Stamp Tax on Building Land: CAAD Rules on Verba 28.1 TGIS and Residential Use Requirement

ARBITRATION AWARD

I. REPORT

A, S. A., a company with collective legal entity identification number …, with registered office at Rua … PORTO (hereinafter referred to only as "Claimant"), requested the constitution of a single arbitral tribunal, pursuant to the provisions of article 2(1)(a) and article 10, both of Decree-Law no. 10/2011 of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to only as "LRTA"), against the Tax and Customs Authority (hereinafter referred to as "TCA" or "Respondent"), with a view to:

a) Declaration of illegality of the act of assessment of Stamp Duty, issued by the TCA, relating to the year 2013, dated 17 March 2014, by reference to item 28.1 of the General Table of Stamp Duty ("GTSD"), contained in the collection documents nos. 2014 … (documents no. 1 attached with the request for arbitration ruling – first instalment) and 2014 … (document attached with the request subsequent to the request for arbitration ruling - third instalment), in the total amount of €6,234.80, and consequent annulment of that act;

b) Condemnation of the Respondent to restitution of the tax paid, plus the respective compensatory interest.

For this purpose, it alleges, in summary, that:

i. Error as to the legal and factual basis, since item 28.1 of the GTSD, in its original wording, applies to real property with "residential use", the concept of which results "literally" from the provisions of articles 6(1) and (2) of the IMI Code, encompassing real property that can be effectively used as a dwelling, which is not the case in the present proceedings, as it concerns a plot of land for construction;

ii. This interpretation is further supported by the legislator's intention in adding the said item, namely to tax taxpayers with increased contributory capacity, through taxation of luxury real property, which does not occur with land for construction;

iii. Defect of lack of grounds, since the assessment note for Stamp Duty does not contain its reasoning, given that the TCA does not explain or justify why it decided to tax the land for construction of which the Claimant is the owner, when Stamp Duty applies to real property intended for residential use.

The Claimant opted not to appoint an arbitrator, whereby a single arbitrator was appointed by CAAD, in accordance with the provisions of article 6(1) and article 11(1)(b) of the LRTA.

The arbitral tribunal was constituted on 02-10-2014, in accordance with the provisions of article 11(1)(c) of the LRTA.

Notified for this purpose, the Respondent Entity presented its response, in which it invokes, in sum:

i) The concept of use of the real property is a coefficient that contributes to the valuation of the real property in determining the tax property value, and the use coefficient is equally applicable to the evaluation of land for construction, as provided in article 41 and article 45(2), both of the IMI Code, and cannot be ignored;

ii) Item no. 28 of the GTSD, by referring to the expression "real property with residential use", calls for a qualification that is superimposed on the types provided in article 6(1) of the IMI Code, and should be understood in a broad way, "encompassing both built residential properties and land for construction", and, "the meaning of which must be found in the need to integrate other realities beyond those identified in article 6(1) of the IMI Code";

iii) Therefore, the assessment in question constitutes a correct interpretation and application of law to the facts, and does not suffer from a defect of violation of law.

It concludes by requesting dismissal of the request for arbitration ruling, and that it be absolved of the same.

By subsequent request, the Claimant was allowed to attach to the present proceedings the collection document relating to the third instalment of Stamp Duty assessed on 17.03.2014, as it was received on a date after the presentation of the request for arbitration ruling, and the TCA was notified of the said attachment.

As it was a matter of strictly legal nature, the arbitral tribunal decided to dispense with the holding of the meeting provided for in article 18 of the LRTA, as well as with the presentation of arguments, by proposal of the Respondent Entity and with the agreement of the Claimant.

The Arbitral Tribunal was regularly constituted and is materially competent, in accordance with the provisions of article 2(1)(a) of the LRTA.

The parties have legal personality and capacity, are legitimate and are regularly represented, in accordance with the provisions of articles 4 and 10(2) of the LRTA and article 1 of Ordinance no. 112-A/2011 of 22 March.

The proceedings do not suffer from any nullities and there are no exceptions or preliminary questions that need to be known or that impede the knowledge of the merits of the case.

II. GROUNDS

a) Facts

Based on the elements contained in the proceedings and with relevance for the decision, the following facts are established:

1. The Claimant is co-owner, in the proportion of 1/2, of the urban real property located at Rua …, described in the Land Registry of Porto under number … and inscribed in the urban property matrix of the parish of … under article …, as land for construction.

(see documents nos. 2 and 3 attached with the request for arbitration ruling, whose contents are taken as reproduced);

1. The identified land for construction has a tax property value of €1,246,959.90.

(see documents nos. 1 and 2 attached with the request for arbitration ruling, whose contents are taken as reproduced);

1. The identified urban real property has no construction erected on its land.

(see document no. 2 attached with the request for arbitration ruling, whose contents are taken as reproduced and proven by agreement);

1. The Claimant was notified of the act of assessment of Stamp Duty for the year 2013, with assessment date on 2014-03-17, at the rate of 1%, a collection of €6,234.80 having been calculated, contained in the collection document for payment of the first instalment of the tax assessed, with the payment deadline in April 2014, as follows detailed:

IDENTIFICATION OF DOCUMENT (COLLECTION) | IDENTIFICATION OF PROPERTY | ITEM OF GTSD | TAX PROPERTY VALUE | RATE (%) | COLLECTION | 1ST TAX INSTALMENT 2014 … | …-… | 28.1 | €1,246,959.90 | 1% | €6,234.80 | €2,078.28

(see document no. 2 attached with the request for arbitration ruling, whose contents are taken as reproduced);

1. On 5 May 2014, the Claimant proceeded to pay the first instalment of Stamp Duty assessed, in the amount of €2,078.28.

(see document no. 4 attached with the request for arbitration ruling, whose contents are taken as reproduced);

1. The Claimant was notified of the document for payment of Stamp Duty for the year 2013, relating to the third tax instalment, with indication of the assessment date on 2014-03-17 and with the payment deadline in November 2014, as follows detailed:

IDENTIFICATION OF DOCUMENT (COLLECTION) | IDENTIFICATION OF PROPERTY | ITEM OF GTSD | TAX PROPERTY VALUE | RATE (%) | COLLECTION | 3RD INSTALMENT 2014 … | … … -… | 28.1 | €1,246,959.90 | 1% | €6,234.80 | €2,078.28

(see Document no. 1 attached with the request subsequent to the request for arbitration ruling, whose contents are taken as reproduced);

1. On 5 December 2014, the Claimant proceeded to pay the first instalment of Stamp Duty assessed, in the amount of €2,078.28.

(see Document no. 1 attached with the request subsequent to the request for arbitration ruling, whose contents are taken as reproduced);

Given the positions assumed by the parties and given that the matter to be decided by this arbitral tribunal is strictly legal (identified below), the factual findings were based on the request for arbitration ruling, the response presented by the Respondent and the official documents, indicated in each of the points of the factual matter, which were not challenged.

There are no other facts not proven with relevance for the decision of the case.

c) Law

The matters to be decided in the present arbitration proceedings consist in determining whether:

i. The tax act of assessment of Stamp Duty suffers from the defect of violation of law, due to erroneous interpretation and application of item 28.1 of the GTSD, added by Law no. 55-A/2012 of 29 October, in its initial wording, in the sense that "land for construction" is encompassed within the scope of the incidence of that item 28(1);

ii. The act of assessment in question also suffers from the defect of lack of grounds.

On the controversial matter of the proceedings, the present Tax Arbitral Tribunal has already pronounced itself, in particular in the decisions handed down in cases nos. 42/2013-T, 48/2013-T, 49/2013-T, 53/2013-T, 75/2013-T, whose arbitral jurisprudence we follow here, and which has also been the subject of jurisprudence of the Supreme Administrative Court, and the decisions are unanimous in considering that "land for construction" does not fall within the provision of item 28.1 of the GTSD, added by Law no. 55-A/2012 of 29 October, in its original wording.

As results from the established factual basis, the TCA came to assess Stamp Duty to the Claimant, on the ground that the land for construction with the matrix article … of the parish of …, of which it is co-owner, falls within the provision of item 28.1 of the GTSD.

The Claimant alleges that a plot of land for construction does not fall within item 28.1 since only real property that can be effectively used as a dwelling is considered as real property with residential use.

In turn, the Respondent argues, in summary, that for the purposes of determining the tax property value of land for construction, the application of the use coefficient in the context of valuation is clear, as provided in article 45(2) of the IMI Code, and therefore its consideration for the purposes of applying item 28 of the General Table of Stamp Duty cannot be ignored.

Let us examine.

Article 4 of Law no. 55-A/2012 of 29 October added to the General Table of Stamp Duty item no. 28, with the following (original) wording:

"28 — Ownership, usufruct or right of superficies of urban real property whose tax property value contained in the matrix, in accordance with the Municipal Tax on Real Property Code (IMI Code), is equal to or greater than €1,000,000 — on the tax property value used for the purpose of IMI:

28.1 — For real property with residential use — 1%;

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

Providing article 6 of the aforementioned Law, regarding the year 2013, that "the assessment of stamp duty provided for in item no. 28 of the respective General Table must apply to the same tax property value used for the purpose of the assessment of municipal real property tax to be effected in that year."

At the time of the facts, the requirements for the incidence of item 28.1 of the GTSD are thus urban real property with residential use, whose tax property value contained in the matrix, in accordance with the IMI Code, is equal to or greater than €1,000,000.

With a view to the application of item 28 added to the GTSD, Law 55-A/2012 of 29 October established various amendments to the Stamp Duty Code ("SDC"), in particular regarding its assessment and payment, expressly referring to the rules provided for in the IMI Code (see article 23(7), article 44(5), article 46(5), article 49(3) of the SDC) with the necessary adaptations, and further providing in article 67(2) of the SDC that "Matters not regulated in this Code relating to item no. 28 of the General Table are subsidiarily governed by the provisions of the IMI Code".

From the aforementioned provisions, it is immediately apparent that the concept of "real property with residential use" provided for in item 28.1 is not defined in the SDC, nor in the said Law, and therefore it is necessary to examine the provisions relating to the IMI Code, since these are of subsidiary application, as provided in article 67(2) of the SDC.

Thus, we find from the outset a concept of real property, in article 2(1) of the IMI Code (to which article 1(6) of the SDC refers), which is as follows: "(…) real property is any part of land, including waters, plantations, buildings and constructions of any nature incorporated in or erected thereon, with a permanent character, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the foregoing circumstances, endowed with economic autonomy in relation to the land on which they are located, although located on a part of land that forms an integral part of assets of a different nature or has no patrimonial nature."

The IMI Code provides for three categories of real property: rural, urban and mixed, whose concepts are defined, respectively, in articles 3, 4 and 5 of the same legislation.

And, regarding urban real property, article 6(1) of the IMI Code further established a categorization in the following types:

(…)

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others."

Being understood as residential, commercial, industrial or for services "buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes", in accordance with the provisions of article 6(2) of the provision in reference.

As regards land for construction, article 6(3) of the same legal provision provides that they are "plots of land located within or outside an urban cluster, for which a license or authorization has been granted, admitted prior notification or issued favorable preliminary information of subdivision or construction operation, and also those that have been so declared in the acquisition document, with the exception of plots of land where the competent entities prevent any of those operations, in particular those located in green areas, protected areas or which, in accordance with municipal land use planning plans, are allocated to public spaces, infrastructure or equipment."

Establishing article 6(4) of the IMI Code that are encompassed "in the provision of article 6(1)(d) plots of land located within an urban cluster that are not land for construction nor are encompassed by the provisions of article 3(2) and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in article 6(2) and also those under the exception of article 6(3)".

It results from the aforementioned provisions that, both in the classification of real property and in the division of urban real property, the legislator makes no reference to the concept of "real property with residential use", nor does it do so in other provisions of the IMI Code, nor in any other tax legislation. Therefore, in the interpretation of the concept under discussion, it will be necessary to consider article 9 of the Civil Code, applicable by virtue of the provisions of article 11(1) of the General Tax Law.

On this matter, the present Arbitral Tribunal has already pronounced itself in the decision handed down in case no. 53/2013-T, whose doctrine we adopt here, which we shall follow closely:

"(…)

Thus, in the absence of exact terminological correspondence of the concept of "real property with residential use" with any other used in other legislation, several interpretative hypotheses can be raised.

The starting point for the interpretation of that expression "real property with residential use" is, naturally, the text of the law, and it is on the basis of it that the "legislative intent" must be reconstructed, as required by article 9(1) of the Civil Code, applicable by virtue of the provisions of article 11(1) of the General Tax Law.

3.2.5. Concept of "real property with residential use" as relating to residential real property

The concept closest to the literal meaning of this expression used is clearly that of "residential real property", defined in article 6(2) of the IMI Code as encompassing "buildings or constructions" licensed for residential purposes or, in the absence of a license, which have as their normal destination residential purposes.

If it is understood that the expression "real property with residential use" coincides with that of "residential real property", it is manifest that the assessments will suffer from an error as to the factual and legal basis, since all real property in relation to which Stamp Duty was assessed under the said item 28.1 are land for construction, without any building or construction, required to meet that concept of "residential real property".

Therefore, if the interpretation is adopted that "real property with residential use" means "residential real property", the assessments for which the declaration of illegality is requested will be illegal, due to the absence of any building or construction on any of the plots of land.

However, the non-coincidence of the terms of the expression used in item 28.1 of the GTSD with that which emerges from article 6(2) of the IMI Code suggests that it was not intended to use the same concept.

3.2.6. Concept of "real property with residential use" as a concept distinct from "residential real property"

The word "use", in this context of use of a real property, has the meaning of "action of assigning something to a particular use".

"When, as is usually the case, legal provisions (legislative formulas) have more than one meaning, then the positive function of the text is reflected in giving stronger support to or more strongly suggesting one of the possible meanings. For among the possible meanings, some will correspond to the more natural and direct meaning of the expressions used, while others will only fit within the verbal framework of the provision in a forced, unnatural way. Now, in the absence of other elements that induce the choice of the less immediate meaning of the text, the interpreter should in principle opt for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, on the assumption (not always correct) that the legislator knew how to express its intent in appropriate terms".

The relevance of the text of the law is especially emphasized in the interpretation of provisions of incidence of Stamp Duty, which are reduced to an amalgam, under a common designation, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on assets, on acts, etc.), which leaves no appreciable margin for application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item 28.1, hastily included outside the State Budget, by a tax legislator without perceivable overall fiscal guidance, which is successively implementing fiscal tightening measures in line with budgetary shortfalls (…).

"In truth, although in the "Explanatory Memorandum" of Bill no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the laudable concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices to comply with the adjustment program" and its commitment "to ensure that the distribution of these sacrifices will be made by all and not just by those who live off the income of their work", it is manifest, on the one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of item 28.1, by additionally taxing real property with residential use and not also real property that does not have it, suggests that the concerns of social equity and the proclaimed intention of distribution of sacrifices by all, reaches much more some than all itself.

In this context, there being no reliable interpretative elements that allow the detection of legislative coherence in the solution adopted in the said item 28.1 or the correctness or incorrectness of the adopted solution (relevant for interpretative purposes in light of article 9(3) of the Civil Code), the text of the legal provision must be the primary element of interpretation, in accordance with the presumption, imposed by article 9(3), that the legislator knew how to express its intent in appropriate terms.

In light of those meanings of the words "use" and "to use", which are "to assign a purpose" or "to apply", the formula used in that item 28.1 of the GTSD, clearly encompasses real property that are already applied to residential purposes, and therefore it is necessary to inquire whether it will also encompass real property that, although not yet applied to residential purposes, are destined for these and those whose purpose is unknown.

In light of the literal text of item 28.1, it is to be removed from the scope of incidence of the Stamp Duty provided therein is to be removed from the scope of incidence of Stamp Duty the land for construction of some Claimants that still do not have any type of use defined, as they are not yet applied or destined to residential purposes. That is, land for construction that does not have a defined use cannot be considered real property with residential use, as they do not yet have any use nor any other purpose than the construction of unknown type. An interpretation in the sense that item 28.1 refers to real property whose use is unknown has no minimal verbal correspondence in the letter of that provision, and therefore a hypothetical legislative intent of that type cannot be considered by the law interpreter, in light of the prohibition contained in article 9(2) of the Civil Code.

But this is not enough to clarify the situation of those land for construction that, although not yet applied to residential purposes, already have a determined purpose, in particular in the subdivision license (…).

Therefore, it will be necessary to clarify when it can be understood that real property is used for a residential purpose, in particular whether it is when this purpose is fixed in a licensing act or similar, or only when the effective assignment of this purpose is materialized.

From the outset, the comparison of item 28.1 of the GTSD with article 6(2) of the IMI Code, which defines the concept of residential real property, clearly points to the need for an effective use.

In truth, a building or construction licensed for residential purposes or, even without a license, but which has residential purposes as its normal destination, is, in light of article 6(2) of that article 6, a residential property.

Therefore, on the assumption that the legislator of Law no. 55-A/2012 knew how to express its intent in appropriate terms (as required by article 9(3) of the Civil Code that it be presumed), if it intended to refer to these real properties already licensed for residential use or that have residential use as their normal destination, it would certainly have used the concept of "residential real property", which would express perfectly and clearly its intent, in light of the definition given by article 6(2) of the IMI Code.

Consequently, it must be presumed that the use of a different expression is intended to refer to a different reality, and therefore, in sound hermeneutics, "real property with residential use" cannot be real property merely licensed for residential purposes or intended for that purpose (that is, it will not suffice that it be "residential real property"), and must be real property that already has effective use for that purpose.

That this is the meaning of the expression "use", in the same context of classification of real property as done by the IMI Code, is confirmed by article 3, in which, regarding rural real property, reference is made to those "that are used or, in the absence of concrete use, have as their normal destination a use that generates agricultural income", which shows that the use is concrete, effective. In truth, as can be seen from the final part of this text, real property can have as its destination a particular use and be or not be used for it, which shows that the use is, at the level of the connection of real property to a particular use, something more intense than mere destination and which may or may not occur, downstream of this and not upstream."

In light of the grounds set out, which we follow here, a "plot of land for construction" cannot thus fall within the provision of item 28.1 of the GTSD, in its original wording, since it is not a "real property with residential use".

The Respondent argues that the use of the real property (capacity or purpose) is a coefficient that contributes to the valuation of the real property in determining the tax property value, and the use coefficient is equally applicable to the valuation of land for construction, as provided in article 45(2) of the IMI Code, "and therefore its consideration for the purposes of applying item 28 of the General Table of Stamp Duty cannot be ignored".

We cannot agree with the thesis argued by the Respondent, in light of the grounds set out above.

Indeed, article 45(1) of the IMI Code provides that the "tax property value of land for construction is the sum of the value of the building implantation area, which is that located within the perimeter of the building's fixation to the ground, measured by the outer part, added to the value of the land adjacent to the implantation", adding in article 45(2) that the "value of the implantation area varies between 15% and 45% of the value of authorized or planned buildings", and further providing in article 45(3) of the same provision that in "fixing the percentage of the value of the implantation land, the characteristics referred to in article 42(3) are considered".

The aforementioned article 45 of the IMI Code – under the heading "tax property value of land for construction" – merely establishes the criteria to be considered for the purposes of patrimonial valuation of land for construction, without any influence on the typology of real property contained in article 6 of the IMI Code, since it does not cease to be qualified as land for construction, for tax purposes, in light of its valuation.

Even if it is admitted that the "use coefficient" is one of the criteria to be applied in determining the tax property value, which does not result clearly from the provisions of article 45 of the IMI Code and is a matter that goes beyond the scope of the present request for arbitration ruling, even so, in nothing does it distance from what is stated above in relation to the interpretation of the concept of "real property with residential use" in the sense that it must be real property that already has effective use for that purpose, and it is not sufficient that it be "residential real property".

The same applies to the Respondent's understanding in supporting that item 28 of the GTSD, by referring to the expression "real property with residential use", calls for a qualification that "is superimposed on the types provided in article 6(1) of the IMI Code", and should be understood in a broad way, "encompassing both built residential real property and land for construction", and, "the meaning of which must be found in the need to integrate other realities beyond those identified in article 6(1) of the IMI Code", and the arguments and grounds set out above are worth repeating, that is, the only possible interpretation is that it only encompasses, it must be repeated, real property that already has effective use for that purpose, that is, with current residential use.

For which reasons we also cannot agree with the Respondent's understanding that the law, by considering the value of the building implantation area, makes it possible to determine the use of the land for construction before the effective construction of the property. Indeed, the value of the implantation area is merely another coefficient, among others, for the valuation of land for construction, which does not alter the classification of this as another type of urban real property.

Moreover, as explained above, the fact that there is a building permit or subdivision license only means that it has a purpose, a future and foreseeable situation but which does not correspond in any way to a situation already existing, as only real property in which the residential use has already been materialized are subsumed in the concept of "real property with residential use", for the purposes of the incidence of Stamp Duty provided for in item 28.1 of the GTSD, that is, only when the "effective assignment of that purpose is materialized" and not when that purpose is fixed in a licensing act.

The aforesaid applies once again here to what was upheld in the decision handed down by this Tribunal in the aforementioned case no. 53/2013-T, in referring:

"Indeed, the text of the law, by adopting the formula "real property with residential use", instead of "urban real property of residential use", which appears in the aforementioned "Explanatory Memorandum", strongly suggests that it is required that the residential use has already been materialized, since only then will the real property have that use.

As for article 45 of the IMI Code, it has no relationship with the classification of real property, only indicating the factors to be considered in the valuation of land for construction. What is considered there, by referring to the "building to be constructed", is the consideration of the purpose of the land, which, as seen, is something that, in the context of the IMI Code, does not imply use and occurs before it.

The correctness of this interpretation in the sense that only real property that are effectively used for residential purposes are within the scope of incidence of item 28.1 of the GTSD is also confirmed by the ratio legis perceptible from the restriction of the scope of application of the provision to real property with residential use, in the context of "the circumstances in which the law was made and the specific conditions of the time in which it is applied", which article 9(1) of the Civil Code also establishes as interpretative elements."

Indeed, in the presentation and discussion of the aforementioned Bill no. 96/XII/2nd (which can be consulted in the Journal of the Republic Diary - DAR, I Series no. 9/XII/2012, of 11-10-2012) in Parliament, the State Secretary for Tax Affairs declared at one point the following:

"It is the first time in Portugal that special taxation has been created on high-value properties intended for residential use. This rate will be 0.5% to 0.8%, in 2012, and 1%, in 2013, and will apply to houses with a value equal to or greater than 1 million euros. With the creation of this additional rate, the fiscal burden required of these owners will be significantly increased in 2012 and 2013".

(bold and italic ours)

Therefore, in a teleological interpretation, what was intended to be taxed was luxury real property, with real property with use for services, industry or commerce remaining outside the scope of the incidence of Stamp Duty, that is, as stated in the decision handed down in case no. 53/2013-T, "real property used for economic activity, which is understood in a context in which, as is well known, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historically maximum levels, with an avalanche of business closures resulting from economic unsustainability".

Concluding further that "the interpretative elements available, including the "circumstances in which the law was made and the specific conditions of the time in which it is applied", clearly point to the fact that it was not intended to encompass within the scope of incidence of item 28.1 situations of real property that are not yet used for residential purposes, in particular land for construction held by companies."

In light of the considerations set out, the land for construction, which is the subject matter of the present arbitration proceedings, by its very nature cannot have current residential use, and thus does not constitute real property with effective and concrete use for that purpose. Particularly so, since, as results from the factual matter proven, there is no building or construction erected on its land.

In light of the foregoing, the real property in this case does not fall within item 28.1 of the GTSD, as it is not "real property with residential use".

Therefore, the act of assessment of Stamp Duty, in the amount of €6,234.80, which is the subject matter of the present arbitration ruling, suffers from the defect of violation of item 28.1 of the GTSD, in its original wording, due to error as to its legal basis, and thus the illegality of that act of assessment is declared, with the consequent annulment of the same (article 135 of the Code of Administrative Procedure, applicable subsidiarily by virtue of article 29(1)(a) and (d) of the LRTA).

The consideration of the other matters raised by the Claimant is thus prejudiced, in particular the alleged formal defect of lack of grounds, as the illegality of the aforementioned assessment has been declared, due to a substantive defect that prevents the renewal of the acts, effectively ensuring the protection of the rights of the Claimant, in accordance with the provisions of article 124 of the Code of Tax Procedure and Procedure, subsidiarily applicable by virtue of article 29(1)(a) of the LRTA.

III. Restitution of Tax Paid and Compensatory Interest

The Claimant further requests restitution of the tax already paid, plus the corresponding compensatory interest.

Let us examine.

Article 24(1)(b) of the LRTA provides that the TCA must "restore the situation that would exist if the tax act that is the subject matter of the arbitration decision had not been carried out, adopting the acts and operations necessary for this purpose", in the exact terms of the success of the arbitration decision in favor of the taxpayer and until the expiration of the period provided for the voluntary execution of the judgments of the tax courts, in the event that no appeal or objection has been made to the arbitration decision that ruled on the merits of the claim.

Moreover, article 100 of the General Tax Law - under the heading "effects of the decision favorable to the taxpayer" - already determines that the "tax administration is obliged, in the event of total or partial success of complaints or administrative appeals, or judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided by law".

Therefore, in light of the provisions of article 100 of the General Tax Law and article 24(1)(b) of the LRTA, it is unequivocal that in this case the Claimant is entitled to restitution of the tax paid, following the declaration of illegality of the act of assessment, which is the subject matter of the present arbitration ruling.

Let us examine the claim for payment of compensatory interest.

Article 24(5) of the cited LRTA further provides that "payment of interest, regardless of its nature, is due, in the terms provided by the general tax law and the Code of Tax Procedure and Procedure". It results from the aforementioned legal provision that in the event of success of an arbitration decision in favor of the taxpayer, compensatory interest will be due, in the terms of article 43(1) and (2) and article 100 of the General Tax Law.

Article 43(1) of the General Tax Law establishes that "compensatory interest is due when it is determined, in a complaint or judicial objection, that there was an error attributable to the services from which results payment of the tax debt in an amount greater than legally due". Thus, as Jorge Lopes de Sousa tells us, in "Guide to Tax Arbitration", Almedina, March 2013, page 223, the right to compensatory interest depends on the verification of the following requirements:

"- that there be an error in an act of assessment of a tax;

• that it be attributable to the services (directly or through general guidance);

• that the existence of this error is determined in a process of complaint or judicial objection;

• that as a result of this error, payment of a tax debt has resulted in an amount greater than legally due".

In the present case, there is no doubt that the tax act of assessment of Stamp Duty, which is the subject matter of the present arbitration decision, resulted from an error attributable to the services, that is, from an error as to the legal basis, in light of the considerations described above, to which reference is made. As a result of this error, payment of the tax resulted, as per the factual matter established.

Therefore, as all the requirements are met, the Claimant will be entitled to the payment of compensatory interest, which will be calculated and accounted for in accordance with article 61 of the Code of Tax Procedure and Procedure, that is, from the date on which it made the payment, calculated on the basis of the amounts paid until the date of complete reimbursement of the amount paid, at the legal rate.

IV. AWARD

In these terms and in the grounds set out, the present Arbitral Tribunal awards:

a) That the request for declaration of illegality of the assessment of Stamp Duty, contained in the identified collection documents, in the amount of €6,234.80, is granted, with the consequent annulment of the same.

b) The Tax and Customs Authority is condemned to reimburse to the Claimant the amounts that it paid as tax;

c) The Tax and Customs Authority is condemned to pay to the Claimant compensatory interest, at the legal rate, from the date on which it made the payments of the tax, until the date of complete reimbursement of those amounts, calculated on the basis of the aforementioned amounts.

The value of the proceedings is fixed at €6,234.80, in accordance with the provisions of article 97-A(1)(a) of the Code of Tax Procedure and Procedure and article 3(2) of the Regulations on Costs in Tax Arbitration Proceedings, as well as article 306 of the Code of Civil Procedure.

Costs are borne by the Respondent Entity, in the amount of €612.00, in accordance with the provisions of article 22(4) of the LRTA and article 4(4) of the Regulation on Costs in Tax Arbitration Proceedings and Table I attached to the same Regulation.

Notify the parties.

Lisbon, 2 April 2015.

The Arbitrator,

Conceição Pinto Rosa

(Text prepared by computer, in accordance with article 131(5) of the Code of Civil Procedure, applicable by remission of article 29(1)(e) of the LRTA, with blank lines and reviewed by the signatory)