Stamp Tax on Building Land: CAAD Rules on Verba 28.1 TGIS Application (Case 546/2014-T)

ARBITRAL DECISION

CAAD – Tax Arbitration

ARBITRAL PROCESS No. 546/2014-T

Subject: Stamp Duty. Building land. Item 28.1 of the TGIS.

ARBITRAL DECISION

I – REPORT

Subject matter of the dispute:

1. A – ..., SA, taxpayer with NIPC …, with registered office at Rua …, Porto, filed with the Administrative Arbitration Centre (CAAD) a request for constitution of a singular arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of the Legal Regime for Tax Arbitration (LRTA), in which the Tax and Customs Authority (TA) is the respondent, for declaration of illegality and consequent annulment of the assessments of Stamp Duty – item 28.1 of the TGIS, in the total amount of € 28,814.00, relating to the year 2013 and to the urban properties registered in the property register of the parish of …, municipality of Porto, under articles … and …, within the jurisdiction of the Tax Office Porto 5;

2. Cumulatively, declaration is requested that the error is attributable to the services in the issuance of the assessments contested, as well as restitution of the Stamp Duty paid and to be paid during the calendar year 2014, plus the indemnitory interest owed;

3. The request for arbitral decision was submitted to CAAD on 28 July 2014, with the TA being automatically notified thereof on 30 July 2014;

4. The Applicant chose not to appoint an arbitrator, whereby, pursuant to the provisions of article 6, no. 1 and 11, no. 1, letter a), of the LRTA, the undersigned was appointed by the President of the CAAD Deontological Council to sit on this arbitral tribunal, a duty which she accepted in the terms legally provided.

Factual matter:

In summary, the Applicant sustains its claim on the following factual basis:

a) The Stamp Duty assessments of the year 2013, to which the present case relates, were issued on 17 March 2014, for payment in three instalments, during the months of April, July and November of that same year, respectively, contain the following identification elements, as per the documents attached to the initial petition:

b) The properties to which the Stamp Duty assessments contested relate, registered in the urban property register under articles … and … of the parish of …, municipality of Porto, of which it is the owner, are classified, according to their respective property records, as building land, which corresponds to the physical reality existing;

c) The collection notes numbered 2014 …, in the amount of € 4,607.44 (referring to the first instalment of the Stamp Duty assessment relating to the property registered under article …) and 2014 …, in the amount of € 4,997.24 (relating to the first instalment of the Stamp Duty assessment relating to the property registered under article …), contain no further justification beyond the elements already indicated and the year to which the assessment relates (2013);

d) The first instalment of each of the assessments identified in the arbitral request was paid on 5 May 2014.

Proven Facts: The conviction of the Tribunal regarding the facts set out above, which are considered proven, derives from the analysis of the arbitral request and the documents attached thereto (copies of the collection notes relating to the first instalment of each of the assessments identified, copies of the property records and certificates of the property register of the properties subject to taxation, which are hereby reproduced), as well as the reference made to them in the response provided by the TA.

Beyond the facts set out above, it is further considered proven the payment of the third instalment of each of the assessments subject to the present request for arbitral decision, on 5 December 2014, in the amounts of € 4,697.43 (collection note no. 2014 …) and € 4,997.23 (collection note no. 2014 …), as per the documentary evidence presented subsequently.

Unproven Facts: There are no facts of interest for the decision of the case that should be considered unproven.

II – SANITATION:

The parties enjoy legal personality and capacity, are legitimate and are duly represented (articles 4 and 10, no. 2, of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March).

The Singular Arbitral Tribunal was regularly constituted at CAAD on 1 October 2014, and is materially competent to examine and decide the dispute which is the subject matter of the present case.

By order of 1 October 2014, the highest official of the TA services was notified in the terms and for the purposes provided for in article 17 of the LRTA. Having duly provided a response by the TA, the latter requested waiver of the meeting referred to in article 18 of the LRTA and of production of further evidence, as no exceptions had been raised and the question raised in the case was considered to be strictly legal in nature, whereby the Tribunal could immediately decide the claim.

Notified of the response and request of the TA, the Applicant also dispensed with the meeting provided for in article 18 of the LRTA, as well as with the production of arguments, whether oral or written.

III – REASONING:

Questions to be decided:

The main question brought before the Tribunal by the Applicant is whether the scope of item no. 28.1 of the General Table of Stamp Duty (TGIS), in its original wording, as given by Law no. 55-A/2012, of 29 October, encompasses building land with patrimonial value equal to or exceeding € 1,000,000.00 or whether these can be integrated into the concept of urban properties "with residential designation", the condition for applicability of the said item.

The argumentation advanced by the Applicant, in which are invoked the non-applicability to the contested assessments of item 28.1 of the General Table of Stamp Duty, in the wording given to it by Law no. 83-C/2013, of 31 December; the error in the assumptions for application of the same rule, in the wording given by Law no. 55-A/2012, of 29 October and, further, the defect of lack of reasoning, as well as the error of the TA in the issuance of the same assessments, which justifies their annulment and the reimbursement of the taxpayer through indemnitory interest on the amounts paid, is, briefly summarized, as follows:

I – On the application of the law in time

• "The present request for arbitral decision is brought against the Stamp Duty assessments provided for in item 28 of the General Table with the wording introduced by Law no. 83-C/2013, of 31 December [article 194]" – bold in original (article 1 of the i.p.);

• "In accordance with no. 3 of article 103 of the CRP «No one can be obliged to pay taxes that have not been created in accordance with the Constitution, which have a retroactive nature or whose collection and assessment are not carried out in accordance with the law»" – bold and underlined in original (article 14 of the i.p.);

• "It follows from this that, by virtue of the said normative provision, the legislator is prevented from creating or retroactively increasing taxes." – bold in original (article 15 of the i.p.);

• "in the case at issue, it is the ownership of urban properties existing on 31 December 2013 that the substantive scope rule defines as the taxable event for the imposition of SD and, Law no. 83-C/2013, of 31 December, came into force on 1 January 2014, i.e., on a date posterior to the taxable event for Stamp Duty" – (articles 17 and 18 of the i.p.);

• "in accordance with the criterion established in no. 2 of art. 12 of the TCS, according to which the new wording of the General Table of Stamp Duty, introduced by Law no. 83-C/2013, of 31 December, shall only apply to the tax fact, whose occurrence has taken place after its entry into force (…)" – article 19 of the i.p.);

• "starting from the certainty that the taxable event occurred on 31 December 2013, the assessments of the tax at issue should be governed by the regime established in the General Table of Stamp Duty with the wording introduced by Law 55-A/2012, given that the taxable event occurred during the period of its validity." – (articles 20 and 21 of the i.p.);

• "In this context, it is necessary to analyse the legality of the assessments sub judice under the aforesaid law, which shall be identified below" – (article 22 of the i.p.);

II – Error as to assumptions

• "The urban properties on which the Stamp Duty taxation is based are, as to their description, «building land», whose constructive capacity is defined in the chapter dedicated to «Areas», equally identified in the records (…)" – (articles 23 to 25 of the i.p.);

• "On the land in question no building is erected, integrating the assets of the Applicant with the purpose of carrying out future real estate development operations" (article 26 of the i.p.);

• "From the point of view of its concept and configuration, «building land» is understood as land located 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 building operation, and also those which have been so declared in the title of acquisition, excepting land where the competent entities prohibit any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal territorial planning plans, are designated for public spaces, infrastructure or equipment». – art. 6, no. 3 of the CIMI" – (article 30 of the i.p.);

• "confronting the nature of the properties with the legal definition resulting from the CIMI and with the substantive scope rule provided for in Item 28 of the TGIS, it is easy to see that the assessments at issue have no enabling rule." – (article 32 of the i.p.);

• Item 28 of the General Table of Stamp Duty has the following wording, which was added to it by art. 3 of Law 55-A/2012, of 29/10:

«28 – Ownership, usufruct or right of superficies of properties whose patrimonial value recorded in the register, in accordance with the Code of the Municipal Property Tax (IMI), is equal to or exceeding € 1,000,000.00 – on the patrimonial value used for IMI purposes»

And item 28.1 provides: «For property with residential designation»" – bold and underlined in original (articles 33 and 34 of the i.p.);

• "The cited Law (…) does not establish any definition of what should be understood by urban property with residential designation. Thus, in the absence of a legal concept, and having regard to the unity of the legal system and the Principle of Universality which was intended to be introduced with the entry into force of the CIMI, the concept of «residential designation» must be interpreted and integrated in accordance with the rules contained in the CIMI, as to the type of urban properties" – articles 36 to 38 of the i.p.);

• "On this matter the CIMI classifies urban properties as a) Residential; b) Commercial, industrial or for services; c) Building land (…). From this it follows that the concept of residential property is not diffuse, being subject to one of two assumptions: d) existence of a municipal license for residential purposes; e) normal use or destination for residence." – (articles 39 to 42 of the i.p.);

• "The expression «residential designation» which appears in Item 28, not being an autonomous concept in relation to the CIMI classification, must be interpreted in the light of the applicable rules (…), means necessarily «buildings or constructions licensed for such purpose», or in the absence of a license, those which have residence as their normal destination." – (articles 43 to 45 of the i.p.);

• "(…) it is reaffirmed that, the concept of property with residential designation will be what literally results from article 6, nos. 1 and 2 of the CIMI (…) an interpretation, moreover, which is in perfect harmony with the position assumed by our Courts." – (articles 50 and 51 of the i.p.);

• (…) it is necessary to conclude that there was an error as to the assumptions of the assessment, given that the ATA assessed SD on properties which fall within the sphere of «building land», when it is certain that the substantive scope rule [not susceptible to analogical application, in accordance with art. 11, no. 2 of the TCS] defines as a taxable event only properties with «Residential designation»." – bold in original (articles 65 to 67 of the i.p.);

• "(…) what the legislator intended with Law 55-A/2012 and with the amendment to the General Table of SD, was (…) the taxation of luxury properties. However, building land is not considered a luxury good, but rather an investment good intended for real estate development operations." – (articles 70 to 74 of the i.p.);

III – Defect of Reasoning

• "Apart from being illegal due to error as to the assumptions, the assessments under appeal are equally illegal due to a defect of reasoning" – (article 84 of the i.p.);

• "These assessment notes have a configuration entirely similar to that of the IMI, being affected by the same defect (…) in the SD assessments which are the target of the present Impugnation, the ATA starts from properties classified in the register as «building land», to assess SD which according to the substantive scope rule is owed by the ownership of property with «residential designation»" – (articles 86 to 88 of the i.p.);

• "(…) to sustain the assessment in question, the ATA would have to invoke that on the land there is a building licensed for residence or a building which has residence as its normal destination, all the more so since the pragmatism of article 41 of the CIMI determines that the relevant element for the purposes of applying the dedication coefficient is the «type of use of built properties», which would always have imposed the allegation of facts evidencing that reality" – (article 89 of the i.p.);

• "The duty of reasoning is a requirement directly flowing from the constitutional text, namely from article 268 of the CRP which provides that «administrative acts are subject to notification to the interested parties (…) and require express and accessible reasoning when they affect rights or legally protected interests»." – (article 92 of the i.p.);

• "This provision is enshrined in the Code of Administrative Procedure (CPA), namely in the regime established by articles 124 and 125 of the said legislation, from which flows the reasoning of «administrative acts which, totally or partially, deny, extinguish, restrict or affect in any way rights or legally protected interests, or impose or aggravate duties, charges or sanctions» (…) «must be express, through a succinct exposition of the factual and legal grounds of the decision, and may consist of mere declaration of agreement with the grounds of earlier opinions, information or proposals, which shall in this case form an integral part of the respective act»." – (articles 93 to 95 of the i.p.);

• "(…) the reasoning must be adequate to the importance and circumstances of the decision (…) in accordance with article 77 of the General Tax Law (TCS), this legal rule establishing a legal regime of reasoning which binds the Tax Administration in the duty to provide the taxpayer with the information that permits him to decide conscientiously on the acceptance or otherwise of the tax act." – (articles 98, 101 and 102 of the i.p.);

• "In accordance with articles 77 of the TCS and 125 of the CPA, if the reasoning does not clarify the motivation of the act through obscurity, contradiction or insufficiency, the act is considered not reasoned (…)." – (article 109 of the i.p.);

• "(…) Analysing the Stamp Duty collection notes at issue, it is concluded that the reasoning contained therein is non-existent, not permitting the taxpayer, or a normal recipient, to reconstruct the valuative itinerary followed by the Tax Administration which culminated in the decision to tax the properties of which the Applicant is the owner." – (articles 130 to 132 of the i.p.);

• "(…) That is, the ATA does not explain or justify the assessment of a tax which according to the wording of the substantive scope rule falls on properties intended for residential designation, but which in the case at issue is being exacted based on the ownership of «building land», which constitutes a type of urban property completely distinct from residential properties." – (articles 136 to 138 of the i.p.);

• "In the case at issue there was an enhanced duty of reasoning given that the assessments proceed from an error as to the qualification of the properties, falling consequently to the ATA to explain why it assessed SD on building land, when it is certain that the enabling rule encompasses taxation in the sphere of properties with residential designation." – (articles 141 and 142 of the i.p.);

• "Thus, also for this reason the assessments at issue are illegal due to a defect of reasoning." – (article 143 of the i.p.);

On indemnitory interest

• "As results from the attached documents, the applicant paid on 05/May/2014 the first instalment of the Stamp Duty contested (docs. 7 and 8), in the total amount of € 9,604.68 and states that it will pay the remaining instalments which will become due during the calendar year 2014." – (articles 151 and 152 of the i.p.);

• "In accordance with article 100 of the TCS, the ATA is obliged, in the event of success [as is hoped] of the impugnation to restore the situation that would have existed if the illegality had not been committed." – (article 153 of the i.p.);

• "In the specific case, the restoration of legality implies the restitution of the amounts paid." – (article 154 of the i.p.);

• "Furthermore, the same article 100 determines the payment of indemnitory interest in the terms and conditions provided by law. In accordance with article 43 of the TCS, indemnitory interest is owed when it is determined that there was error attributable to the Services resulting in the payment of a debt greater than that legally owed, which in the case at issue corresponds to the entirety." – (articles 155 and 156 of the i.p.);

• "The assessments contested derive exclusively from an erroneous application of Item 28 of the TGIS, whereby it is evident the error attributable to the Services, which should be declared in the decision to be rendered, determining not only the restitution of the amounts paid, but also the payment of indemnitory interest, in favor of the applicant." – (articles 157 to 159 of the i.p.).

In its response, arguing for the dismissal of the request for arbitral decision, the TA came to defend, briefly summarized, that:

• "The Author of the request for arbitral decision understands that the assessment in question is illegal, inasmuch as the retroactive application of the law (item 28 of the General Table, added by Law no. 83-C/2013, of 31 December) violates the legitimate expectations of taxpayers, thus justifying its annulment by the Arbitral Tribunal." – (article 2 of the response);

• "It further alleges that the properties at issue constitute «building land», whereby it is necessary to conclude that there was an error as to the assumptions of the assessment, given that the TA assessed SD on properties which fall within the sphere of «building land» when it is certain that the substantive scope rule defines as a taxable event only properties with residential designation." – article 3 of the response);

• "The Applicant considers that «in the absence of a substantive scope rule enabling the assessment, the contested act is illegal in accordance with article 99, a) of the TCPT». However, the Applicant is not correct, and all the arguments put forward by it are contested from the outset." – (articles 4 and 5 of the response);

• "(…) it is the understanding of the TA that the properties at issue have the legal nature of property with residential designation, whereby the acts of assessment which are the subject of the present request for arbitral decision must be upheld as they embody a correct interpretation and application of the normative provisions." – (article 6 of the response);

• "(…) Law no. 55-A/2012, of 29/10/2012, amended art. 1 of the Code of Stamp Duty (CSD) and added to the General Table of Stamp Duty (TGIS) item 28" – (article 7 of the response);

• "With this legislative amendment, SD would henceforth also apply to the ownership, usufruct or right of superficies of urban properties whose patrimonial value recorded in the register, in accordance with the Code of the Municipal Property Tax (CIMI) is equal to or exceeding € 1,000,000.00" – (article 8 of the response);

• "In the absence of any definition of the concepts of urban property, building land and residential designation, in the context of SD one must resort to the CIMI in search of a definition which permits determination of possible subjection to SD, in accordance with what is provided in art. 67, no. 2 of the CSD in the wording given by Law no. 55-A/2012, of 29/10." – (article 10 of the response);

• "In accordance with the said legal provision, to matters not regulated in the Code, relating to item 28 of the TGIS, the provisions of the CIMI shall apply subsidiarily." – (article 11 of the response);

• "The notion of designation of the urban property is found in the part relating to the valuation of properties, which is well understood inasmuch as the valuation of the property (purpose) incorporates the value of the property, constituting a determining distinction fact (coefficient) for valuation purposes". "As results from the expression «… value of authorized buildings», contained in art. 45, no. 2 of the CIMI the legislator opted to determine the application of the methodology of valuation of properties in general to the valuation of building land, and, consequently, the dedication coefficient provided for in art. 41 of the CIMI is applicable to them" "In this sense see the Judgment no. 04950/11, of 14/02/2012, of the Administrative Court of Southern Region (…)." – (articles 14 to 16 of the response);

• "Contrary to what the Applicant argues, the TA understands that the concept of «properties with residential designation», for the purposes of what is provided in item 28 of the TGIS, comprises both built properties and building land, starting from the literal element of the rule." – (article 18 of the response);

• "(…) the legislator does not refer to «properties destined for residence», having opted for the notion of «residential designation». An expression different and broader whose meaning must be found in the need to integrate other realities beyond those identified in art. 6, no. 1 letter a) of the CIMI" – (article 19 of the response);

• "Moreover, the mere constitution of a right of potential construction immediately increases the value of the property in question, hence the rule resulting from art. 45 of the CIMI (…)." "On one side, the part of the land where the building to be constructed will be implanted is considered, and on the other the area of free land. Once the amount of the first part is determined, the value determined is reduced to a percentage between 15% and 45% as provided for in no. 2 of the said rule, by virtue of the construction not yet being effected. As regards the value of the land adjacent to the implantation area, this is determined in the same terms as the value of the free land area and the excess land area for the purposes of any urban property." – (articles 20 to 22 of the response);

• "With regard to the legal regime of urbanization and building, it should be noted that it presupposes buildings already constructed" (…) the building license permit for carrying out urbanistic operations should contain (…) the number of plots and the indication of the location area, purpose, implantation area, building area, number of floors and number of units of each of the plots, with specification of units intended for housing at controlled costs (…)." "And also article 77 of the LUBE contains mandatory specifications (…).". – (articles 23 to 25 of the response);

• "Also the Municipal Master Plans establish the strategy of municipal development, the municipal policy of territorial planning and urbanism (…)." "In these terms, long before the actual construction of the property, it is possible to determine and establish the designation of the building land." – (articles 26 and 27 of the response);

• "With respect to the alleged violation of the principle of non-retroactivity of tax law inherent in art. 103, no. 3 of the Constitution of the Portuguese Republic, the TA understands that the provision of item 28 of the TGIS does not constitute any violation of the said constitutional provision." "(…) because the rule that determines the objective scope art. 1 of the CSD has the same wording, since the amendment given by law no. 55-A/2012, of 29/10, thus in 2013 and 2014, there is no succession of laws regarding this provision." – (articles 28 to 30 of the response);

• "As regards the alleged defect of lack of reasoning of the assessments now contested, the TA must disagree with this understanding, (…) because (…) the jurisprudence of the Supreme Administrative Court (SAC) has uniformly come to understand that the reasoning of the act is a relative concept which varies according to the type of act and the circumstances of the specific case, it being sufficient reasoning when it permits a normal recipient to understand the cognitive and valuative itinerary followed by the author of the act (…) the reasons which led the author of the act to decide in that manner and not another." – (article 33 of the response);

• "(…) from the acts now contested appears the identification of the properties subject to taxation, the type of tax, the enabling rule and respective values and payment dates." – (article 38 of the response);

• "(…) so much so that these reasons – grounds – were widely understood and subsequently referenced and attacked by the now Applicant in its request for arbitral decision, because otherwise it would not have been possible to prepare the present request for arbitral decision." – (article 39 of the response);

• "(…) if there were a situation of lack or insufficiency of reasoning (…) it was incumbent on the Applicant to request the issuance of the certificate provided for in article 37 of the TCPT (…) as explained by ANTÓNIO LIMA GUERREIRO (in "Annotated General Tax Law", Rei dos Livros, 2000, p. 341) (…)."– (articles 40 and 41 of the response);

• "(…) having the Applicant not availed itself of that power conferred by law, it must be concluded that the acts sub judice contained, and contain, all the elements necessary for their full understanding and that the alleged defect of which it suffered was remedied.", (…) "whereby such argumentation should fail in its entirety". – (articles 42 and 44 of the response);

• "(…) the now Applicant petitions the corresponding indemnitory interest, in consequence of payment of the undue tax now contested". "However, the petitioned relief must fail, starting from the fact that the Tax Authority adhered to strict compliance with the legal provisions to which it is bound" (…) "it cannot ever (…) be considered that there was error attributable to the services." – (articles 46 and 47 of the response);

• "Whereas the arbitral process, in accordance with the terms defined by the LRTA, aims at mere control of the legality of the contested assessment, it cannot therefore determine that there was «error attributable to the services» when through a legally sustained interpretation of the tax fact subject to assessment the due Stamp Duty is assessed." – (article 49 of the response);

• "Thus, no indemnitory interest is owed since there is no error attributable to the services generating any obligation to indemnify" "Finding therefore excluded the possibility of recognition of the right to indemnitory interest, in accordance with no. 1 and no. 2 of article 43 of the TCS" – (article 51 of the response).

Order of examination of the defects

• On error as to assumptions

In accordance with the provision of article 124 of the TCPT, subsidiarily applicable to tax arbitral proceedings by force of the provision of article 29, no. 1, letter a), of the LRTA, it being the case that the Stamp Duty assessments now contested are not charged with defects leading to declaration of non-existence or nullity, and no relationship of subsidiarity indicated between them, the order of examination of the defects must be that which, according to the prudent discretion of the judge, ensures the most stable or effective protection of the offended interests.

In the case at issue, the defect imputed by the Applicant to the tax acts which are the subject of the request for arbitral decision, which provides the most stable and effective protection of its interests, is that which relates to the error as to the assumptions in the issuance of the Stamp Duty assessments of the year 2013, which, if verified, will definitively preclude the possibility of renewal of the contested tax acts.

Effectively, although the Applicant begins by invoking the unconstitutionality of the Stamp Duty assessments contested – and the defect of unconstitutionality would be examined as a priority –, on the assumption that they were issued in accordance with the provisions of item 28 of the TGIS, in the wording given to it by article 194 of Law no. 83-C/2013, of 31 December, in which case there would be a retroactive application of tax law to a tax fact produced before the date of its entry into force, it is concluded that it does so on a merely hypothetical basis, as appears from the remainder of the impugning discourse.

For that, as subsequently affirmed in articles 21 and et seq. of the arbitral request, the assessments of the tax at issue should be governed by the regime established in the General Table of Stamp Duty with the wording introduced by Law 55-A/2012, given that the taxable event occurred during the period of its validity (underlined by us). And it is in that light that the alleged errors as to the assumptions will be examined.

All the more so, as has been recognized by the Supreme Administrative Court (cfr., inter alia, the Judgments of the SAC, of 9 April 2014, in process no. 01870/13; of 28 May 2014, in process no. 0396/14; of 10 September 2014, in process no. 0503/14 and, of 29 October 2014, in process no. 0864/14, available at http://www.dgsi.pt/, the amendment introduced to item 28 of the TGIS by Law no. 83-C/2013, of 31 December, does not have an interpretative nature: "This amendment – to which the legislator attributed no interpretative character, nor does it seem to us that it did –, merely makes unequivocal for the future that building land whose construction, authorized or envisaged, is for residential purposes is included within the scope of item 28.1 of the General Table of Stamp Duty (provided that the respective patrimonial value is of value equal to or exceeding 1 million euros), clarifying nothing, however, regarding past situations (assessments of 2012 and 2013), such as the one at issue in the present case".

The objective scope of incidence includes, in accordance with article 1, no. 1, of the Code of Stamp Duty, "all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property".

For its part, item 28 of the TGIS, in the wording given to it by Law no. 55-A/2012, of 29 October, applicable to the situation under analysis, provided that the following situations were subject to stamp duty:

«28 — Ownership, usufruct or right of superficies of urban properties whose patrimonial value recorded in the register, in accordance with the Code of the Municipal Property Tax (CIMI), is equal to or exceeding € 1,000,000 — on the patrimonial value used for IMI purposes:

28.1 — For property with residential designation — 1 %;

28.2 — For property, where the taxpayers who are not natural persons are resident 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 %.»

Item 28.1 of the TGIS providing for the incidence of the tax on "properties [urban] with residential designation", a concept which is not defined in the Code in which it is inserted, the interpreter must resort to the provisions contained in the Code of the Municipal Property Tax, for whose subsidiary application it refers, en bloc, in no. 2 of article 67 of the Code of Stamp Duty, added by the same Law no. 55-A/2012, of 29 October and whose provision is that "2 - To matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply, subsidiarily."

However, neither does the CIMI give us the concept of "properties with residential designation", given that no. 1 of its article 6, in which the classification of urban properties is established, provides that these may be classified as: a) Residential; b) Commercial, industrial or for services; c) Building land; d) Other, with nos. 2, 3 and 4 of the same article delimiting what should be understood by each of those designations.

Thus, for the purposes of IMI and, consequently, of Stamp Duty, urban residential, commercial, industrial or for services properties are "buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes" (no. 2 of article 6 of the CIMI) and building land are "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 building operation, and also those which have been so declared in the title of acquisition, excepting land where the competent entities prohibit any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal territorial planning plans, are designated for public spaces, infrastructure or equipment" (no. 3 of the same article).

As appears from the literal tenor of the cited rules, it is not possible any equation between a building or construction licensed or having as its normal destination residence and land with constructive potentiality, nor defensible the proposition that "the legislator does not refer to «properties destined for residence», having opted for the notion of «residential designation». An expression different and broader whose meaning must be found in the need to integrate other realities beyond those identified in art. 6, no. 1 letter a) of the CIMI" – (article 19 of the TA's response).

As the reasoning stated in other arbitral decisions (cfr., inter alia, the decisions rendered in processes nos. 53/2013-T, 144/2013-T and 158/2013-T, available at https://caad.org.pt/tributario), the meaning of the expression "property with residential designation", if it were to be different from the expression "residential property" could only be more restricted than this, in that, according to the meaning it has in common language, the expression "with residential designation" means "with residential use" and never a broader meaning.

On the other hand, having regard to the referral made by no. 2 of article 67 of the Code of Stamp Duty to the Code of IMI, it cannot be accepted the interpretation that the expression «residential designation» may integrate other realities beyond those identified in article 6, no. 1 letter a) of the CIMI, as the principle of specificity of tax law opposes this. If the legislator had wished to tax building land, in accordance with item 28.1 of the TGIS, in its original wording, it would have said so expressly, as it subsequently did, through the amendment introduced by Law no. 83-C/2013, of 31 December.

On the non-inclusion of building land in the category of urban properties of «residential designation» the Supreme Administrative Court has successively pronounced itself (cfr., in particular, the Judgment of the SAC, of 29 October 2014, in process no. 0864/14, available at http://www.dgsi.pt/), when it decided that "The fact that it may be considered that in the determination of the patrimonial value of urban properties classified as building land account should be taken of the designation which the construction authorized or envisaged for it will have for determination of the respective value of the implantation area (cfr. nos. 1 and 2 of article 45 of the CIMI), does not determine that building land may be classified as «properties with residential designation», inasmuch as «residential designation» always appears in the Code of IMI referred to «buildings» or «constructions», existing, authorized or envisaged, inasmuch as only these can be inhabited, which is not the case for building land, which does not, in itself, have conditions for such, not being susceptible to being used for residence unless and when the construction authorized and envisaged for it is erected thereon (but in that case it will no longer be «building land» but another type of urban property – «residential», «commercial, industrial or for services» or «other» – article 6 of the CIMI).

It would be strange, indeed, if the determination of the scope of the substantive scope rule of the tax incidence of item no. 28 of the General Table of Stamp Duty were to be found, in the end, in the rules for determination of the patrimonial value of the Code of IMI, and that the terminological imprecision of the legislator in the wording of that rule were, after all, elucidated and finally clarified by way of an indirect and equivocal referral to the dedication coefficient established by the legislator in relation to built properties (article 41 of the Code of IMI).

Thus, bearing in mind that building land – whatever the type and purpose of the construction which will be, or may be, erected thereon – does not by itself satisfy any condition for being licensed as such or for residence being defined as its normal destination, and the substantive scope rule of stamp duty referring to urban properties with "residential designation", without any specific concept being established for the purpose, it cannot be extracted therefrom that the same contains a future potentiality, inherent to a distinct property which may possibly be built on the land.

"Once the legislator has not defined the concept of (urban) properties with residential designation, and because article 6 of the CIMI, subsidiarily applicable to Stamp Duty provided for in the new item no. 28 of the General Table, shows a clear distinction between residential urban properties and building land, these cannot be considered, for the purposes of incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), as urban properties with residential designation" (underlined by us).

Fully adhering to this jurisprudence of the SAC, we determine as verified the error in the assumptions for issuance of the contested assessments, which justifies the declaration of their illegality and consequent annulment.

On indemnitory interest

The Applicant further requests that indemnitory interest be paid to it, due to error of the services, in accordance with article 43 of the General Tax Law (TCS).

The TA considers in its response that indemnitory interest is not owed, starting from the fact that "Whereas the arbitral process, in accordance with the terms defined by the LRTA, aims at mere control of the legality of the contested assessment, it cannot therefore determine that there was «error attributable to the services» when through a legally sustained interpretation of the tax fact subject assessment the due Stamp Duty is assessed." – (article 49 of the response).

It is believed, however, that the TA is not correct, inasmuch as the tax arbitral process was conceived as an alternative means to the judicial impugnation process (cfr. the legislative authorization granted to the Government by article 124, no. 2 (first part) of Law no. 3-B/2010, of 28 April (State Budget Law for 2010). Thus, although article 2, no. 1, letter a) of the LRTA uses the expression "declaration of illegality" to define the jurisdiction of the arbitral tribunals operating at CAAD, it should be understood that these jurisdictions comprise the powers which in a judicial impugnation process are attributed to tax tribunals.

Among those powers is that of examining the error attributable to the services, all the more so since among the grounds for judicial impugnation are counted, precisely, the "Erroneous qualification and quantification of income, profits, patrimonial values and other tax facts" (cfr. article 99, letter a), of the TCPT), regardless of its authorship.

On the other hand, letter b) of article 24 of the LRTA determines that the arbitral decision on the merits of the claim of which no appeal or impugnation lies binds the tax administration from the end of the period provided for appeal or impugnation, it being incumbent on this, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of the decisions of judicial tax tribunals, "to restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the purpose".

Similarly, article 100 of the TCS, applicable to the tax arbitral process by force of the provision in letter a) of no. 1 of article 29 of the LRTA, establishes that "The tax administration is obliged, in the event of total or partial success of gracious reclamations or administrative appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would have existed if the illegality had not been committed, comprising the payment of indemnitory interest, in the terms and conditions provided by law.".

And, in accordance with no. 1 of article 43 of the TCS, "Indemnitory interest is owed when it is determined, in gracious reclamation or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally owed."

The error attributable to the services may consist of error as to the assumptions of fact, which occurs whenever there is "a divergence between reality and the factual matter used as the assumption in the practice of the act", or error as to the assumptions of law, when "in the practice of the act there was erroneous interpretation or application of the legal rules, such as the rules of objective and subjective scope (…)" and "it is demonstrated when gracious reclamations or judicial impugnation of the same assessment proceed and the error is not attributable to the services".

In the case at issue, it appears manifest that, the illegality of the acts of assessment of Stamp Duty having been declared, by virtue of the erroneous application of the substantive scope rule contained in item 28.1 of the TGIS having been demonstrated, which justifies the annulment of the contested assessments, the right of the Applicant to indemnitory interest on the amounts incorrectly paid must be recognized, from the date of payment of each of the instalments, in accordance with the provision of no. 5 of article 61 of the TCPT, since such illegality is exclusively attributable to the Tax Administration, which carried out those tax acts without legal support.

Question with prejudiced knowledge

Having regard to the order of examination of the defects, in accordance with article 124 of the TCPT and the solution given to the above questions, the examination of the question relating to the defect of reasoning is prejudiced.

IV – DECISION

On the basis of the grounds set out above and, in accordance with article 2 of the LRTA, it is decided:

− To declare the illegality of the Stamp Duty assessments contested, due to error in the assumptions of law, determining their annulment;

− To condemn the Tax and Customs Authority to restitute to the Applicant the amounts incorrectly paid by it;

− To condemn the Tax and Customs Authority to pay indemnitory interest to the Applicant, from the date of each of the incorrect payments.

VALUE OF THE CASE: In accordance with the provision of article 306, no. 2 of the CPC and 97-A, no. 1, letter a) of the TCPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings the value of the case is fixed at € 28,814.00.

COSTS: In accordance with article 12, no. 2 of the LRTA, the costs are calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 1,530.00, to be borne by the Tax and Customs Authority.

Lisbon, 20 January 2015.

The Arbitrator,

/Mariana Vargas/

Document prepared by computer, in accordance with no. 5 of article 131 of the CPC, applicable by referral from letter e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The wording of this decision is governed by the 1990 Orthographic Agreement.

[1] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – Annotated and Commented", Volume I, Áreas Publisher, 5th Edition, 2006, p. 714.

[2] Ibid.

[3] CAMPOS, Diogo Leite de, RODRIGUES, Benjamim Silva, SOUSA, Jorge Lopes de, "General Tax Law – Annotated and Commented", Encontro da Escrita, 4th Edition, p. 342.