Process: 529/2015-T

Date: December 19, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This reformed arbitral decision addresses the application of Stamp Tax (Imposto do Selo) under Item 28.1 of the General Stamp Tax Table (TGIS) to building land (terrenos para construção). The claimant, a real estate company, challenged the 2014 Stamp Tax assessment on land with a taxable property value exceeding €1,000,000, arguing procedural irregularities and constitutional violations. The company contended the assessment lacked identification of the author, omitted prior hearing requirements, and created double taxation alongside Municipal Property Tax (IMI). Substantively, the claimant argued Item 28.1 unconstitutionally discriminated against companies holding building land as inventory and between land designated for residential versus commercial purposes. The Constitutional Court's November 2018 ruling necessitated reforming the original June 2016 arbitral decision. Key issues included whether Item 28.1 applied to land intended partly for non-residential use, whether procedural defects warranted nullification, and constitutional compliance with equality and ability-to-pay principles. The case demonstrates how CAAD arbitral decisions can be reformed following Constitutional Court intervention, establishing important precedents for Stamp Tax on high-value properties and clarifying the scope of Item 28.1 TGIS concerning mixed-use building land. The decision impacts real estate developers and investors holding construction land, particularly regarding tax planning for properties exceeding the €1,000,000 threshold and the interplay between Stamp Tax and IMI obligations.

Full Decision

ARBITRAL DECISION

Rendered as a result of the ruling of the Constitutional Court of 7 November 2018, through which a reform is determined to the arbitral decision rendered on 29 June 2016.

REPORT

A..., Lda., taxpayer no. ..., with registered office in ..., ... – ..., Lisbon, hereinafter designated as Claimant, submitted on 30/07/2015 a request for arbitral ruling.

His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD), appointed on 20/10/2015 as arbitrator, Francisco Nicolau Domingos.

On 04/11/2015 the arbitral tribunal was constituted.

In compliance with the provisions of article 17, paragraphs 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 09/11/2015 to, if it so wished, submit a response, request the production of additional evidence and remit the administrative file.

On 14/12/2015 the Respondent submitted its response.

The Claimant on 15/01/2016 formulated a request in which it requested the joining of documents evidencing payment of the 3rd instalment of the Stamp Duty levy subject of these proceedings and proof of payment of the 3rd instalment of the Municipal Property Tax (IMI) levy of the property hereinafter indicated.

The tribunal on 21/03/2016, by order, admitted the joining of such documents.

On 22/03/2016, the tribunal decided to waive the holding of the meeting to which article 18, paragraph 1 of the RJAT refers, on the grounds of the principle of the autonomy of the arbitral tribunal in the conduct of the proceedings and in the determination of the rules to be observed in order to obtain, within a reasonable period, a ruling on the merits of the claims formulated, cf. article 16, letter c) of the RJAT, granted a period for the parties, if they so wished, to submit final written submissions and designated the deadline for issuing the arbitral decision.

By order dated 03/05/2016 and with the grounds described therein the tribunal extended, for 2 months, the deadline for issuing the arbitral decision.

CASE MANAGEMENT

The proceedings are not vitiated by nullities, no questions have been raised that prevent the consideration of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claim, consequently verifying the conditions for the final decision to be rendered.

SUBJECT MATTER OF THE DISPUTE

The Claimant alleges, in the first place, that the assessment omitted legal formalities, namely the absence of the author of the act and the absence of prior hearing.

Thus, it states that the collection notes do not contain all the elements that must necessarily be notified to the taxpayer, which include the indication of the author of the act and, should it have been performed in the exercise of delegated or sub-delegated powers, the capacity in which the author decided, the absence of such essential elements that justify the allegation of nullity of the assessment.

Furthermore, it invokes the omission of another essential formality, since the Claimant was not notified to exercise its right to a hearing, which, in its view, article 60, paragraph 1, letter a) of the General Tax Law (LGT) imposed.

Second, the Claimant attributes to the disputed assessment a duplication of collection, in so far as the taxable event that justified the imposition of Stamp Duty and IMI was the same, namely ownership on 31 December 2014 of the property registered in the urban property matrix of the parish of ..., municipality of Lisbon, under article ... . It further states that the period in question was exactly the same for the two aforementioned taxes, the year 2014 – 31 December.

Subsequently, it alleges that there is an error as to the legal assumptions, in so far as the "land for construction" subject to taxation is not intended exclusively for the construction of housing, but also for commerce and services and, as such, would be excluded from the incidence of item 28.1 of the General Table of Stamp Duty (TGIS).

Fourth, the Claimant argues that the assessment applied an unconstitutional provision and that it should be disapplied to the situation sub judice.

Thus, it begins by arguing that companies engaged in the purchase for resale of "land for construction" or engaged in the construction of buildings would be negatively discriminated against in relation to others that do not engage in such activity, given that "land for construction" is inventory for companies with such corporate purpose. Arguments that it uses to argue that item 28.1 of the TGIS, as redrafted by Law no. 83-C/2013, of 31 December, is unconstitutional, for violation of the constitutional principles of legality, justice, equality and impartiality, described in article 266, paragraph 2, article 13 and article 104, paragraph 3, all of the Constitution of the Portuguese Republic (CRP).

The Claimant further discerns another unconstitutionality in item 28.1 of the TGIS, when it establishes taxation of the ownership of land intended for housing, whose taxable property value (VPT) is greater than € 1,000,000 and the non-taxation of the ownership of other land intended for a purpose other than housing, with an identical or even higher VPT, creating discrimination without any basis or kind. And, as such, it violates the principle of tax equality and the principle of ability to pay that derives from it. To support this conclusion it further argues that there is an absolute equality of circumstances, on the fiscal plane, between the position of taxpayers who own "land for construction" whose construction will have a residential purpose and the position of taxpayers who own "land for construction" whose construction will have a purpose for services or industry.

It further adds that the incidence of item 28.1 of the TGIS on properties with actual residential purpose, which does not include "land for construction" departs from the principles of reinforcement of social equity, effective distribution of sacrifices and equality, in so far as nothing justifies that "...the owner of a property with residential purpose with a VPT of € 1,000,000 be charged € 10,000 of Stamp Duty and the owner of a set of properties whose total VPT amounts to € 50,000,000 be charged absolutely nothing, for the sole reason that none of the properties that make up that total VPT..." has, individually, a VPT equal to or greater than € 1,000,000.

It concludes by petitioning for the payment of indemnificatory interest as a result of error attributable to the services at the time of assessment.

The Respondent, in its response, begins by saying that, with respect to the absence of the author of the assessment act, the Claimant understood its content, having attributed, in particular, to the assessment in dispute the defect of violation of law, duplication of collection and a list of unconstitutionalities. For which reason, the defect, if it exists, should be deemed cured.

Second, as to the absence of prior hearing, it states that the assessment does not call into question the VPT. For this reason, in its view, the disputed assessment merely applies a fixed rate to the VPT fixed following the submission of a declaration by the Claimant and, as such, the Respondent was, in light of article 60, paragraph 2, letter a) of the LGT, dispensed in this case from granting the right to a hearing to the Claimant.

As for duplication of collection, it argues that not only is the tax underlying the assessments not the same, but it also proves debatable that there is a single taxable event, in so far as, in its opinion, IMI taxes "...the holding of any real property per se indistinctly..." while Stamp Duty "...relates to the existence of real property in view of its purpose and its taxable property value above a threshold of € 1,000,000.00 as manifestations of ability to pay/superior wealth of certain owners".

Fourth, it argues that the assessment does not suffer from error as to the legal assumptions, given that the taxable property value of the part of the property that will be allocated to housing is the principal or preponderant one and that in the calculation of the VPT different allocation coefficients were used and not solely and exclusively that relating to allocation for housing. It adds, to this end, that the Lisbon Tax Service ... transmitted that the disputed Stamp Duty assessment will be corrected in accordance with the proportion of the residential purpose in question.

Finally, as regards the question of disrespect for item 28.1 of the TGIS with the constitutional principle of equality, by negative discrimination against companies engaged in the activity of purchase of land for resale, no such unconstitutionality is found, in so far as the historical and exceptional circumstances that presided over the construction of such a provision, associated with the fact that it causes the tax to apply, regardless of the nature of the owner, usufructuary or superficiaries, impose such conclusion.

As for the second question of unconstitutionality formulated by the Claimant, it points out that the taxation of land intended for housing, whose VPT is greater than € 1,000,000 and the non-taxation of the ownership of other land intended for a purpose other than housing, with an identical or even higher VPT constitutes a legitimate choice of the legislator and that it applies indistinctly to all instances in which the legal and factual assumptions are met.

On the other hand, as regards disrespect by item 28.1 of the TGIS of the constitutional principles of social equity, effective distribution of sacrifices and equality, it argues that, in this context, it is necessary to frame it in the historical and chronological context in which it arose, that is, one of evident difficulties in public accounts and budgetary containment. For which reason, the legislator intended, in 2012, with the provision of such item to rebalance the distribution of sacrifices so that these did not fall solely on those taxpayers who live on the income from their work.

It concludes by arguing that the assessment in dispute does not arise from any error by the services but results from the application of law, so that, in its view, there is no error attributable to the services.

In this sequence, the Claimant requests that:

  • The nullity of the assessment be recognised insofar as the collection notes do not contain all the essential elements that must necessarily be notified to the taxpayer;

  • The assessment be annulled by virtue of the absence of prior hearing constituting an omission of essential formality;

  • The assessment subject of these proceedings be annulled, as a result of duplication of collection;

  • The assessment be annulled for error as to the legal assumptions;

  • The illegality of the Stamp Duty assessment act sub judice be declared because based on unconstitutional provisions, and that it be annulled;

  • Item 28.1 of the TGIS be disapplied, in this specific case, for manifest unconstitutionality, by virtue of violation of the constitutional principle of equality;

  • The Tax Authority be condemned to reimburse the Claimant for the amount of Stamp Duty paid;

  • The Tax Authority be condemned to pay, to the Claimant herein, indemnificatory interest, at the legal rate, until complete reimbursement of the amount due and calculated on the tax paid.

4. MATTERS OF FACT

4.1. Facts deemed proved

4.1.1. The Claimant is the owner of the property registered in the urban property matrix under article ..., parish of ..., Lisbon, registered as "land for construction".

4.1.2. Such property had a taxable property value (VPT) of € 1,852,340.00 on 31 December 2014.

4.1.3. The Claimant is engaged in the purchase of properties for construction and resale.

4.1.4. The Claimant was notified of the Stamp Duty assessment of the property described in 4.1.1., relating to the year 2014, in the total amount of € 18,523.40.

4.1.5. The Tax Authority notified the Claimant to pay such amount as follows: i) 1st instalment in the amount of € 6,174.48; 2nd instalment in the amount of € 6,174.46 and 3rd instalment in the amount of € 6,174.46.

4.1.6. The Claimant proceeded to pay the 1st and 2nd instalments on 02/07/2015 and the 3rd on 04/11/2015.

4.1.7. The Tax Authority assessed IMI on such property, relating to the year 2014, in the amount of € 5,557.02.

4.1.8. The property described in 4.1.1. corresponds to lot ... of subdivision licence no. .../2005, issued by the Lisbon Municipal Council.

4.1.9. In such licence the following specifications are stated: implementation area of the lot – 1,988 m²; construction area – 5,188 m² (being 3,900 m² for housing, 784 m² for commerce and 504 m² for services).

4.2. Facts not deemed proved

4.2.1. That the assessment was corrected so as to consider in its scope only the proportion of the residential purpose of the property in question.

There are no other facts with relevance for the arbitral decision that have not been deemed proved.

4.3. Justification of the matters of fact deemed proved

The matters of fact deemed proved are sourced in the documents used for each of the alleged facts and whose authenticity was not called into question.

4.4. Justification of the matters of fact not deemed proved

The Respondent did not join to the proceedings a document with the corrected Stamp Duty assessment.

5. MATTERS OF LAW

First, the Claimant attributes to the assessment the omission of legal formalities, the absence of the author of the act and the absence of prior hearing. Let us see if with reason.

Absence of the author of the act

The doctrine sustains, as to the requirements of the decision in the tax procedure, that: "The decision of the tax procedure, being an act defining the position of the tax authority in relation to individuals, must comply with the general requirements of administrative acts, set out in article 123 of the Code of Administrative Procedure. (....) Pursuant to paragraph 2 of this article 123, all these mentions must be stated in a clear, precise and complete manner, so that the meaning and scope of the act and its legal effects can be unequivocally determined. Non-compliance with the provisions of these provisions is liable to lead to the annulment of the act for a form defect. However, it should be taken into account that defects may be deemed cured when it is demonstrated that, despite the imprecision or omission or irregularity of the content of the act, the objective intended to be achieved with the imposition of this content was attained, in particular that its recipient correctly understood its exact scope", DIOGO LEITE CAMPOS/BENJAMIM SILVA RODRIGUES/JORGE LOPES DE SOUSA, General Tax Law – annotated and commented, 4th edition, Encontro da escrita publisher, 2012, p. 674.

Now, in the specific case, if it is true that there is no indication of the author of the act in the assessment, it is equally true that the Claimant understood its exact scope despite such omission. So much so that the present request for arbitral ruling contains 110 articles, in which the Claimant alleges, in particular, the nullity of the assessment, petitions for its annulment and invokes the unconstitutionality of item 28.1 of the TGIS. For which reason, such defect is deemed cured.

Absence of prior hearing

Second, it attributes to the act in dispute the absence of prior hearing, in so far as, in its view, the Tax Authority should have allowed it to express itself before the assessment.

Article 60, paragraph 1, letter a) of the LGT provides that: "The participation of taxpayers in the formation of decisions affecting them may be carried out, whenever the law does not prescribe otherwise, in any of the following forms: a) Right of hearing before assessment;...". Furthermore, article 60, paragraph 2, letter a) of the same statute provides that: "Hearing is dispensed with: a) In the case of assessment being made on the basis of the taxpayer's declaration...".

In the case at hand, the assessment placed in dispute with the request for arbitral ruling is based on item 28.1 of the TGIS which aims to tax the property, usufruct or right of superficies of properties with residential purpose and with a VPT equal to or greater than € 1,000,000. Thus, the taxable value is precisely the VPT. Now, this VPT was assessed in accordance with the Municipal Property Tax Code (CIMI) and on the basis of the Claimant's initiative, with the submission of the declaration for this purpose, in IMI form 1. In this line, following the submission of the aforementioned declaration the Claimant was not prevented from participating in the assessment of the property through a request for second assessment or by challenging the act of determination of the VPT. Consequently, if the assessment applies a fixed rate to a VPT resulting from the Claimant's declaration and with its participation, it is considered that the Tax Authority enjoys, in this case, the right to dispense with prior hearing[1], cf. article 60, paragraph 2, letter a) of the LGT.

Duplication of collection

The Claimant argues in this context that the Stamp Duty assessment subject of these proceedings constitutes a duplication of collection, given that this Stamp Duty has the same nature as IMI, applies to the same property, applies to the same VPT, applies to the same fact, relates to the same period, and the holder of the ownership right is the same and the IMI assessment amount has been paid, there can only be duplication of collection.

Article 205, paragraph 1 of the Code of Tax Procedure and Process (CPPT) provides that: "There shall be duplication of collection for the purposes of the preceding article when, a tax being paid in full, another of equal nature is required from the same or different person, relating to the same taxable event and the same period of time".

The doctrine sustains as to the purpose of duplication of collection that the objective "...is to prevent the repeated collection of the same tax"[2] and that "Duplication of collection results from the application of the same legal provision more than once to the same taxable event or concrete tax situation. However, it becomes necessary that the factual reality underlying the plurality of assessments be the same,..."[3].

Thus, duplication of collection requires the cumulative fulfilment of the following requirements: i) that the tax be paid; ii) that another tax or another tax of equal nature be required from the same or different person and iii) that such tax relate to the same period of time.

An institute distinct from duplication of collection is double taxation, which occurs when two taxes apply to the same taxable event, and in some instances there may not be a double collection of the same tax. More specifically, if the legislator intended that the same taxable event constituted the basis of incidence for more than one tax[4].

In the specific case, we verify that on the Claimant's property, classified as "land for construction", two taxes were assessed, IMI and Stamp Duty – item 28.1 and that IMI and Stamp Duty have already been paid.

Let us then see if the factual reality underlying the IMI and Stamp Duty – item 28.1 assessments is the same.

IMI is a tax that "...applies to the taxable property value of rural and urban properties located in Portuguese territory...". As regards item 28.1 of the TGIS, the legislator intended to introduce a taxation for the wealth manifested in the ownership, usufruct or surface right of residential urban properties and higher-value land for construction.

Indeed, the legislative purpose of item 28 of the TGIS, introduced by Law no. 55-A/2012, of 29 October, was thus evidenced in case law: "...from its "spirit", apprehendable in the statement of reasons of the bill that is the source of Law no. 55-A/2012 (...) nothing more emerges than the concern to secure new tax revenue, on sources of wealth "more spared" in the past from the tax authorities' reach than income from work, in particular capital income, securities gains and property...", ruling of the Supreme Administrative Court handed down in the context of case 048/14, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA served as rapporteur.

Now, if that is so, it is clear that the legislator manifested the intention to apply two rules of incidence to the same taxable event.

For which reason, the tribunal understands that there is no duplication of collection, but at most double taxation, as a result of there being rules of incidence, of different taxes, that apply to the same taxable event, by express will of the legislator.

Error as to the legal assumptions

Fourth, it is necessary to trace the chronology of the life of item 28.1 of the TGIS. In fact, in 2012, through Law no. 55-A/2012, of 29 October, the legislator decided to add a taxable event to Stamp Duty, with a view to taxing properties of high taxable property value and with the objective of increasing state revenue in a context of absolute economic recession.

To this end the initial wording of the item described was as follows:

"28 – Property, usufruct or right of superficies of urban properties whose taxable property value appearing in the matrix, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 – on the taxable property value used for IMI purposes:

28.1 – For a property with residential purpose...".

Thus, properties that: i) were urban and ii) had a taxable property value equal to or greater than € 1,000,000 became subject to Stamp Duty.

It happened that, still during the validity of such wording, the interpretation promoted by the Tax Authority indicated that properties that were already constructed and dedicated to housing, as well as land already classified as for construction in areas in which the type of construction foreseen is housing, became subject to such taxation.

It occurred that this interpretation was reiterated and systematically rejected by state and arbitral case law, as are examples thereof, the rulings of the Supreme Administrative Court handed down in case 1870/13, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA served as rapporteur, case 46/14, of 14/05/2014, in which Counsellor ASCENSÃO LOPES served as rapporteur and case 0272/2014, of 23/04/2014, in which Counsellor PEDRO DELGADO served as rapporteur.

The truth is that the legislator, through the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), altered the wording of the Stamp Duty item under analysis, broadening the scope of application in order to expressly include "land for construction" where construction for housing is planned or approved, always on the condition that such land has a VPT higher than € 1,000,000. For this reason, today, "land for construction" whose authorised or planned construction is for housing are subject to the taxation provided for in item 28.1 of the TGIS[5], the provision of incidence requiring proof that the right to construction is already determined by the action of a public entity, since such right is only constituted when that entity authorises the owner to construct or subdivide[6].

In summary, the incidence of Stamp Duty on "land for construction" requires, not only mere ownership, but also the issuance of an administrative title that authorises, in particular, such owner to construct or subdivide.

In the specific case, the Claimant argues that the assessment is illegal, given that its property is intended, not only for the construction of housing, but also for commerce and services. To this end, the Respondent argues that the Lisbon Tax Service..., has already informed the Legal Advisory and Litigation Department that the assessment will be corrected, taking into account the proportion of the residential purpose in question. The truth is that, if such occurred, notice was not given in these proceedings.

Nevertheless, the item determines that the tax applies to "...the taxable property value used for IMI purposes..." and on such matter the rate of 1% should apply "...for land for construction whose construction, authorised or planned, is for housing, pursuant to the provisions of the Municipal Property Tax Code...". However, even when the authorised or planned construction for the land is not exclusively for housing it is the VPT, the only one that exists prior to construction. That is, even if the authorised or planned construction for the land is in fractions capable of independent use, which are considered autonomously for IMI purposes, as provided in article 12, paragraph 3 of the CIMI and the VPT of the land computes the value of the authorised or planned buildings, it is the VPT that the rule of incidence marks as being used to determine the scope of the tax.

For which reason, item 28.1 of the TGIS determines that what must be taken into account, within the scope of the tax incidence, is the VPT of the land. Thus, here too the Claimant's allegation that there is a violation of law does not hold, which is hereby declared.

In strict terms, there is also no need to deduct the percentage of taxable matter corresponding to the m² of construction of the building not intended for housing, given that the VPT is the only assumption that item 28.1 of the TGIS requires to be considered and the only one that exists prior to construction. In fact, article 67, paragraph 2 of the Stamp Duty Code imposes that the provisions of the CIMI be observed, and in such statute, article 7, paragraph 2 determines that the taxable matter corresponds to its VPT, not allowing relevance to be attributed to partial values of the property, even if economically independent. In sum, the incidence is on the VPT in such tax and for that matter, it also is in the context of assessment of item 28.1 of the TGIS.

5.5 Question of disrespect for item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", by negative tax discrimination against companies engaged in the purchase of land for construction and resale

In this context, it is first necessary to determine whether there is incompatibility of item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", by negative discrimination against companies that habitually engage in the activity of purchase and sale of land for construction and resale.

To this end, the Claimant argues that the economic activity of companies engaged in the construction of buildings for housing and/or purchase and sale of land of that type would be disadvantaged without any basis, when compared to that of other companies that have in inventory "land for construction" for buildings intended for commerce, services or industry. In its view, the taxation under item 28.1 of the TGIS of urban residential properties and "land for construction" whose construction is for housing of value equal to or greater than € 1,000,000, even when not a manifestation of luxury by its owners, but a development of its social purpose would be unconstitutional, for violation of the principle of equality.

We shall advance with reason[7]. In fact, companies with this social purpose inexorably need to acquire "land for construction" to carry out their social purpose, so that it is not possible to argue that they demonstrate an additional ability to pay. Furthermore, the taxation has no connection with the actual income from the commercial activity of these companies and persists even in those years in which there are losses, accentuating its intensity. Thus, we find no reasons to impose this additional taxation on companies engaged in the purchase and sale of land for construction and resale.

In this line, no grounds are found to differentiate companies engaged in the sale of land for construction of residential buildings and those that sell them for other purposes. Consequently, item 28.1 of the TGIS embodies an unjustified negative discrimination of companies engaged in the purchase and sale of land for construction and resale, in violation of the principle of equality and, as such, materially unconstitutional.

Consequently, item 28.1 of the TGIS in the wording as of the date of the taxable event is materially unconstitutional, in so far as it subjects to Stamp Duty taxation the ownership of "land for construction" whose VPT is greater than € 1,000,000, in so far as it applies to cases in which "land for construction" belongs to companies engaged in the purchase and sale of land for construction and resale.

Thus, the assessment subject of the present request is vitiated by the defect of violation of law, by manifesting error as to the legal assumptions in applying a materially unconstitutional provision, which supports its annulment.

Reimbursement of Stamp Duty paid and indemnificatory interest

The Claimant requests reimbursement of the amount of € 18,523.40 relating to the 2014 Stamp Duty assessment and the payment of indemnificatory interest.

To this end, article 100 of the General Tax Law, applicable by reference of article 29, paragraph 1, letter a) of the RJAT, provides that: "The tax authority is obliged, in case of total or partial merits of complaints or administrative appeals, or of court proceedings in favour of the taxpayer, to immediate and full reconstitution of the situation that would exist if the illegality had not been committed, including the payment of indemnificatory interest, in accordance with the terms and conditions set out in law". That is, judicial annulment of the act implies the destruction of its effects ex tunc, that is to say, everything must be as if it had not been performed.

Now, the reconstitution of the current hypothetical situation supports the obligation to reimburse the tax that was paid. For which reason, in the specific case, in the face of the illegality of the assessment there is indisputably place for reimbursement of the amount of tax paid by the Claimant.

But is it legitimate to pose the following question: and shall the taxpayer be entitled to indemnificatory interest?

Article 43, paragraph 1 of the LGT provides that: "Indemnificatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services that results in payment of the tax debt in an amount greater than that legally due". In other words, there are three requirements for the right to such interest: i) existence of an error in a tax assessment act attributable to the services; ii) determination of such error in a process of gracious complaint or judicial challenge and iii) payment of tax debt in an amount greater than that legally due.

And the payment of indemnificatory interest may be determined in a tax arbitral process as article 24, paragraph 5 of the RJAT admits, provided that, naturally, the above described requirements are met.

But will there be an error attributable to the Tax Authority services when the only defect that is discerned consists in the application of an unconstitutional provision?

The question is answered by case law[8], uniformly and repeatedly, in the following terms: "...unless it is a question of disrespect for constitutional provisions directly applicable and binding, such as those referring to rights, freedoms and guarantees (cf. article 18, paragraph 1, of the CRP), the Tax Authority cannot refuse to apply the provision on the grounds of unconstitutionality (With interest on the question, see the opinions of the Advisory Council of the Attorney General's Office referred to in the Collection of Opinions of the Attorney General's Office, volume V, items 10, 3, 3.2 – respectively, with the headings "Review of constitutionality", "Successive review" and "(Non)application of unconstitutional provision (powers and duties of Public Administration)" – whose doctrine we follow.). That is because the Administration in general is subject to the principle of legality, constitutionally enshrined and the Tax Authority is so also by virtue of the provisions of article 55 of the LGT. In our view, the Tax Authority should await the declaration of unconstitutionality with binding general force, to be issued by the Constitutional Court (CC), pursuant to article 281 of the CRP.

That is, as VIEIRA DE ANDRADE says, "This conflict [between constitutionality and the principle of legality] cannot be resolved through the automatic prevalence of constitutional law over legal law. That is not what is at issue, because what is at stake is not the constitutionality of the law, but the judgment that administrative bodies may make on that constitutionality. On the one hand, the Administration is not an organ of review of constitutionality; on the other hand, the subordination of the Administration to the law is not aimed merely at protecting the rights of individuals, but also the defence and pursuit of public interests [...]. The granting to administrative power of unlimited powers for control of the unconstitutionality of the laws to apply would lead to administrative anarchy, would invert the Law-Administration relationship and would directly violate the principle of separation of powers, as enshrined in our Constitution" (Constitutional Law, Almedina, 1977, p. 270.).

In the same sense, JOÃO CAUPERS affirms that "the Administration does not, in principle, have the power to decide not to apply provisions whose constitutionality gives it doubts, contrary to the courts, to whom falls the duty of diffuse and concrete review of constitutional conformity, as demonstrated by the differences between articles 207º [now 204º] and 266º, paragraph 2, of the Constitution. While the first prevents courts from applying unconstitutional provisions, the second stipulates the subordination of administrative bodies and agents to the Constitution and the law.

It appears clear that the essential difference between the two provisions stems precisely from the fact that it was not intended to entrust the Administration with the task of review of the constitutionality of laws. The performance of such a function by the latter must be seen as exceptional" (The Fundamental Rights of Workers and the Constitution, Almedina, 1985, p. 157.).

We conclude, therefore, that in Portuguese Constitutional Law there is no possibility of the Administration refusing to comply with a provision that it considers unconstitutional, taking the place of organs of review of constitutionality, unless it is a matter of violation of rights, freedoms and guarantees constitutionally enshrined, which is manifestly not the case when the application of a provision possibly violating the principle of non-retroactivity of tax law is at issue...".

Consequently, when an assessment is annulled by virtue of a defect sourced in the application of an unconstitutional provision, there is no error attributable to the Tax Authority services and, as such, the request for indemnificatory interest is denied.

6. DECISION

In these terms it is decided:

i) to find the request for arbitral ruling procedent with respect to the annulment of the assessment in dispute;

ii) to find the request for reimbursement of the amount of € 18,523.40 procedent, condemning the Tax Authority to its complete reimbursement;

iii) to find the request for payment of indemnificatory interest not procedent and, in consequence, to absolve the Tax Authority of such request.

Furthermore, it is determined that notice be given to the Attorney General, for the purposes described in article 280, paragraph 5 of the Constitution of the Portuguese Republic (CRP).

7. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 18,523.40, pursuant to article 97-A of the CPPT, applicable by virtue of the provisions of article 29, paragraph 1, letter a) of the RJAT and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne by the Respondent, in the amount of € 1,224, cf. article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT.

Let notice be given.

Lisbon, 29 June 2016

The arbitrator,

(Francisco Nicolau Domingos)

ARBITRAL DECISION

(Following the Constitutional Court Ruling)

REPORT

A..., Lda., taxpayer no. ..., with registered office in ... – R/C, Lisbon, hereinafter designated as Claimant, submitted on 30/07/2015 a request for arbitral ruling.

His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD), appointed on 20/10/2015 as arbitrator, Francisco Nicolau Domingos.

On 04/11/2015 the arbitral tribunal was constituted.

In compliance with the provisions of article 17, paragraphs 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 09/11/2015 to, if it so wished, submit a response, request the production of additional evidence and remit the administrative file.

On 14/12/2015 the Respondent submitted its response.

The Claimant on 15/01/2016 formulated a request in which it requested the joining of documents evidencing payment of the 3rd instalment of the Stamp Duty levy subject of these proceedings and proof of payment of the 3rd instalment of the Municipal Property Tax (IMI) levy of the property hereinafter indicated.

The tribunal on 21/03/2016, by order, admitted the joining of such documents.

On 22/03/2016, the tribunal decided to waive the holding of the meeting to which article 18, paragraph 1 of the RJAT refers, on the grounds of the principle of the autonomy of the arbitral tribunal in the conduct of the proceedings and in the determination of the rules to be observed in order to obtain, within a reasonable period, a ruling on the merits of the claims formulated, cf. article 16, letter c) of the RJAT, granted a period for the parties, if they so wished, to submit final written submissions and designated the deadline for issuing the arbitral decision.

By order dated 03/05/2016 and with the grounds described therein the tribunal extended, for 2 months, the deadline for issuing the arbitral decision.

CASE MANAGEMENT

The proceedings are not vitiated by nullities, no questions have been raised that prevent the consideration of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claim, consequently verifying the conditions for the final decision to be rendered.

SUBJECT MATTER OF THE DISPUTE

The Claimant alleges, in the first place, that the assessment omitted legal formalities, namely the absence of the author of the act and the absence of prior hearing.

Thus, it states that the collection notes do not contain all the elements that must necessarily be notified to the taxpayer, which include the indication of the author of the act and, should it have been performed in the exercise of delegated or sub-delegated powers, the capacity in which the author decided, the absence of such essential elements that justify the allegation of nullity of the assessment.

Furthermore, it invokes the omission of another essential formality, since the Claimant was not notified to exercise its right to a hearing, which, in its view, article 60, paragraph 1, letter a) of the General Tax Law (LGT) imposed.

Second, the Claimant attributes to the disputed assessment a duplication of collection, in so far as the taxable event that justified the imposition of Stamp Duty and IMI was the same, namely ownership on 31 December 2014 of the property registered in the urban property matrix of the parish of ..., municipality of Lisbon, under article ... . It further states that the period in question was exactly the same for the two aforementioned taxes, the year 2014 – 31 December.

Subsequently, it alleges that there is an error as to the legal assumptions, in so far as the "land for construction" subject to taxation is not intended exclusively for the construction of housing, but also for commerce and services and, as such, would be excluded from the incidence of item 28.1 of the General Table of Stamp Duty (TGIS).

Fourth, the Claimant argues that the assessment applied an unconstitutional provision and that it should be disapplied to the situation sub judice.

Thus, it begins by arguing that companies engaged in the purchase for resale of "land for construction" or engaged in the construction of buildings would be negatively discriminated against in relation to others that do not engage in such activity, given that "land for construction" is inventory for companies with such corporate purpose. Arguments that it uses to argue that item 28.1 of the TGIS, as redrafted by Law no. 83-C/2013, of 31 December, is unconstitutional, for violation of the constitutional principles of legality, justice, equality and impartiality, described in article 266, paragraph 2, article 13 and article 104, paragraph 3, all of the Constitution of the Portuguese Republic (CRP).

The Claimant further discerns another unconstitutionality in item 28.1 of the TGIS, when it establishes taxation of the ownership of land intended for housing, whose taxable property value (VPT) is greater than € 1,000,000 and the non-taxation of the ownership of other land intended for a purpose other than housing, with an identical or even higher VPT, creating discrimination without any basis or kind. And, as such, it violates the principle of tax equality and the principle of ability to pay that derives from it. To support this conclusion it further argues that there is an absolute equality of circumstances, on the fiscal plane, between the position of taxpayers who own "land for construction" whose construction will have a residential purpose and the position of taxpayers who own "land for construction" whose construction will have a purpose for services or industry.

It further adds that the incidence of item 28.1 of the TGIS on properties with actual residential purpose, which does not include "land for construction" departs from the principles of reinforcement of social equity, effective distribution of sacrifices and equality, in so far as nothing justifies that "...the owner of a property with residential purpose with a VPT of € 1,000,000 be charged € 10,000 of Stamp Duty and the owner of a set of properties whose total VPT amounts to € 50,000,000 be charged absolutely nothing, for the sole reason that none of the properties that make up that total VPT..." has, individually, a VPT equal to or greater than € 1,000,000.

It concludes by petitioning for the payment of indemnificatory interest as a result of error attributable to the services at the time of assessment.

The Respondent, in its response, begins by saying that, with respect to the absence of the author of the assessment act, the Claimant understood its content, having attributed, in particular, to the assessment in dispute the defect of violation of law, duplication of collection and a list of unconstitutionalities. For which reason, the defect, if it exists, should be deemed cured.

Second, as to the absence of prior hearing, it states that the assessment does not call into question the VPT. For this reason, in its view, the disputed assessment merely applies a fixed rate to the VPT fixed following the submission of a declaration by the Claimant and, as such, the Respondent was, in light of article 60, paragraph 2, letter a) of the LGT, dispensed in this case from granting the right to a hearing to the Claimant.

As for duplication of collection, it argues that not only is the tax underlying the assessments not the same, but it also proves debatable that there is a single taxable event, in so far as, in its opinion, IMI taxes "...the holding of any real property per se indistinctly..." while Stamp Duty "...relates to the existence of real property in view of its purpose and its taxable property value above a threshold of € 1,000,000.00 as manifestations of ability to pay/superior wealth of certain owners".

Fourth, it argues that the assessment does not suffer from error as to the legal assumptions, given that the taxable property value of the part of the property that will be allocated to housing is the principal or preponderant one and that in the calculation of the VPT different allocation coefficients were used and not solely and exclusively that relating to allocation for housing. It adds, to this end, that the Lisbon Tax Service ... transmitted that the disputed Stamp Duty assessment will be corrected in accordance with the proportion of the residential purpose in question.

Finally, as regards the question of disrespect for item 28.1 of the TGIS with the constitutional principle of equality, by negative discrimination against companies engaged in the activity of purchase of land for resale, no such unconstitutionality is found, in so far as the historical and exceptional circumstances that presided over the construction of such a provision, associated with the fact that it causes the tax to apply, regardless of the nature of the owner, usufructuary or superficiaries, impose such conclusion.

As for the second question of unconstitutionality formulated by the Claimant, it points out that the taxation of land intended for housing, whose VPT is greater than € 1,000,000 and the non-taxation of the ownership of other land intended for a purpose other than housing, with an identical or even higher VPT constitutes a legitimate choice of the legislator and that it applies indistinctly to all instances in which the legal and factual assumptions are met.

On the other hand, as regards disrespect by item 28.1 of the TGIS of the constitutional principles of social equity, effective distribution of sacrifices and equality, it argues that, in this context, it is necessary to frame it in the historical and chronological context in which it arose, that is, one of evident difficulties in public accounts and budgetary containment. For which reason, the legislator intended, in 2012, with the provision of such item to rebalance the distribution of sacrifices so that these did not fall solely on those taxpayers who live on the income from their work.

It concludes by arguing that the assessment in dispute does not arise from any error by the services but results from the application of law, so that, in its view, there is no error attributable to the services.

In this sequence, the Claimant requests that:

  • The nullity of the assessment be recognised insofar as the collection notes do not contain all the essential elements that must necessarily be notified to the taxpayer;

  • The assessment be annulled by virtue of the absence of prior hearing constituting an omission of essential formality;

  • The assessment subject of these proceedings be annulled, as a result of duplication of collection;

  • The assessment be annulled for error as to the legal assumptions;

  • The illegality of the Stamp Duty assessment act sub judice be declared because based on unconstitutional provisions, and that it be annulled;

  • Item 28.1 of the TGIS be disapplied, in this specific case, for manifest unconstitutionality, by virtue of violation of the constitutional principle of equality;

  • The Tax Authority be condemned to reimburse the Claimant for the amount of Stamp Duty paid;

  • The Tax Authority be condemned to pay, to the Claimant herein, indemnificatory interest, at the legal rate, until complete reimbursement of the amount due and calculated on the tax paid.

4. MATTERS OF FACT

4.1. Facts deemed proved

4.1.1. The Claimant is the owner of the property registered in the urban property matrix under article ..., parish of ..., Lisbon, registered as "land for construction".

4.1.2. Such property had a taxable property value (VPT) of € 1,852,340.00 on 31 December 2014.

4.1.3. The Claimant is engaged in the purchase of properties for construction and resale.

4.1.4. The Claimant was notified of the Stamp Duty assessment of the property described in 4.1.1., relating to the year 2014, in the total amount of € 18,523.40.

4.1.5. The Tax Authority notified the Claimant to pay such amount as follows: i) 1st instalment in the amount of € 6,174.48; 2nd instalment in the amount of € 6,174.46 and 3rd instalment in the amount of € 6,174.46.

4.1.6. The Claimant proceeded to pay the 1st and 2nd instalments on 02/07/2015 and the 3rd on 04/11/2015.

4.1.7. The Tax Authority assessed IMI on such property, relating to the year 2014, in the amount of € 5,557.02.

4.1.8. The property described in 4.1.1. corresponds to lot ... of subdivision licence no. .../2005, issued by the Lisbon Municipal Council.

4.1.9. In such licence the following specifications are stated: implementation area of the lot – 1,988 m²; construction area – 5,188 m² (being 3,900 m² for housing, 784 m² for commerce and 504 m² for services).

4.2. Facts not deemed proved

4.2.1. That the assessment was corrected so as to consider in its scope only the proportion of the residential purpose of the property in question.

There are no other facts with relevance for the arbitral decision that have not been deemed proved.

4.3. Justification of the matters of fact deemed proved

The matters of fact deemed proved are sourced in the documents used for each of the alleged facts and whose authenticity was not called into question.

4.4. Justification of the matters of fact not deemed proved

The Respondent did not join to the proceedings a document with the corrected Stamp Duty assessment.

5. MATTERS OF LAW

First, the Claimant attributes to the assessment the omission of legal formalities, the absence of the author of the act and the absence of prior hearing. Let us see if with reason.

Absence of the author of the act

The doctrine sustains, as to the requirements of the decision in the tax procedure, that: "The decision of the tax procedure, being an act defining the position of the tax authority in relation to individuals, must comply with the general requirements of administrative acts, set out in article 123 of the Code of Administrative Procedure. (....) Pursuant to paragraph 2 of this article 123, all these mentions must be stated in a clear, precise and complete manner, so that the meaning and scope of the act and its legal effects can be unequivocally determined. Non-compliance with the provisions of these provisions is liable to lead to the annulment of the act for a form defect. However, it should be taken into account that defects may be deemed cured when it is demonstrated that, despite the imprecision or omission or irregularity of the content of the act, the objective intended to be achieved with the imposition of this content was attained, in particular that its recipient correctly understood its exact scope", DIOGO LEITE CAMPOS/BENJAMIM SILVA RODRIGUES/JORGE LOPES DE SOUSA, General Tax Law – annotated and commented, 4th edition, Encontro da escrita publisher, 2012, p. 674.

Now, in the specific case, if it is true that there is no indication of the author of the act in the assessment, it is equally true that the Claimant understood its exact scope despite such omission. So much so that the present request for arbitral ruling contains 110 articles, in which the Claimant alleges, in particular, the nullity of the assessment, petitions for its annulment and invokes the unconstitutionality of item 28.1 of the TGIS. For which reason, such defect is deemed cured.

Absence of prior hearing

Second, it attributes to the act in dispute the absence of prior hearing, in so far as, in its view, the Tax Authority should have allowed it to express itself before the assessment.

Article 60, paragraph 1, letter a) of the LGT provides that: "The participation of taxpayers in the formation of decisions affecting them may be carried out, whenever the law does not prescribe otherwise, in any of the following forms: a) Right of hearing before assessment;...". Furthermore, article 60, paragraph 2, letter a) of the same statute provides that: "Hearing is dispensed with: a) In the case of assessment being made on the basis of the taxpayer's declaration...".

In the case at hand, the assessment placed in dispute with the request for arbitral ruling is based on item 28.1 of the TGIS which aims to tax the property, usufruct or right of superficies of properties with residential purpose and with a VPT equal to or greater than € 1,000,000. Thus, the taxable value is precisely the VPT. Now, this VPT was assessed in accordance with the Municipal Property Tax Code (CIMI) and on the basis of the Claimant's initiative, with the submission of the declaration for this purpose, in IMI form 1. In this line, following the submission of the aforementioned declaration the Claimant was not prevented from participating in the assessment of the property through a request for second assessment or by challenging the act of determination of the VPT. Consequently, if the assessment applies a fixed rate to a VPT resulting from the Claimant's declaration and with its participation, it is considered that the Tax Authority enjoys, in this case, the right to dispense with prior hearing[8], cf. article 60, paragraph 2, letter a) of the LGT.

Duplication of collection

The Claimant argues in this context that the Stamp Duty assessment subject of these proceedings constitutes a duplication of collection, given that this Stamp Duty has the same nature as IMI, applies to the same property, applies to the same VPT, applies to the same fact, relates to the same period, and the holder of the ownership right is the same and the IMI assessment amount has been paid, there can only be duplication of collection.

Article 205, paragraph 1 of the Code of Tax Procedure and Process (CPPT) provides that: "There shall be duplication of collection for the purposes of the preceding article when, a tax being paid in full, another of equal nature is required from the same or different person, relating to the same taxable event and the same period of time".

The doctrine sustains as to the purpose of duplication of collection that the objective "...is to prevent the repeated collection of the same tax"[9] and that "Duplication of collection results from the application of the same legal provision more than once to the same taxable event or concrete tax situation. However, it becomes necessary that the factual reality underlying the plurality of assessments be the same,..."[10].

Thus, duplication of collection requires the cumulative fulfilment of the following requirements: i) that the tax be paid; ii) that another tax or another tax of equal nature be required from the same or different person and iii) that such tax relate to the same period of time.

An institute distinct from duplication of collection is double taxation, which occurs when two taxes apply to the same taxable event, and in some instances there may not be a double collection of the same tax. More specifically, if the legislator intended that the same taxable event constituted the basis of incidence for more than one tax[11].

In the specific case, we verify that on the Claimant's property, classified as "land for construction", two taxes were assessed, IMI and Stamp Duty – item 28.1 and that IMI and Stamp Duty have already been paid.

Let us then see if the factual reality underlying the IMI and Stamp Duty – item 28.1 assessments is the same.

IMI is a tax that "...applies to the taxable property value of rural and urban properties located in Portuguese territory...". As regards item 28.1 of the TGIS, the legislator intended to introduce a taxation for the wealth manifested in the ownership, usufruct or surface right of residential urban properties and higher-value land for construction.

Indeed, the legislative purpose of item 28 of the TGIS, introduced by Law no. 55-A/2012, of 29 October, was thus evidenced in case law: "...from its "spirit", apprehendable in the statement of reasons of the bill that is the source of Law no. 55-A/2012 (...) nothing more emerges than the concern to secure new tax revenue, on sources of wealth "more spared" in the past from the tax authorities' reach than income from work, in particular capital income, securities gains and property...", ruling of the Supreme Administrative Court handed down in the context of case 048/14, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA served as rapporteur.

Now, if that is so, it is clear that the legislator manifested the intention to apply two rules of incidence to the same taxable event.

For which reason, the tribunal understands that there is no duplication of collection, but at most double taxation, as a result of there being rules of incidence, of different taxes, that apply to the same taxable event, by express will of the legislator.

Error as to the legal assumptions

Fourth, it is necessary to trace the chronology of the life of item 28.1 of the TGIS. In fact, in 2012, through Law no. 55-A/2012, of 29 October, the legislator decided to add a taxable event to Stamp Duty, with a view to taxing properties of high taxable property value and with the objective of increasing state revenue in a context of absolute economic recession.

To this end the initial wording of the item described was as follows:

"28 – Property, usufruct or right of superficies of urban properties whose taxable property value appearing in the matrix, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 – on the taxable property value used for IMI purposes:

28.1 – For a property with residential purpose...".

Thus, properties that: i) were urban and ii) had a taxable property value equal to or greater than € 1,000,000 became subject to Stamp Duty.

It happened that, still during the validity of such wording, the interpretation promoted by the Tax Authority indicated that properties that were already constructed and dedicated to housing, as well as land already classified as for construction in areas in which the type of construction foreseen is housing, became subject to such taxation.

It occurred that this interpretation was reiterated and systematically rejected by state and arbitral case law, as are examples thereof, the rulings of the Supreme Administrative Court handed down in case 1870/13, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA served as rapporteur, case 46/14, of 14/05/2014, in which Counsellor ASCENSÃO LOPES served as rapporteur and case 0272/2014, of 23/04/2014, in which Counsellor PEDRO DELGADO served as rapporteur.

The truth is that the legislator, through the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), altered the wording of the Stamp Duty item under analysis, broadening the scope of application in order to expressly include "land for construction" where construction for housing is planned or approved, always on the condition that such land has a VPT higher than € 1,000,000. For this reason, today, "land for construction" whose authorised or planned construction is for housing are subject to the taxation provided for in item 28.1 of the TGIS[12], the provision of incidence requiring proof that the right to construction is already determined by the action of a public entity, since such right is only constituted when that entity authorises the owner to construct or subdivide[13].

In summary, the incidence of Stamp Duty on "land for construction" requires, not only mere ownership, but also the issuance of an administrative title that authorises, in particular, such owner to construct or subdivide.

In the specific case, the Claimant argues that the assessment is illegal, given that its property is intended, not only for the construction of housing, but also for commerce and services. To this end, the Respondent argues that the Lisbon Tax Service..., has already informed the Legal Advisory and Litigation Department that the assessment will be corrected, taking into account the proportion of the residential purpose in question. The truth is that, if such occurred, notice was not given in these proceedings.

Nevertheless, the item determines that the tax applies to "...the taxable property value used for IMI purposes..." and on such matter the rate of 1% should apply "...for land for construction whose construction, authorised or planned, is for housing, pursuant to the provisions of the Municipal Property Tax Code...". However, even when the authorised or planned construction for the land is not exclusively for housing it is the VPT, the only one that exists prior to construction. That is, even if the authorised or planned construction for the land is in fractions capable of independent use, which are considered autonomously for IMI purposes, as provided in article 12, paragraph 3 of the CIMI and the VPT of the land computes the value of the authorised or planned buildings, it is the VPT that the rule of incidence marks as being used to determine the scope of the tax.

For which reason, item 28.1 of the TGIS determines that what must be taken into account, within the scope of the tax incidence, is the VPT of the land. Thus, here too the Claimant's allegation that there is a violation of law does not hold. This is hereby declared.

In strict terms, there is also no need to deduct the percentage of taxable matter corresponding to the m² of construction of the building not intended for housing, given that the VPT is the only assumption that item 28.1 of the TGIS requires to be considered and the only one that exists prior to construction. In fact, article 67, paragraph 2 of the Stamp Duty Code imposes that the provisions of the CIMI be observed, and in such statute, article 7, paragraph 2 determines that the taxable matter corresponds to its VPT, not allowing relevance to be attributed to partial values of the property, even if economically independent. In sum, the incidence is on the VPT in such tax and for that matter, it also is in the context of assessment of item 28.1 of the TGIS.

5.5. Question of disrespect for item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", by negative tax discrimination against companies engaged in the purchase of land for construction and resale

In this context, it is first necessary to determine whether there is incompatibility of item 28.1 of the TGIS with the constitutional principle of equality, in the segment relating to "land for construction", by negative discrimination against companies that habitually engage in the activity of purchase and sale of land for construction and resale.

To this end, the Claimant argues that the economic activity of companies engaged in the construction of buildings for housing and/or purchase and sale of land of that type would be disadvantaged without any basis, when compared to that of other companies that have in inventory "land for construction" for buildings intended for commerce, services or industry. In its view, the taxation under item 28.1 of the TGIS of urban residential properties and "land for construction" whose construction is for housing of value equal to or greater than € 1,000,000, even when not a manifestation of luxury by its owners, but a development of its social purpose would be unconstitutional, for violation of the principle of equality.

We shall advance with reason[14]. In fact, companies with this social purpose inexorably need to acquire "land for construction" to carry out their social purpose, so that it is not possible to argue that they demonstrate an additional ability to pay. Furthermore, the taxation has no connection with the actual income from the commercial activity of these companies and persists even in those years in which there are losses, accentuating its intensity. Thus, we find no reasons to impose this additional taxation on companies engaged in the purchase and sale of land for construction and resale.

In this line, no grounds are found to differentiate companies engaged in the sale of land for construction of residential buildings and those that sell them for other purposes. Consequently, item 28.1 of the TGIS embodies an unjustified negative discrimination of companies engaged in the purchase and sale of land for construction and resale, in violation of the principle of equality and, as such, materially unconstitutional.

Consequently, item 28.1 of the TGIS in the wording as of the date of the taxable event is materially unconstitutional, in so far as it subjects to Stamp Duty taxation the ownership of "land for construction" whose VPT is greater than € 1,000,000, in so far as it applies to cases in which "land for construction" belongs to companies engaged in the purchase and sale of land for construction and resale.

Thus, the assessment subject of the present request is vitiated by the defect of violation of law, by manifesting error as to the legal assumptions in applying a materially unconstitutional provision, which supports its annulment.

Reimbursement of Stamp Duty paid and indemnificatory interest

The Claimant requests reimbursement of the amount of € 18,523.40 relating to the 2014 Stamp Duty assessment and the payment of indemnificatory interest.

To this end, article 100 of the General Tax Law, applicable by reference of article 29, paragraph 1, letter a) of the RJAT, provides that: "The tax authority is obliged, in case of total or partial merits of complaints or administrative appeals, or of court proceedings in favour of the taxpayer, to immediate and full reconstitution of the situation that would exist if the illegality had not been committed, including the payment of indemnificatory interest, in accordance with the terms and conditions set out in law". That is, judicial annulment of the act implies the destruction of its effects ex tunc, that is to say, everything must be as if it had not been performed.

Now, the reconstitution of the current hypothetical situation supports the obligation to reimburse the tax that was paid. For which reason, in the specific case, in the face of the illegality of the assessment there is indisputably place for reimbursement of the amount of tax paid by the Claimant.

But is it legitimate to pose the following question: and shall the taxpayer be entitled to indemnificatory interest?

Article 43, paragraph 1 of the LGT provides that: "Indemnificatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services that results in payment of the tax debt in an amount greater than that legally due". In other words, there are three requirements for the right to such interest: i) existence of an error in a tax assessment act attributable to the services; ii) determination of such error in a process of gracious complaint or judicial challenge and iii) payment of tax debt in an amount greater than that legally due.

And the payment of indemnificatory interest may be determined in a tax arbitral process as article 24, paragraph 5 of the RJAT admits, provided that, naturally, the above described requirements are met.

But will there be an error attributable to the Tax Authority services when the only defect that is discerned consists in the application of an uncon

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the General Stamp Tax Table (TGIS) and how does it apply to building land (terrenos para construção)?
Item 28.1 of the TGIS imposes annual Stamp Tax on ownership of urban property or building land (terrenos para construção) intended for residential purposes with a taxable property value exceeding €1,000,000. The tax applies at progressive rates: 1% on values between €1,000,000-2,000,000, increasing to 1.5% above €2,000,000. The critical interpretative issue concerns whether land designated partially for non-residential purposes (commerce, services, industry) falls within the scope. The provision targets high-value residential property ownership as a manifestation of superior economic capacity, but excludes purely commercial or industrial land, creating potential discrimination issues when mixed-use development is intended.
Can a CAAD arbitral decision be reformed following a ruling by the Portuguese Constitutional Court?
Yes, CAAD arbitral decisions can be reformed following Constitutional Court rulings. This case exemplifies that procedural mechanism—the original arbitral decision of June 29, 2016 was reformed pursuant to the Constitutional Court's judgment of November 7, 2018. When the Constitutional Court declares provisions unconstitutional or interprets constitutional questions arising from arbitral decisions, the CAAD tribunal must reform its decision accordingly to align with constitutional determinations. This ensures arbitral decisions comply with constitutional standards and reflects the hierarchical relationship between constitutional jurisprudence and administrative arbitration, maintaining the supremacy of constitutional interpretation while preserving the specialized arbitral framework for tax disputes.
Is the lack of identification of the author of a tax assessment (falta de autor do acto) grounds for annulment of a Stamp Tax liquidation?
The absence of identification of the author (falta de autor do acto) in tax assessments constitutes a formal irregularity but does not automatically result in nullification. The Tax Authority argued that any such defect was cured because the claimant clearly understood the assessment's content and substance, as evidenced by detailed substantive challenges regarding legal grounds, double taxation, and constitutionality. Portuguese administrative law applies the principle that formal defects are deemed cured when the taxpayer comprehends the act sufficiently to exercise defense rights effectively. However, identification of the decision-maker and their delegated authority remains a legal requirement under administrative procedure principles. The defect's severity depends on whether it materially prejudiced the taxpayer's ability to challenge the assessment or identify the competent authority.
Does the absence of a prior hearing (audiência prévia) constitute a procedural defect in Stamp Tax assessments on high-value properties?
The absence of prior hearing (audiência prévia) does not necessarily constitute a procedural defect in Stamp Tax assessments on high-value properties. Article 60(1)(a) of the General Tax Law (LGT) requires prior hearing before acts adversely affecting taxpayers' rights, but Article 60(2)(a) exempts assessments based exclusively on taxpayer-submitted declarations. The Tax Authority successfully argued that the Stamp Tax assessment merely applied statutory rates to the taxable property value (VPT) previously declared by the claimant for IMI purposes, without questioning or redetermining that value. Since no new factual determination occurred and the tax derived automatically from the declared VPT, prior hearing was legally dispensable. This interpretation balances procedural rights against administrative efficiency where assessments involve straightforward application of law to undisputed taxpayer-provided data.
How did the Constitutional Court's November 2018 ruling affect the original June 2016 arbitral decision in Process 529/2015-T?
The Constitutional Court's November 7, 2018 ruling required reformation of the original June 29, 2016 arbitral decision, fundamentally altering the legal framework applied to the case. While the specific constitutional determinations are not detailed in the excerpt, the Court evidently addressed one or more constitutional challenges raised by the claimant regarding Item 28.1 TGIS—potentially concerning discrimination between residential and non-residential land, taxation of inventory held by real estate companies, or threshold-based inequalities. The reformation process obligated the arbitral tribunal to reconsider its original reasoning and conclusions in light of the Constitutional Court's authoritative interpretation of constitutional principles governing tax equality, ability to pay, and non-discrimination. This demonstrates the binding effect of Constitutional Court jurisprudence on pending tax disputes and the flexibility of arbitral procedure to incorporate supervening constitutional determinations.