Stamp Tax on Building Land Over €1M: CAAD Rules on Verba 28.1 TGIS Exemption (533/2016-T)

ARBITRAL AWARD

REPORT

Initial Proceedings

On 30-08-2016, the company A… S.A. (hereinafter only "A…" or "Claimant") with the collective identification number …, with registered office at Avenida …, n.º…, …, …-… Lisbon, and whose local peripheral office is the Tax Office of Lisbon-…, came, pursuant to the provisions of article 10.°, no. 1, letter a) of Decree-Law No. 10/2011, of 20 January (hereinafter "Tax Arbitration Regime" or "RJAT") and Ordinance No. 112-A/2011, of 22 March, to request the constitution of a Collective Arbitral Tribunal against the Respondent Tax and Customs Authority (hereinafter designated as "Respondent" or "TA").

The application for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and was automatically notified to the Tax and Customs Authority. Pursuant to the provisions of letter a) of no. 2 of article 6.° and letter b) of no. 1 of article 11.° of Decree-Law No. 10/2011, of 20 January, as amended by article 228.° of Law No. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period, and notified the parties of such designation on 03-11-2016.

Thus, in accordance with the provisions of letter c) of no. 1 of article 11.° of Decree-Law No. 10/2011, of 20 January, as amended by article 228.° of Law No. 66-B/2012, of 31 December, it is hereby communicated that the collective arbitral tribunal was constituted on 18-11-2016, following the applicable legal procedures.

Request and Subject Matter

The claimant requests a declaration of illegality of Stamp Tax (IS) assessment acts relating to the year 2015, by application of item 28.1 of the General Table of Stamp Tax (hereinafter "GTST") in the total amount of € 113,358.34 (one hundred and thirteen thousand, three hundred and fifty-eight euros and thirty-four cents), relating to the following two urban properties of the type "land for construction":

• The property registered in the property register of the parish of … under article …, located at Rua …, n.º…, in Lisbon, with the levy of € 84,768.67, as per collection notes numbered 2016…, 2016… and 2016… for payment, respectively, of the 1st, 2nd and 3rd installments;

• The property registered in the property register of the parish of …, in Setúbal, under article…, located at …, with the levy of € 28,589.67, as per collection notes numbered 2016…, 2016… and 2016…, also for payment of the 1st, 2nd and 3rd installments.

The Claimant requests the annulment of the said IS assessment acts, the refund of the tax improperly paid and the payment of the respective indemnity interest, all based on the following grounds:

• The subjection of land for construction with VPT exceeding one million euros is expressly established when there is construction, authorized or planned, for residential purposes, but not for land for construction without any authorized or planned construction, which cannot be subject to item 28.1 of the GTST[1];

• The taxation of land for construction only commenced with the wording given by Law No. 83-C/2013 of 31 December to item 28.1 of the GTST, whereby in the initial normative concept of urban property with residential use,[2] land for construction was not included;

• Only with the amendment to item 28.1 of the GTST did property used for residential purposes and land for construction whose construction, authorized or planned, is for residential purposes, with VPT exceeding 1 million euros become clearly and expressly subject to Stamp Tax (objective scope) - conversely, land for construction without any authorized or planned construction cannot be subject to this item;

• Shifting the focus to the analysis and substantiation of the normative concept of "authorized or planned construction," the Claimant states that "the indeterminacy of the concept of planned construction is incompatible with the legal and constitutional requirement that the objective scope of the tax be determined by Law," adding that the legislator's choice to subject to Stamp Tax only land for construction with construction authorized or planned for residential purposes also calls into question the principles of tax equality and contributive capacity, constitutionally enshrined, and does not meet the requirements set forth in the General Tax Law (GTL) and in the Constitution of the Portuguese Republic (CPR) regarding the respective objective scope.

• It further argues that, regarding the cadastral article …, an application for construction of a residential and commercial building (mixed property) was filed with the Municipal Council of… in 2009, a license which, for not having been used, expired. Since it is a mixed property, in the sense of not exclusively residential, the Claimant alleges that, for this land for construction, the designation will be mixed, with one part of the property potentially designated for services and another for residential use.

• As for the cadastral article…, the Claimant contends that it has no authorized or planned construction whatsoever and that, for that reason, the respective Stamp Tax assessment should be annulled;

• The Claimant further invokes what it designates as "the principle of equality and uniformity of decision," citing the decision on the same properties rendered in the context of the CAAD case No. 578/2015-T, where it was successful, with the Stamp Tax assessments at issue being annulled.

• Following this, the Claimant requests:

a) a declaration of illegality and consequent annulment of the Stamp Tax assessments, in the total amount of € 113,358.34, relating to the year 2015 and to item 28.1 of the GTST, relating to two urban properties (land for construction);

b) the refund of the tax improperly paid;

c) and the condemnation of the TA to payment of indemnity interest, under the terms of art. 43.° of the GTL, from the date of payment of the tax until its effective reimbursement.

Notified for this purpose, the TA filed its Response defending the maintenance of the disputed tax acts, requesting dismissal of the claim, and arguing that the Claimant's properties have the characteristics set out in the definition of land for construction for purposes of applying item 28.1 of the GTST, in the wording given by Law No. 83-C/2013, that is, land for construction whose planned construction is for residential purposes, under the terms set forth in the Property Tax Code (PTC). In summary, it presents the following arguments:

• With regard to the urban property with cadastral article … of the parish of …, municipality of Lisbon, it has the characteristics set out in the definition of land for construction for the purpose of item 28.1 of the GTST, since "it appears in the administrative file sent by the Local Tax Office … of Lisbon, that in 2009, an application was delivered by the now claimant to the Head of the mentioned TF, in which it attached a document certifying the constructability of the property issued by the Municipal Council of Lisbon on 9 October 2009." In such document, which, according to the TA, results from a Prior Information Request, issued by the competent entity, but which is entitled "General Conditions for Urban Development Operation," "it states that the land situated in the Street and Zone in question has multiple classifications and zoning regulations, and any project for any purpose must comply with a myriad of legal norms, but, with relevance for this instance, attention is drawn to the fact that the plot in question integrates the «Plan for Conservation, Reconstruction and Urban Rehabilitation Lisbon-…», which is already in terms of approved reference terms and plans."

• With respect to the second urban property, with cadastral article…, of the parish of …, municipality of Setúbal, the Respondent considers that the legal type provided for in item 28.1 of the GTST is met, since this has (had) a project for predominantly residential construction and, furthermore, is "located in a predominantly residential area – as stated in the certification from the M.C. of Setúbal attached to the PA, referring to it as a «Consolidated Urban Space», therefore, the commercial designation will always be a complement to the residential." It further states that, "Thus, even if there were doubts about the residential designation of the land in question, these would be dispelled by its normal destination which, as can be inferred from reading the plan of the PDM, will presumably be the construction of residential buildings."

• It further states that item 28.1 does not violate the principles of tax equality and contributive capacity because it is a general and abstract norm, applicable indistinctly to all cases in which the factual and legal presuppositions are met, in accordance with the Constitution and the Law. It extends this defense also to the matter of tax typicality.

In the timely filed statements, the Claimant came to contradict the TA's understanding with respect to the two urban properties in question, stating that, in the case of the urban property with cadastral article…, of the parish of …, municipality of Lisbon, "the document attached by the IRFP, which constitutes the response to a «Request for Information», requested by A… under the principle of open administration, embodied in article 17.° of the Code of Administrative Procedure ("CAP"), and not of a Prior Information Request ("PIR") as, certainly by mistake, the IRFP refers." Thus, the Claimant reiterates that, having not requested from the Municipal Council of Lisbon any license for construction of a building destined for residential use – which would certainly be within the concept of authorized construction -, the land for construction in question has no authorized or planned construction for residential purposes. With respect to cadastral article …, of the parish of …, municipality of Setúbal, the Claimant reinforces that, "as demonstrated in PI, by reference to this property, an application for construction of a residential and commercial building was filed with the Municipal Council of … in 2009. However, for not having been used (…) the said license expired."

PROCEDURAL CLEANSING

Article 3.°, no. 1, of the RJAT provides: "The cumulation of claims, even if relating to different acts, and the joinder of claimants are admissible when the merits of the claims depend essentially on the assessment of the same factual circumstances and on the interpretation and application of the same principles or rules of law."

In the present case, the claims filed have as their object assessments of the same tax – IS. Moreover, there is, in essence, an identity between the factual matters and, further, that the merits of the claim depend on the interpretation of the same principles and rules of law, whereby, under the terms of article 3.°, no. 1, of the RJAT, cumulation of claims is admissible.

As for the rest, the proceedings do not suffer from nullities, no issues have been raised that hinder the assessment of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to rule on and decide the claim, and consequently, the conditions are met for the final decision to be rendered.

FACTUAL MATTERS

III.1 Facts Deemed Proven

The Claimant was notified of the Stamp Tax assessments, already fully paid, relating to the year 2015, in relation to each of the cadastral entries subsequently identified, decomposed as follows:

The properties described in the preceding paragraph are cadastrally registered as "land for construction";

With respect to the property with cadastral article …, Information No. …/DOC/2009 was issued on 30/09/2009 by the Municipal Council of Lisbon, with the following content:

"(….) Subject: Right to Information - General Conditions for Urban Development Operation (….).

In light of the information request made, it is proposed to inform:

1. The planning instrument in force is the Municipal Master Plan, resolution of the Council of Ministers No. 94/94, published in the Official Gazette No. 226, of 29 September 1994.

2. The location in question is classified, under the urban space classification plan, as Historic Estates and Gardens.

The property in question is part of the list of the Municipal Heritage Inventory with the reference 32.21- …/Rua …n.º… .

The lot is located in a Historic Interest Nucleus, and integrates the Riverfront in accordance with the environmental constraints plan.

It is located in an area of Potential Archaeological Value – intervention level 2 according to the Municipal Inventory plan.

It is subject to a Special Protection Zone, therefore requiring consultation with IGESPAR, which means that the procedure to be presented will always be a licensing procedure, regardless of the works to be carried out.

It is further noted that the lot in question integrates the "Plan for Conservation, Reconstruction and Urban Rehabilitation "Lisbon-…", which is already in terms of approved reference terms and plans.

1. Any demolition, alteration or construction work is governed by the Legal Regime for Urbanization and Building – Decree-Law No. 555/99, of 16 December, as amended by Law No. 60/2007, of 4 September.

2. The RPDML establishes in articles 13.°, 14.°, 15.°, 21.°, 23.°, 24.°, 83.° with reference to art. 18.° Section II (Parking and Garages), the norms to be observed in the construction, extension or alteration of buildings.

3. Construction projects must respect the RGEU and other general and municipal legislation in force. (…)" (doc no. 1, attached to the case by the Claimant)."

In this property (article …) a license for construction of a building intended for residential and commercial use was requested and granted...
...a license which expired.

With respect to the property with cadastral article …, the Claimant presented, in 2009, to the Municipal Council of …, an application for construction of a residential and commercial building;

Following this application, the architectural design was approved and a six-month period was granted to request approval of the specialty designs;

As of the date of issuance of the cadastral certificate, attached to the case, no construction had yet been carried out on the property in question.

The Stamp Tax assessments in question, in the amount of € 113,358.34, are fully paid.

2. Facts Not Deemed Proven

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

3. Substantiation of the Decision as to Factual Matters

The decision fixing the factual matters is based on the elements attached to the case by the Parties, as well as on the articulated facts that did not give rise to controversy.

ON THE LAW

The Stamp Tax Code, approved by Law No. 150/99, of 11 September, came into force in March 2000, being significantly amended by Decree-Law No. 287/2003, of 12 November, which republished it. With the reform of property taxation carried out in 2003, Stamp Tax became configured essentially as a tax on operations which, regardless of their materialization, reveal income and wealth, applying to a "heterogeneous multiplicity of facts or acts," without "a common feature conferring identity" (JOSÉ MARIA FERNANDES PIRES, Lessons of Taxes on Property and Stamp Tax, p. 453). This capacity to accommodate within itself taxation of different natures created the way for the legislator to attribute to it a complementary role to other taxes.

As noted by J. SILVÉRIO DIAS MATEUS and L. CORVELO DE FREITAS (Taxes on Real Property – Stamp Tax, p. 251, Lisbon 2005) "stamp tax is configured as a means of reaching manifestations of contributive capacity not covered by the incidence of any other taxes. Not bearing the nature of overlapping taxation, this tax tends to assume a residual function filling spaces left open by income and consumption taxation."

Law No. 55-A/2012, of 29 October, introduced a set of amendments to the codifying instruments of three taxes – PIT, CIT and Stamp Tax – as well as in the General Tax Law, among which the norm now under analysis, all guided toward the supplementary obtaining of tax revenue and, in general, to counter budgetary imbalance. Thus, invoking the principles of social equity and fiscal justice, taxation of income from capital and mobile capital gains was increased, measures were introduced to strengthen the fight against tax fraud and evasion, through strengthening the regime applicable to manifestations of wealth of taxpayers and to transfers to and from tax havens, to which was added the introduction, within the scope of Stamp Tax, of taxation of legal situations (expression added to no. 1 of article 1 of the Stamp Tax Code), which was understood to be capable of bearing increased fiscal burden, thereby distributing more equitably the sacrifice to achieve the budgetary consolidation required of taxpayers.

Thus, with the addition of item no. 28 to the General Table of Stamp Tax by article 4.° of Law No. 55-A/2012, a legal situation was subjected to this tax, embodied in the ownership, usufruct or right of surface of urban property with residential use, whose tax property value recorded in the register, under the terms of the Property Tax Code, is equal to or greater than €1,000,000.00, with a rate of 1% applying to such value.

The wording of item 28.1. was subsequently amended, by way of Law No. 83-C/2013, of 31 December, thereby extending the incidence of Stamp Tax, at the rate of 1%, to "(…) urban property or land for construction whose construction, authorized or planned, is for residential purposes, under the terms set forth in the Property Tax Code."

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

The taxation resulting from the incidence norm contained in item no. 28 assumes the nature of a partial tax (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 507), taking as its tax base the urban property dedicated to residential use, calculating the respective tax property value per relevant legal and economic unit. It does not constitute a general tax on property, or even a tax on all real property, in terms of founding a comparison based on a personalization approach to the tax and from a base that takes into account the entire property of the taxpayer.

From the joint application of no. 4 of art. 2.° of the Stamp Tax Code and no. 1 of art. 8.° of the PTC, it is concluded that the tax fact to which item 28.1 of the GTST refers occurs on 31 December of each year. To that extent, the tax legal relationship will be fixed according to the legislation in force on that same date, irrespective of subsequent amendments that may be in force on the date of the tax assessment. Thus, the Stamp Tax of item 28.1 of the GTST relating to the year 2015, to be assessed in 2016, should be calculated and fixed in accordance with the wording of the norm, introduced by Law No. 55-A/2012, of 29 October, as amended by the State Budget Law/2014 (Law No. 83-C/2013).

Recall the original wording of item 28 of the GTST:

1. Ownership, usufruct or right of surface of urban properties whose tax property value recorded in the register, under the terms of the Property Tax Code (PTC), is equal to or greater than (euro) 1,000,000 - on the tax property value used for purposes of Property Tax:

28.1 Per property with residential use ------------------------------------------------ 1%

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

This wording (original) was the subject of various disputes between the TA and taxpayers, owners of land for construction, with the SAC [Supreme Administrative Court] holding, e.g., in the Award rendered in case No. 048/14, of 09.04.2014, that "(...) the legislator not having defined the concept of "properties (urban) with residential use," and resulting from article 6 of the Property Tax Code (subsidiarily applicable to Stamp Tax provided for in the new item no. 28 of the General Table) a clear distinction between "urban residential properties" and "land for construction," these cannot be considered, for purposes of incidence of Stamp Tax (item 28.1 of the GTST, in the wording of Law No. 55-A/2012, of 29 October), as urban properties with residential use( (...)"

In fact, the concept of "(urban) property with residential use" was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the Property Tax Code, to which no. 2 of article 67.° of the Stamp Tax Code (also introduced by that Law) refers by way of subsidiary application. And it is a concept that, probably owing to its imprecision – a fact all the more serious since it is in function of it that the scope of objective incidence of the new taxation is determined -, had a short life, as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law No. 83-C/2013, of 31 December), which provided new wording to that item no. 28 of the General Table, and which now determines its scope of objective incidence through the use of concepts that are legally defined in article 6.° of the Property Tax Code. This amendment - which the legislator did not attribute interpretive character, nor do we consider that it did nor does the question concern us to address – merely makes unequivocal for the future that land for construction whose construction, authorized or planned, is for residential purposes is covered within the scope of item 28.1 of the General Table of Stamp Tax (provided that its respective tax property value is of value equal to or greater than 1 million euros).

Upon presentation and discussion in the Parliament of the respective measure, the Secretary of State for Fiscal Affairs stated (cf. Parliamentary Gazette, I Series No. 9/XII – 2, of 11 October, p. 32) that: "The Government proposes the creation of a special rate on urban residential properties of higher value. It is the first time in Portugal that a special taxation has been created on properties of high value intended for residential purposes. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to properties worth equal to or greater than 1 million euros" from which it is gathered that the reality to be taxed had in view are, after all, and notwithstanding the imprecision of the legal terminology, "(urban) residential properties," in common language "homes," and not other realities. The fact that it can be considered that in the determination of the tax property value of urban properties classified as land for construction, one should take into account the designation that the construction authorized or planned for it will have for determination of the respective value of the implantation area (cf. nos. 1 and 2 of article 45.° of the PTC), does not determine that land for construction may be classified as "properties with residential use," since "residential use" is always in the Property Tax Code referred to "buildings" or "constructions," existing, authorized or planned, since only these can be inhabited, which does not occur in the case of land for construction, which does not, in itself, have conditions for such, not being susceptible of being used for residential purposes unless and when the construction authorized and planned for them is erected therein (but in that case they will no longer be "land for construction" but another species of urban properties – "residential," "commercial, industrial or for services" or "other" – article 6.° of the PTC).

It would indeed be strange if the determination of the scope of the rule of tax incidence of item no. 28 of the General Table of Stamp Tax were, ultimately, contained in the rules of determination of the tax property value of the Property Tax Code, and that the imprecision of the legislator in drafting that rule were, after all, elucidated and finally clarified by way of a reference, indirect and equivocal, to the designation coefficient established by the legislator in relation to buildings erected (article 41.° of the Property Tax Code). Thus, considering that land for construction – whatever the type and purpose of the building that will be, or could be, erected therein – does not satisfy, by itself, any condition to be licensed as such or for its designation as residential to be defined, and given that the rule of incidence of stamp tax refers to urban properties with "residential use," without any specific concept being established for that purpose, it cannot be extracted therefrom that the same contains a future potentiality, inherent in a distinct property that may possibly be constructed on the land.

In fact, referring to urban properties, no. 1 of article 6.° of the PTC distinguishes various species, dividing them into residential, commercial, industrial or for services, land for construction and other, according to the following criteria: "residential, commercial, industrial or for services" – buildings or constructions licensed for such purposes, or, in the absence of a license, that have as their normal destination each of these purposes (cf. article 6.°, no. 2 of the PTC); "land for construction," land situated within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also land thus declared in the acquisition deed, excepting land on which the competent entities prohibit any of these operations, namely those located in green areas, protected areas, or which, in accordance with municipal land planning plans, are designated for spaces, infrastructure or public facilities" (cf. article 6.°, no. 3 of the PTC, as amended by Law No. 64-A/2008, of 31/12); "Other," as such are considered land situated within an urban agglomeration that are not land for construction nor classified as rustic property, in accordance with its legal concept, and also buildings and constructions licensed, or in the absence of a license, that have as their normal destination other purposes than those mentioned above (cf. article 6.°, no. 4 of the PTC).

In focusing taxation on urban properties "with residential use," the legislator does not in fact establish in the Stamp Tax Code any specific concept that should be considered for this purpose, but instead refers the application of the taxation regime for properties referred to in that item 28 to the rules of the PTC, which establishes a clear distinction between residential properties and land for construction, the former being so classified based on their municipal licensing, or, where this does not exist, as a result of normal use, and the latter are defined based on their legal potentiality.

In this light, land for construction - whatever the type and purpose of the building that will be, or could be, erected on it, including that intended for residential purposes - does not by itself meet the requirement provided in points 28. and 28.1, of the GTST (wording of DL No. 7/2015), that is, that "(...) the construction "authorized or planned, is for residential purposes (...)".

In fact, given that the rule of incidence of stamp tax refers to urban properties with residential use, without any specific concept being established for this purpose, it cannot be extracted therefrom, as previously seen, that the same contains a future potentiality, together with others, inherent in a distinct property that may possibly be constructed on the land.

The expression "with residential use" conveys, in plain reading, an idea of real and present functionality.

On the other hand, the understanding that the concept of "residential use" derives from the rule of article 45.° of the PTC cannot be accepted, since this refers to the rules applicable in determining the tax property value of land for construction, establishing that this is what results from the value of the implantation area of the building to be constructed added to the land adjacent to the implantation. In fixing the value of that area, a percentage, varying between 15% and 45%, of the value of the buildings authorized or planned is considered.

On the other hand again, nothing in the law permits the conclusion that the legislator of stamp tax intended to extend, for purposes of the incidence of this tax, to the species provided for in no. 1 of article 6.° of the PTC, being that the application of a designation coefficient refers to one of the elements to be considered in the evaluation of the land, that is, in the determination of the value of the buildings authorized or planned.

Regardless of whether, in determining the value of the buildings authorized or planned for land for construction, a designation coefficient should or should not be considered, it is admitted, as it is obvious and of general knowledge, that the value of a land is decisively influenced by the type and characteristics of such buildings. However, this is a matter that goes beyond the question on which the present request for arbitral ruling is based.

Under the circumstances referred to, the circumstance that, for a particular land for construction, construction of property intended for residential purposes is authorized, or for any other purpose, even if it should be considered in its evaluation, does not determine any alteration in the classification of the land which, for tax purposes, continues to be considered as such.

As such, since article 6.° of the PTC establishes a clear distinction between, on the one hand, urban residential properties and, on the other hand, land for construction, the latter cannot be considered, for purposes of incidence of stamp tax, as "properties with residential use."

In fact, in this direction the constant and uniform arbitral jurisprudence prior to the new wording of item 28 of the GTST introduced by article 194.° of Law No. 83-C/2013, of 31/12, has been oriented, with this (wording) the provision that the taxation in question came to apply, at the rate of 1%, to residential property or land for construction whose construction, authorized or planned, is for residential purposes.

This amendment to the General Table of Stamp Tax, introduced by article 194.° of Law No. 83-C/2013, of 31 December, insofar as it adds to item 28.1., of the same Table, the reference to "land for construction whose construction, authorized or planned, is for residential purposes, under the terms set forth in the Property Tax Code" and, consequently, determines the incidence of stamp tax, under the terms provided in items 28. and 28.1, on the ownership of land for construction, whose construction, authorized or planned, is for residential purposes and whose tax property value is equal to or greater than €1,000,000.00, does not translate into a normative amendment that justifies substantial alteration of the understanding that prior to the new wording of that norm was being followed by Jurisprudence (emphasis ours).

Subsumption

Now, in light of the evidence produced, it is, to say the least, unclear that the lands in question have authorized or planned constructions of buildings intended exclusively for residential purposes; on the contrary, it was demonstrated that this designation could just as well be residential as for other purposes.

That is: being residential purposes only one of the potentialities of the constructions to possibly be erected on the lands, without demonstrating that there are valid licenses at the date of assessment for those purposes, it entails the exclusion of taxation of the properties in light of article 28., of the GTST (indeed, currently repealed by Law No. 42/2016 – State Budget Law for 2017 – article 210º-2).

In this essential line of orientation, are, as referred to, inter alia the decisions rendered by the Arbitral Tribunals constituted within the framework of CAAD, in cases Nos. 522/2015-T, 532/2015-T, 467/2015-T (citing various awards of the SAC), 578/2015-T, 642/2015-T, 551/2015-T, 2016/2016-T and 412/2016-T, most of them published on the CAAD website (www.caad.org.pt).

V. Moot Questions

In the decision, the judge must rule on all questions that should be assessed, refraining from ruling on questions of which it should not have cognizance (final segment of no. 1 of article 125.° of the CPPT), and the questions on which the powers of cognition of the tribunal are to be exercised are, according to no. 2 of article 608.°, of the CPC, applicable subsidiarily to the tax arbitration proceedings, by referral of article 29.°, no. 1, letter e) of the RJAT, "the questions that the parties have submitted to its assessment, excepting those whose decision is prejudiced by the solution given to others (…)".

Resulting from the foregoing the declaration of illegality of the assessment object of the present proceedings – principal claim -, due to a defect of violation of law that prevents the renewal of the acts, the cognizance of the defects imputed by the Claimant becomes moot.

In fact, article 124.° of the CPPT, applicable subsidiarily by virtue of the provisions of article 29.°, no. 1, of the RJAT, in establishing an order of cognizance of defects, presupposes that, once a defect is judged to be well-founded which ensures the effective protection of the rights of the challengers, it is not necessary to rule on the rest, since, if it were always necessary to assess all the defects imputed to the impugned act, the order of their cognizance would be irrelevant.

For the foregoing, no cognizance is taken of the remaining defects imputed by the Claimant to the acts for which declaration of illegality was sought.

That is: given the solution provided to the question relating to the concept of "property with residential use/land for construction with residential use," the cognizance of the constitutional questions raised by the Claimant becomes moot.

VI. Indemnity Interest

In accordance with the provisions of letter b) of art. 24.° of the RJAT, the arbitral decision on the merits of the claim to which no further recourse or challenge is available binds the tax administration from the end of the period provided for recourse or challenge, and this administration must, in the exact terms of the merits of the arbitral decision in favor of the taxpayer and up to the end of the period provided for the voluntary execution of the decisions of the judicial tax courts, "restore the situation that would exist if the tax act subject of the arbitral decision had not been undertaken, adopting the acts and operations necessary for this purpose," which is in harmony with the provision of art. 100.° of the GTL [applicable by virtue of the provisions of letter a) of no. 1 of art. 29.° of the RJAT] which establishes that "the Tax Administration is obliged, in case of total or partial merits of a claim, judicial challenge or recourse in favor of the taxpayer, to the immediate and complete restoration of the legality of the act or situation that was the subject of the dispute, comprising the payment of indemnity interest, if applicable, from the end of the period of execution of the decision."

Although art. 2.°, no. 1, letters a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning in CAAD, making no reference to condemnatory decisions, it should be understood that the powers included in its competences are those attributed to the tribunals in the process of judicial challenge, being that the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself in approving the RJAT, in which it is proclaimed, as the first guideline, that "the tax arbitration proceeding must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters."

The judicial challenge process, despite being essentially an annulment process of tax acts, admits the condemnation of the Tax Administration to payment of indemnity interest, as is inferred from art. 43.°, no. 1, of the GTL, in which it is established that "indemnity interest is due when it is determined, in gracious reclamation or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due" and from art. 61.°, no. 4 of the CPPT (as amended by Law No. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which "if the decision recognizing the right to indemnity interest is judicial, the period for payment is counted from the beginning of the period of its voluntary execution."

Thus, no. 5 of art. 24.° of the RJAT in stating that "payment of interest, regardless of its nature, is due, as provided for in the general tax law and in the Code of Tax Procedure and Process" should be understood as permitting the recognition of the right to indemnity interest in the arbitration proceeding.

This is the situation of the case at hand, that is, the TA will refund the tax paid, with payment of indemnity interest under the terms set forth, with the TA determining the amount to be refunded to the Claimant and calculating the respective indemnity interest, at the supplementary legal rate of civil debts, under the terms of arts. 35.°, no. 10, and 43.°, nos. 1 and 5, of the GTL, 61.° of the CPPT, 559.° of the Civil Code and Ordinance No. 291/2003, of 8 April (or subsequent instrument or instruments), with indemnity interest being due from the dates of the payments now deemed improper until the date of processing of the credit note, in which they are included (art. 61.°, no. 5, of the CPPT).

VII. Decision

Under these terms, this Arbitral Tribunal decides:

a) To judge the claim totally well-founded;

b) To declare, as a result, the illegality of the stamp tax assessments object of the claim;

c) To annul the collection notes numbered 2016…, 2016… and 2016…

d) To annul the collection notes numbered 2016…, 2016… and 2016…

e) To condemn the Tax and Customs Authority to refund the amounts paid relating to the aforementioned assessments and collection notes, with indemnity interest under the terms set forth above and

f) To further condemn the Tax and Customs Authority to pay the costs of this proceeding.

Process Value

The process value is fixed at € 113,358.34, under the terms of article 97.°-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of letters a) and b) of no. 1 of article 29.° of the RJAT and no. 2 of article 3.° of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

The arbitration fee is fixed at € 3,060.00, under the terms of Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, as the claim was totally well-founded, under the terms of articles 12.°, no. 2, and 22.°, no. 4, both of the RJAT, and article 4.°, no. 4, of the cited Regulation.

Let it be notified.

Lisbon, 20 March 2017

The Arbitral Tribunal,

José Poças Falcão
(President Arbitrator)

António Pragal Colaço
(Adjunct Arbitrator)

Raquel Franco
(Adjunct Arbitrator)

[1] Item 28.1 of Stamp Tax was already repealed with effect from 1/1/2017, by art. 210.°, no. 2, of Law 42/2016, of 28 December (State Budget Law 2017). It is manifestly not a legal successor to the repeal noted, but art. 219.° of the same Law created an additional Property Tax on urban properties, excepting those classified for "commerce, industry or services" and other, under the terms of letters b) and d) of no. 1 of article 6.° of this Code, taxation above a certain value (VPT), but now depending on the real property assets of the taxpayer and not on the individual immovable property;

[2] Cites the (Summaries of Awards of the Supreme Administrative Court in the context of cases No. 048/14 and 1870/13, both of 09.04.2014, No. 0272/14, of 23.04.2014, and 055/14, of 14/05/2014);