rule of item 28 of the TGIS does not suffer from any unconstitutionality, with no violation of the constitutional principles forming the tax law, specifically, the principles of tax equality, contributory capacity and proportionality;

• The property in question has the nature of land for construction with residential use, as shown in the property record card, evaluation sheet and proof of submission of Form 1;

• The Claimant alleges that the land in question has other uses besides residential, a reality alleged that does not correspond to the reality of the property register and cadastral;

• Any and all illegality or incorrectness practiced or detected in the evaluation of the said property should have been examined in the deadlines and by the means provided by law for this purpose, so that, not having been done so, all the positive presuppositions - property register, taxable value, use of the property and holder of the right - on which tax incidence depends and which served as the basis for the contested IS assessment, became unchallengeable;

• It is the understanding of the AT that the property in question has the legal nature of a property with residential use, so that the assessment act subject to this arbitration request should be maintained for embodying a correct interpretation of item 28.1 of the TGIS;

• Being a situation covered by mass notifications, the same may generate some irregularities, namely, when considering the use with greater percentage (residential) to the entirety of the property;

• It being demonstrated that the use of the contested property is not exclusively residential, the Tribunal should determine only the annulment of the assessment as to the part referring to the non-residential use of that property, being to maintain the assessment as to the part corresponding to the residential use of the same, since such use falls within the scope of the incidence rule of item 28.1 TGIS;

• Being possible the determination of the amount corresponding to the part with residential use, the tax should fall on that part;

• The assessment in question does not derive from any error by the Services, flowing directly from the application of law, the AT having limited itself to applying the legal consequences that, from the tax point of view, were required, so the Claimant should not be recognized the right to the compensatory interest requested.

The Respondent concludes thus its pleading:

"In these terms, with the learned provision of Your Excellency,

a) the request for declaration of unconstitutionality and consequent annulment of the contested assessment should be judged as unfounded, absolving the AT of the claim

b) Moreover, basing the grounds of this arbitration request essentially on the (supposed) constitutional non-conformity of the aforementioned Item 28.1 of the Stamp Tax Code, if the Arbitral Tribunal comes to uphold the Claimant's claim and, inherently, refuses the application of this rule on the grounds of its unconstitutionality, it is requested, by appeal to the provision of article 280, No. 3, of the Constitution and article 72, No. 3, of the Law of the Constitutional Court, that notification be determined to the Public Prosecutor's Office of the learned arbitral award, so that it fulfills its legal prerogatives."

1. On December 10, 2015, a ruling was issued dispensing with the holding of the meeting referred to in article 18 of the RJAT.

2. On January 14, 2016, the Claimant came to request the expansion of the claim, due to the fact that, after filing the arbitration request, it proceeded to pay the third installment, in the amount of €7,709.71, of the Stamp Tax relating to the assessment identified above and subject of the collection notice No. 2015....

On the same occasion, the Claimant attached to the case 3 (three) documents, two of which it had declared its intention to attach in the arbitration request (Documents 3 and 4) and another relating to the indicated collection notice; the Claimant also dispensed with the attachment to the case of the remaining two documents it had declared its intention to attach (Documents 7 and 8).

1. Both parties declared to dispense with the presentation of further pleadings, having therefore been excused from doing so.

II. SANCTION

The Arbitral Tribunal was regularly constituted and is competent.

The case does not suffer from nullities.

The parties have standing and legal capacity, are duly represented and are legitimate.

The expansion of the claim is admitted, as the presuppositions established in article 265, No. 2, of the Code of Civil Procedure (CPC), applicable ex vi article 29, No. 1, paragraph e), of the RJAT are shown to be met, since the expansion requested constitutes evident development of the original claim, in which, moreover, express reference was already made to the "3rd installment" of Stamp Tax.

There are no exceptions or other preliminary issues that prevent knowledge of the merits and of which it is necessary to take knowledge.

III. GROUNDS

III.1. ON FACTS

§1. FACTS FOUND TO BE PROVEN

Regarding the matter of fact, it is important, first of all, to emphasize that the Tribunal does not have to pronounce on everything that was alleged by the parties, falling to it, rather, the duty to select the facts that are important for the decision and discriminate the proven matter from the unproven (cf. article 123, No. 2, of the CPPT and article 607, Nos. 3 and 4, of the CPC, applicable ex vi article 29, No. 1, paragraphs a) and e), of the RJAT). In this way, the facts pertinent to the judgment of the case are chosen and delineated in function of their legal relevance, which is established in light of the various plausible solutions of the legal issue(s).

In this framework, the following facts are considered proven with relevance for the decision:

a) The Claimant carries out the activity of construction of buildings and purchase and sale of real property. [cf. Document 9 attached to the Initial Pleading]

b) In the year 2014, the Claimant was the owner of the urban property located on Rua... and Rua..., designated lot 2001/..., parish of..., council and district of Lisbon, registered in the respective property register under article..., with the patrimonial tax value of €2,312,915.19, and the location coefficient "residential" was applied in the respective evaluation. [cf. Document 5 attached to the Initial Pleading and Doc. 1 attached to the Response]

c) The said urban property is land for construction, with an area of 667 m², for which the Lisbon Municipal Authority authorized the construction of a building with 17 floors (5 of which are basements) and a total construction area of 7,511 m², being 2,668 m² intended for parking, 1,363 m² intended for commerce/offices and 3,480 m² intended for residential use. [cf. Documents 5 and 6 attached to the Initial Pleading and Doc. 1 attached to the Response]

d) It was based on the areas indicated in the plan contained in document 6 attached to the Initial Pleading (entitled "Plan of Municipal Lot No. 2001/...") that the land in question was registered in the respective property register on 01/03/2005 and subsequently evaluated on 27/05/2005. [cf. Docs. 2 and 3 attached to the Response]

e) On March 20, 2015, the AT made the assessment of Stamp Tax, in the total amount of €23,129.15, relating to the year 2014 and relating to the aforementioned urban property.

f) Following that assessment of Stamp Tax, the Claimant was notified of the collection notices that are discriminated below [cf. Documents 1 and 2 attached to the Initial Pleading and Document 11 attached to the Claimant's request, of 14/01/2016]:

g) The aforementioned assessment of Stamp Tax resulted from the application of item 28.1 of the TGIS to the referenced urban property. [cf. Documents 1 and 2 attached to the Initial Pleading and Document 11 attached to the Claimant's request, of 14/01/2016]

h) On June 18, 2015, the Claimant proceeded to pay the full amount corresponding to the 1st installment of the aforementioned assessment of Stamp Tax, in the amount of €7,709.73. [cf. Document 1 attached to the Initial Pleading]

i) On July 16, 2015, the Claimant proceeded to timely and full payment of the amount corresponding to the 2nd installment of the aforementioned assessment of Stamp Tax, in the amount of €7,709.71. [cf. Document 1 attached to the Initial Pleading]

j) On November 30, 2015, the Claimant proceeded to timely and full payment of the amount corresponding to the 3rd installment of the aforementioned assessment of Stamp Tax, in the amount of €7,709.71. [cf. Document 11 attached to the Claimant's request, of 14/01/2016]

k) On February 25, 2015, the AT made the assessment of IMI, in the total amount of €6,938.75, relating to the year 2014 and relating to the aforementioned urban property. [cf. Document 3 of the Initial Pleading and attached with the Claimant's request, of 14/01/2016]

l) The Claimant proceeded to pay in full the three installments relating to that IMI assessment, which it did timely on 30/04/2015 (1st installment), on 30/07/2015 (2nd installment) and on 30/11/2015 (3rd installment). [cf. Document 4 of the Initial Pleading and attached with the Claimant's request, of 14/01/2016]

m) On July 29, 2015, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present case. [cf. CAAD's procedural management computer system]

§2. FACTS NOT PROVEN

With relevance for the examination and decision of the case, there are no facts that have not been proven.

§3. REASONING AS TO THE MATTER OF FACT

With respect to the proven matter of fact, the Tribunal's conviction was based on the facts alleged by the parties, whose adherence to reality was not questioned, and on the documents attached to the case.

III.2. ON LAW

The Claimant alleges the existence of various defects, formal and material, on which it bases the request for declaration of illegality of the contested Stamp Tax assessment. Specifically, the Claimant invokes, as formal defects, the lack of author of the assessment act – which, according to the Claimant, generates the nullity of the assessment – and the lack of prior hearing; and, as material defects, duplicate collection, unconstitutionality of item 28.1 of the TGIS for violation of the constitutional principles of legality, justice and equality and impartiality, and violation of the tax incidence rule contained in item 28.1 of the TGIS.

Article 124 of the CPPT, applicable ex vi article 29, No. 1, paragraph a), of the RJAT, states that the tribunal must prioritarily examine the defects that lead to the declaration of non-existence or nullity of the contested act and, subsequently, the defects that lead to its annulment (No. 1). With respect to the defects that constitute non-existence or nullity, the judge must know prioritarily of the defects whose substantiation determines, according to his prudent judgment, more stable or effective protection of the offended interests. With respect to the defects that constitute voidability, the same criterion is established, which shall only not be applied if the challenging party has established a relationship of subsidiarity between the defects imputed to the act – which is permitted by article 101 of the CPPT – for in that case priority is given to its will (provided that the Public Prosecutor's Office has not alleged other defects) (No. 2).

The rules emanating from this legal norm on the order of knowledge of defects are intended to protect the interest of the challenging party with maximum procedural economy, omitting pronouncement on defects invoked when the defect or defects already recognized prevent the renewal of the act with the same meaning. Effectively, the establishment of this order of knowledge of defects presupposes that, knowing of a defect that leads to the legal elimination of the contested act, the tribunal will cease to know of the rest, for if the judge had to know of all the defects imputed to the act, the order of knowledge would be indifferent. This means, therefore, that the recognition of the existence of a defect implies that knowledge of the remaining defects is considered prejudiced.

The protection of the offended interests is more stable when the decision prevents the renewal of the act that lesions the interests of the challenging party and will be more effective when it allows the interested party, in execution of the judgment, to obtain better satisfaction of its interests, offended by the annulled act.

Thus, if it were, for example, a defect of violation of law – such as a tax incidence rule – the annulment of the act would prevent the practice of a new tax act in which the same rule that based the previous act is applied, which would result in the impossibility of practicing a new act that imposes taxation on the challenging party.

As follows from what has been said, it is by taking into account the execution of the annulling judgment and the influence it has on the type of defect that founded the annulment that the establishment of an order of knowledge of the defects of the contested act is justified.

Returning to the specific case, as already emphasized above, the Claimant alleges formal defects and material defects, and, within the scope of the former, it invokes the defect of lack of author of the contested assessment act, which it qualifies as generating nullity of that tax act.

In light of the provision of article 124 of the CPPT and what we have said regarding this rule, it would be necessary for the Tribunal to begin by examining the alleged defect of lack of author of the contested assessment act, given the priority of knowledge of defects that is referred to in No. 1 of that same article.

However, from the outset, it is our understanding that if there is any invalidity rooted in the lack of indication of the author of the act, the same should be examined in the perspective of the respective notification act – generating its nullity, if that lack is verified (article 39, No. 12, of the CPPT) – and not in that of the contested assessment act (notified act), which will be merely ineffective (and not invalid) if its respective notification act is null (article 36, No. 1, of the CPPT). Should this be justified, we will return to this issue below.

Moreover, as Jorge Lopes de Sousa refers [1], "it does not seem justified in all cases that priority be given to the defects generating non-existence and nullity with simultaneous non-knowledge of the remaining defects generating mere voidability, in case of substantiation of the former. Indeed, it may happen that, although the defects generating mere voidability are of lesser gravity, it is the annulment based on these that provides more stable and effective protection of the offended interests." Now, in the specific case, it is evident that even if it were understood that the contested assessment act was null, for absence of indication of its author, such invalidity would not be preventive of the renewal of the act, all the more so because its period of expiration does not appear to be yet exhausted (cf. article 39 of the Stamp Tax Code).

In this framework, the defects imputed by the Claimant to the contested act that provide more stable and effective protection of its interests are the aforementioned material defects embodied in duplicate collection, unconstitutionality of item 28.1 of the TGIS for violation of the constitutional principles of legality, justice and equality and impartiality, and violation of the tax incidence rule contained in item 28.1 of the TGIS, among which the Claimant did not establish a relationship of subsidiarity.

Among these, one will begin with the examination of the defect of violation of the tax incidence rule contained in item 28.1 of the TGIS, for, if verified, it will definitively eliminate the possibility of imposing on the Claimant a new tax act practiced under that same rule. Furthermore, it will only be necessary to proceed to the examination of the issue of unconstitutionality of item 28.1 of the TGIS if and to the extent that the interpretation and concretization of the normative solution resulting from the aforementioned item involves the subsumption to its respective legal provision of the situation sub judice.

Subsequently, if the interpretation and concretization of the normative solution resulting from the aforementioned item 28.1 effectively involves subsumption to its respective legal provision of the situation sub judice, one will proceed, to the extent necessary in order to resolve the dispute, to the examination of the defect of unconstitutionality of item 28.1 of the TGIS, the defect of duplicate collection and, finally, the formal defects alleged.

§1. ON THE INTERPRETATION AND DELIMITATION OF THE SCOPE OF OBJECTIVE INCIDENCE OF ITEM 28.1 OF THE TGIS

At the center of the disagreement that opposes the parties in this case is the tax incidence rule contained in item 28.1 of the TGIS, so it is necessary, naturally, to begin by proceeding with the interpretation of this rule, with a view to ascertaining its scope and, thereby, delimiting what is its field of application.

Law No. 55-A/2012, of October 29, introduced various amendments to the Stamp Tax Code and added item 28 to the TGIS, with the following wording (cf. article 4):

"28 – Ownership, usufruct or right of surface of urban properties whose patrimonial tax value contained in the property register, under the terms of the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the patrimonial tax value used for the purpose of IMI:

28.1 – Per property with residential use – 1%;

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

Subsequently, Law No. 83-C/2013, of December 31 (State Budget Law 2014), altered the wording of item 28.1 of the TGIS (cf. article 194), having this taken on the following content (wording applicable ratione temporis to the situation sub judice):

"28.1 – Per residential property or per land for construction whose authorized or planned construction is for residential purposes, under the terms of the Code of Municipal Property Tax – 1%"

The interpretation of the incidence rule contained in item 28.1 of the TGIS cannot fail to be carried out based on the hermeneutic guidelines that emanate from article 11 of the LGT and article 9 of the Civil Code, norms that provide as follows:

Article 11 of the LGT, captioned "Interpretation":

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

1. Whenever, in tax rules, terms specific to other branches of law are employed, the same should be interpreted in the same sense that they have there, unless otherwise directly results from the law.

2. Persisting doubt about the meaning of the applicable incidence rules, the economic substance of the tax facts should be considered.

3. Gaps resulting from tax rules covered by the reserve of law of the Assembly of the Republic are not susceptible to analogical integration."

Article 9 of the Civil Code, captioned "Interpretation of law":

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

1. However, the interpreter cannot consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

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

With respect to this interpretive task, with due respect, we appropriate here the following considerations contained in the arbitral decision handed down in Case No. 53/2013-T of CAAD[2]:

"The relevance of the text of the law is especially emphasized in the matter of interpretation of tax incidence rules of Stamp Tax, which are reducible to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expense, on property, on acts, etc.), which leaves no appreciable margin for the application of the primary interpretive criterion, which is the unity of the legal system, which calls for its global coherence.

The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this item No. 28.1, hastily included alongside the General State Budget, by a tax legislator without perceptible overall fiscal guidance, that is successively implementing rules of fiscal aggravation as a result of budget execution setbacks, the impositions of international institutional creditors (represented by the "troika") and the oversight of the Constitutional Court.

In fact, although in the "Statement of Reasons" of Proposed Law No. 96/XII/2nd, on which Law No. 55-A/2012 was based, reference is made to the laudable concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment program" and its commitment "to ensure that the distribution of these sacrifices will be made by all and not just by those who live from the income of their work," it is evident, on the one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of item No. 28.1, in taxing additionally the properties with residential use and not also the properties that do not have it, gives an indication that the concerns of social equity and the proclaimed intention of distribution of sacrifices among all, affects much more some than properly all.

In this context, there being no sure interpretive elements that allow detecting legislative coherence in the solution adopted in the said item No. 28.1 or the correctness or incorrectness of the adopted solution (relevant for interpretive purposes in light of No. 3 of article 9 of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same No. 3 of article 9, that the legislator knew how to express its thought in adequate terms."

That being said. Analyzed the wording – both the original and the current – of item 28.1 of the TGIS, we find that this rule has a fundamentally referential character, for its relevant regulatory content depends on the normativity to which it refers, contained in the Code of Municipal Property Tax.

In fact, both as to objective incidence, with the reference to "urban properties" and the "patrimonial tax value contained in the property register, under the terms of the Code of Municipal Property Tax," and as to the fixing of the taxable matter, with the reference to the "patrimonial tax value used for the purpose of IMI," the regulatory content of this item 28 of the TGIS results from the devolution – under the terms of a general reference – to the set of regulations that are found in the Code of Municipal Property Tax.

Moreover, this aspect is reinforced by No. 2 of article 67 of the Stamp Tax Code, which determines that to matters not regulated in the Stamp Tax Code relating to item 28 of the TGIS is applied, subsidiarily, the provision of the Code of Municipal Property Tax.

In this framework, it is therefore necessary to collect the rules of the Code of Municipal Property Tax that appear pertinent for the understanding and, therefore, for the application of item 28.1 of the TGIS.

In the Code of Municipal Property Tax, the concept of "property" is thus defined (article 2):

"1. For the purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or resting thereon, with a character of permanence, provided that it is 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 located, although located on a fraction of territory that constitutes an integral part of a diverse patrimony or does not have patrimonial nature.

1. Buildings or constructions, even if movable by nature, are deemed to have a character of permanence when affected for non-transitory purposes.

2. The character of permanence is presumed when buildings or constructions are based at the same location for a period exceeding one year.

3. For the purposes of this tax, each autonomous unit, under the horizontal property regime, is deemed to constitute a single property."

Subsequently, in articles 3 to 5 of the Code of Municipal Property Tax, the species of existing properties are enumerated, namely:

Rustic properties (article 3):

"Rustic properties are lands located outside an urban agglomeration that are not to be classified as land for construction, under the terms of No. 3 of article 6, provided that:

a) They are affected or, in the absence of concrete affectation, have as their normal destination a use generating agricultural income, such as are considered for purposes of personal income tax (IRS);

b) Not having the affectation indicated in the preceding paragraph, they are not built or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Rustic properties also include lands located within an urban agglomeration, provided that, by virtue of legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are in fact having this affectation.

3 – Rustic properties also include:

a) Buildings and constructions directly affected to the production of agricultural income, when located on the lands referred to in the preceding numbers;

b) Waters and plantations in the situations referred to in No. 1 of article 2.

4 – For purposes of this Code, urban agglomerations are considered, in addition to those located within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public use roadways, their perimeter being delimited by points distanced 50 m from the axis of the roadways, in the transverse sense, and 20 m from the last building, in the sense of the roadways."

Urban properties (article 4):

"Urban properties are all those that should not be classified as rustic, without prejudice to the provision of the following article."

Mixed properties (article 5):

"1. Whenever a property has rustic and urban parts it is classified, in its entirety, according to the main part.

1. If neither of the parts can be classified as the main one, the property is deemed mixed."

Subsequently, in article 6 of the Code of Municipal Property Tax, the species of urban properties are indicated:

"1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others.

1. Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of licensing, that have as their normal destination each of these purposes.

2. Land for construction is considered to be land located within or outside an urban agglomeration, for which a license or authorization for subdivision or construction operations has been granted, admitted prior communication or issued favorable prior information of subdivision or construction operations, and also those that have been so declared in the acquisition deed, except lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal land planning plans, are affected to spaces, infrastructures or public facilities.

3. The provision of paragraph d) of No. 1 encompasses lands located within an urban agglomeration that are not land for construction nor are covered by the provision of No. 2 of article 3 and also buildings and constructions licensed or, in the absence of licensing, that have as their normal destination other purposes than those referred to in No. 2 and also those of the exception of No. 3."

Regarding the "patrimonial tax value," article 7 of the Code of Municipal Property Tax provides as follows:

"1. The patrimonial tax value of properties is determined under the terms of this Code.

1. The patrimonial tax value of urban properties with parts that can be classified in more than one of the classifications of No. 1 of the preceding article is determined:

a) If one of the parts is main and the other or others are merely accessory, by application of the evaluation rules of the main part, taking into account the appreciation resulting from the existence of the accessory parts;

b) If the different parts are economically independent, each part is evaluated by application of the corresponding rules, and the value of the property is the sum of the values of its parts.

1. The patrimonial tax value of mixed properties corresponds to the sum of the values of its rustic and urban parts determined by application of the corresponding rules of this Code."

Under the caption "concept of property registers," article 12 of the Code of Municipal Property Tax provides as follows:

"1. Property registers are records that include, in particular, the characterization of properties, their location and patrimonial tax value, the identity of the owners and, where applicable, of the usufructuaries and superficiaries.

1. There are two registers, one for rustic property and another for urban property.

2. Each floor or part of property susceptible to independent use is considered separately in the matricial registration, which also discriminates the respective patrimonial tax value.

3. The registers are updated annually with reference to December 31.

4. Matricial registrations constitute presumption of ownership for tax purposes only."

Still regarding property registers, it is important to note No. 1 of article 13 of the Code of Municipal Property Tax, from which it follows that "[the] registration of properties in the register and the updating of this are carried out based on a statement presented by the taxpayer."

With respect to the determination of patrimonial tax value, it is important to invoke the following rules of the Code of Municipal Property Tax:

• Article 38 of the Code of Municipal Property Tax, captioned "Determination of patrimonial tax value":

"1. The determination of the patrimonial tax value of urban properties for residential purposes, commerce, industry and services results from the following expression:

Vt = Vc x A x Ca x Cl x Cq x Cv

where:

Vt = patrimonial tax value;

Vc = base value of built properties;

A = gross construction area plus the area exceeding the implantation area;

Ca = Affectation coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = age coefficient.

1. The patrimonial tax value of urban properties determined is rounded to the nearest ten euros."

• Article 45 of the Code of Municipal Property Tax, captioned "Patrimonial tax value of land for construction":

"1. The patrimonial tax value of land for construction is the sum of the value of the implantation area of the building to be constructed, which is that located within the perimeter of the building's fixation to the soil, measured by the outer part, added to the value of the land adjacent to the implantation.

1. The value of the implantation area varies between 15% and 45% of the value of the authorized or planned buildings.

2. In fixing the percentage of the value of the implantation land, consideration is given to the characteristics referred to in No. 3 of article 42.

3. The value of the area adjacent to the construction is calculated under the terms of No. 4 of article 40.

4. When the document proving constructive viability referred to in article 37 makes reference only to the municipal master plan indices, the assessing experts should estimate, substantiated, the respective construction area, taking into consideration, in particular, the average construction areas of the surrounding zone."

In light of the literal content of item 28.1 of the TGIS, subject to this tax incidence rule are urban properties with a patrimonial tax value equal to or greater than €1,000,000.00, which are residential properties or land for construction with authorized or planned construction for residential purposes.

Bearing in mind the Code of Municipal Property Tax rules cited above, we have that residential properties are buildings or constructions licensed by the municipalities for such purpose or, in the absence of licensing, that have as their normal destination such use (article 6, No. 2, of the Code of Municipal Property Tax); thus, residential properties are the referred buildings or constructions, and it is these that are subject to item 28.1 of the TGIS. With respect to land for construction, only those for which construction is authorized or planned for residential purposes are encompassed by the scope of incidence of item 28.1 of the TGIS, in the meaning resulting from the definition of residential property given by No. 2 of article 6 of the Code of Municipal Property Tax; in this way, excluded from subjection to item 28.1 of the TGIS are land for construction regarding which construction is authorized or planned for purposes other than residential, namely for commercial, industrial or service purposes.

The correctness of this interpretation, as to the scope of incidence of item 28.1 of the TGIS, is confirmed by the ratio legis discernible from the restriction of the field of application of the rule to residential properties – a restriction that was maintained as to the affectation (residential) in the subsequent legislative amendment that came to expand the scope of incidence to land for construction – in the context of the "circumstances in which the law was elaborated and the specific conditions of the time in which it is applied," which article 9, No. 1, of the Civil Code also establishes as interpretive elements.

Effectively, the limitation of the application of the tax to residential properties and to land for construction in which residential construction is planned or authorized, reveals the intention not to burden the productive sector and companies in general and, in that sense, it was not intended to encompass in the scope of incidence of the tax either the properties affected to services, industry or commerce, that is, the properties affected to economic activity, nor the land for construction regarding which construction is planned or authorized for those other purposes. This is understandable in a context in which the economy was in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historical levels, with an avalanche of business closures due to economic unsustainability. On the ratio legis of the introduction of item 28 of the TGIS, see, among others, the decisions handed down in Cases No. 50/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/2014-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of the CAAD.

Given this situation and being well-known and public that the revitalization of economic activity and the increase in exports are the gateways to exit the crisis, it is understood that, despite the pressing need to increase tax revenues, legislative measures were not taken that would hinder economic activity, namely the aggravation of the tax burden that hinders it and affects competitiveness in international terms.

For this reason, it can be concluded that the available interpretive elements, including the "circumstances in which the law was elaborated and the specific conditions of the time in which it is applied," clearly point to the fact that it was not intended to encompass in the scope of incidence of item 28.1 of the TGIS non-residential properties and land for construction regarding which construction is authorized or planned for purposes other than residential.

To close this exegesis of item 28.1 of the TGIS, it is important to further note that articles 38 to 46 of the Code of Municipal Property Tax have no relationship with the classification of urban properties, for in those rules only the factors to be considered in the respective evaluation are indicated; and, with respect specifically to article 45 of the Code of Municipal Property Tax, when reference is made there to the "building to be constructed" reference is being made to the consideration of the destination of the land, which is something that, in the context of the Code of Municipal Property Tax, does not imply affectation and occurs before it (in this sense, see the decision handed down in Case No. 53/2013-T of the CAAD).

§2. ON THE (NON) APPLICATION OF ITEM 28.1 OF THE TGIS TO THE CASE SUB JUDICE

As proven, the urban property in this case is "land for construction, with an area of 667 m², for which the Lisbon Municipal Authority authorized the construction of a building with 17 floors (5 of which are basements) and a total construction area of 7,511 m², being 2,668 m² intended for parking, 1,363 m² intended for commerce/offices and 3,480 m² intended for residential purposes" (cf. proven fact c)). It is, therefore, land for construction for which construction is authorized for residential purposes, commerce and services.

It is our understanding that the interpretation we made of item 28.1 of the TGIS is particularly peremptory in a case like the present one in which, for the land for construction in question, construction is authorized simultaneously for residential and other purposes, specifically for commerce and services.

That is, in such circumstances, there is not contained in the register nor is there used for purposes of IMI a patrimonial tax value of the part intended for residential purposes, another patrimonial tax value of the part intended for commerce and still another patrimonial tax value of the part intended for services. Indeed, what is established by the Code of Municipal Property Tax, according to the cited article 7, No. 2, al. b), and is contained in the register is that the value of the property is the sum of the values of its parts, therefore, of all of its parts, whatever their affectation.

In this framework, the position of the Respondent cannot be upheld in the sense that "the Tribunal determine only the annulment of the assessment as to the part referring to the non-residential use of that property, being to maintain the assessment as to the part corresponding to the residential use of the same, since such use falls within the scope of the incidence rule of item 28.1 TGIS" (cf. article 189 of the Response). Indeed, if one were to follow that path, one would inevitably be disregarding the value of the property as it is defined in article 7, No. 2, al. b), of the Code of Municipal Property Tax and, instead of it, one would be considering the partial values of each of the parts of the property, according to their respective affectations, which would embody evident violation of that legal rule.

Let it be insisted that the Code of Municipal Property Tax only refers, as results from article 7, No. 2, al. b), to the value of the property as resulting from the sum of all of its parts subject to autonomous evaluation, not therefore legitimizing the configuration of partial values of the property – even if these are concretely determinable – referring only to certain parts economically independent from the property (in the perspective of the application of item 28.1 of the TGIS, those that possess residential affectation), disregarding the parts with other affectations (in this case, for commerce and services).

Thus, if one proceeded as the Respondent propounds, one would be considering, for the purpose of fixing the incidence of item 28.1 of the TGIS, values that do not correspond to the patrimonial tax value used for purposes of IMI (and, therefore, for purposes of application of item 28.1 of the TGIS), that is, one would be adopting a patrimonial tax value that finds no support in the law.

Given the above, on the urban property in question – "land for construction, with an area of 667 m², for which the Lisbon Municipal Authority authorized the construction of a building with 17 floors (5 of which are basements) and a total construction area of 7,511 m², being 2,668 m² intended for parking, 1,363 m² intended for commerce/offices and 3,480 m² intended for residential purposes" – the Stamp Tax provided for in the tax incidence rule contained in item 28.1 of the TGIS does not apply.

Consequently, the contested assessment suffers from the defect of violation of the law of item 28.1 of the TGIS, due to error as to the legal presuppositions, which implies the declaration of its illegality and consequent annulment.

Given the substantiation of the petitioned declaration of illegality of the contested assessment, due to a defect that prevents the renewal of the act, the knowledge of the remaining defects imputed to it by the Claimant is prejudiced, as unnecessary.

§3. ON THE REIMBURSEMENT OF AMOUNTS PAID AND THE PAYMENT OF COMPENSATORY INTEREST

The Claimant also petitions for the condemnation of the AT to reimburse the tax paid unduly, in the amount of €23,129.15, increased by the respective compensatory interest.

Article 24, No. 1, paragraph b), of the RJAT provides that the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the tax administration from the end of the period set for appeal or challenge, and the latter must, in the exact terms of the substantiation of the arbitral decision in favor of the taxpayer and until the end of the period set for the voluntary execution of the judgments of the tax courts, restore the situation that would have existed by adopting the necessary acts and operations for this purpose, which should be understood, in accordance with the provision of article 100 of the LGT, applicable ex vi paragraph a) of No. 1 of article 29 of the RJAT, as encompassing the payment of compensatory interest, in accordance, moreover, with the provision of No. 5 of the same article 24 of the RJAT.

Article 43, No. 1, of the LGT determines that "compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error imputable to the services from which resulted payment of the tax debt in an amount superior to that legally due," establishing No. 4 of article 61 of the CPPT that "if the decision that recognized the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period of voluntary execution."

In the concrete case, it is verified that the illegality of the contested assessment, due to error in the legal presuppositions, is imputable to the AT for, in that tax assessment, having proceeded with the incorrect interpretation and application of the provision contained in item 28.1 of the TGIS, so that the Claimant is entitled, in accordance with the provision of articles 24, No. 1, paragraph b), of the RJAT and 100 of the LGT, to the reimbursement of the amount of tax paid unduly – €23,129.15 – and to compensatory interest, under the terms established in articles 43, No. 1, of the LGT and 61 of the CPPT, calculated from the dates of the payments of the respective installments – 18.06.2015, 16.07.2015 and 30.11.2015 (cf. proven facts h), i) and j)) – at the rate resulting from No. 4 of article 43 of the LGT, until the date of processing of the respective credit note, in which they are included.

IV. DECISION

In the terms set forth above, this Arbitral Tribunal decides:

a) Judge the arbitration request as entirely substantiated and, consequently, declare illegal and annul the Stamp Tax assessment contested in the present case, in the total amount of €23,129.15, relating to the year 2014 and to the urban property (land for construction) registered under article... in the urban property register of the parish of..., council and district of Lisbon;

b) Judge as substantiated the request for condemnation of the Tax and Customs Authority to reimburse to the Claimant the total amount of Stamp Tax paid unduly – €23,129.15 – increased by compensatory interest under the legal terms, from the dates on which the payments of the corresponding installments were made – 18.06.2015, 16.07.2015 and 30.11.2015 – until the date of processing of the respective credit note, in which they are included;

c) Condemn the Tax and Customs Authority to the payment of the costs of the case.

VALUE OF THE CASE

In accordance with the provision of articles 306, No. 2, of the Code of Civil Procedure, 97-A, No. 1, paragraph a), of the CPPT and 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €23,129.15.

COSTS

Under article 22, No. 4, of the RJAT, the amount of costs is set at €1,224.00 (one thousand two hundred twenty-four euros), under the terms of Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, March 18, 2016.

The Arbitrator,

(Ricardo Rodrigues Pereira)

[1] Code of Tax Procedure and Process, Annotated and Commented, Volume II, 6th edition, Lisbon, Áreas Editor, 2011, p. 341.

[2] All arbitral decisions that will be referred to are available at www.caad.org.pt/tributario/decisoes.