Stamp Tax on Building Land (Verba 28.1 TGIS) – CAAD Arbitration 555/2014-T

ARBITRAL AWARD

I – Report

1. The taxpayer "A…", Tax Number …, represented by "B…, S.A.", Tax Number …, submitted, on 29 July 2014, an application for constitution of a Collective Arbitral Tribunal (hereinafter "Application"), pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter "LFTA"), in which the Tax and Customs Authority (hereinafter "TCA") is the Respondent.

2. The Applicant requests an arbitral pronouncement on the illegality of four Stamp Duty assessments ("SD") (item 28.1 of the General Table of Stamp Duty ["GTSD"]) issued by the TCA, relating to four real properties owned by the Fund, and concerning the year 2013: collection documents No. 2014 …, in the amount of tax of €50,807.67 and No. 2014 …, in the amount of tax of €48,224.97, on real properties located in the Parish of …(…), and collection documents No. 2014 …, in the amount of tax of €10,555.94 and No. 2014 …, in the amount of tax of €16,529.76, on real properties located in the union of parishes of … (…), totalling €126,118.34; and requests their annulment.

3. The application for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to the TCA on 1 August 2014.

4. On 11 September 2014, the TCA communicated, pursuant to Article 13(1) of the LFTA, the decision to maintain entirely the tax acts underlying the application for arbitral pronouncement.

5. Pursuant to Article 6(2)(a) and Article 11(1)(b) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated the arbitrators of the Collective Arbitral Tribunal, who communicated their acceptance of the appointment within the applicable timeframe, and notified the parties of this designation on 17 September 2014.

6. The Collective Arbitral Tribunal was constituted on 2 October 2014; it was regularly constituted and is materially competent, in accordance with Articles 2(1)(a), 5, 6(1), and 11(1) of the LFTA (as amended by Article 228 of Law No. 66-B/2012, of 31 December).

7. Pursuant to Articles 17(1) and 17(2) of the LFTA, the TCA was notified on 2 October 2014 to submit its response.

8. The TCA submitted its response on 4 November 2014, accompanied by a copy of the administrative file, as requested.

9. In that response, the TCA alleges, in summary, the total lack of merit of the Applicant's application for arbitral pronouncement, requesting the dismissal of all claims.

10. Together with the response, and on the same date, the TCA submitted a request for waiver of the hearing provided for in Article 18 of the LFTA, considering that there were no obstacles to adjudication of the merits of the case, and that it was a purely legal matter not requiring witness evidence.

11. In a request of 10 November 2014, the Applicant manifested its agreement with the waiver of the hearing provided for in Article 18 of the LFTA.

12. The Arbitral Order of 10 November 2014 determined the waiver of both the hearing referred to in Article 18 of the LFTA and the submission of written pleadings by the parties; and set the date of 2 February 2015 for the delivery of the final decision.

13. The Parties have legal personality and capacity and have standing, pursuant to Articles 4 and 10(2) of the LFTA, and Article 1 of Ministerial Order No. 112-A/2011, of 22 March.

14. The Parties are duly represented.

15. The cumulation of claims relating to the four SD assessment acts underlying collection documents Nos. 2014 …, 2014 …, 2014 … and 2014 … is admissible under Article 3(1) of the LFTA, inasmuch as the merit of the claims depends on the assessment of the same factual circumstances and the interpretation and application of the same legal rules.

16. The proceedings are free from defects and no prior or subsequent preliminary or exception issues prejudicial to adjudication of the merits have been raised, with the conditions met for a final decision to be delivered.

II – Reasoning: Matters of Fact

II.A. Facts Deemed Proven

a) The Applicant was notified of the following four SD collection notes (1st instalment) issued by the TCA, relating to four real properties of its ownership, concerning the year 2013:

i) note No. 2014 …, in the amount of tax collection of €50,807.67, relating to the urban real property located in …, …, parish of … (…), registered in the respective land registry under article …, with the taxable property value (TPV) of €5,080,766.67;

ii) note No. 2014 …, in the amount of tax collection of €48,224.97, relating to the urban real property located in …, …, parish of … (…), registered in the respective land registry under article …, with the TPV of €4,822,497.13;

iii) note No. 2014 …, in the amount of tax collection of €10,555.94, relating to the urban real property located in …, union of parishes of … (…), registered in the respective land registry under article …, with the TPV of €1,055,594.35;

iv) note No. 2014 …, in the amount of tax collection of €16,529.76, relating to the urban real property located in …, …, union of parishes … (Cascais), registered in the respective land registry under article …, with the TPV of €1,652,976.13;

totalling the global amount of €126,118.34 (cf. the collection notes attached as docs. Nos. 1 to 4 to the Application and the land registry books attached as docs. Nos. 5 to 8 to the Application).

b) The Applicant is a Real Estate Investment Fund, subject to the Legal Framework for Real Estate Investment Funds (Decree-Law No. 60/2002, of 20 March, as amended and republished by Decree-Law No. 71/2010, of 18 June).

c) The real properties subject to the SD assessment are building land, as identified in their respective urban land registry books (cf. docs. Nos. 5 to 8 attached to the Application).

d) The real properties located in the parish of … are subject to various classifications in accordance with applicable Land Management Plan (PDM), National Ecological Reserve (REN) and Coastal Zone Management Plan (POOC) criteria, but as of the date of the assessments were neither constructed nor under construction; and even in the building land there was no final order or decision of the subdivision request, already submitted but still pending.

e) The real properties located in the union of parishes of … are likewise subject to various classifications in accordance with applicable Land Management Plan (PDM), National Ecological Reserve (REN) and Coastal Zone Management Plan (POOC) criteria, but as of the date of the assessments were neither constructed nor under construction; and even in the building land there was no final order or decision of any urban development operation request, any subdivision or construction permit from which the permission for any urban development operation would follow.

f) All assessments are based on item No. 28.1 of the GTSD, annexed to the Stamp Duty Code ("SDC"), as amended by Law No. 55-A/2012, of 29 October, which provides for an additional rate of 1% on real properties with residential use with taxable property value equal to or exceeding one million euros (cf. the collection notes attached as docs. Nos. 1 to 4 to the Application).

II.B. Motivation of the Fact Decision

a) The evidence presented is documentary in nature, based in particular on the land registry books of the identified real properties and the SD collection notes, as referred to in the evidentiary section, and was incorporated into the proceedings.

b) No fact proven in the case had its authenticity or correspondence with the facts questioned.

c) There are no unproven facts of interest for the decision of the case.

III – Reasoning: Matters of Law

III.A. Position of the Applicant

a) The Applicant contends that the assessments are vitiated by nullity arising from the unconstitutionality of the provision in item No. 28.1 of the GTSD, in addition to various related invalidity defects connected with that legislation; and that, additionally, the assessments reveal errors concerning the legal basis and result in duplication of tax collection.

b) The Applicant reconstructs the legislative process that led to Law No. 55-A/2012, of 29 October and to the regime established in item No. 28.1 of the GTSD (enriched with the autonomous consideration of the effects of the transitional regime established by Article 6 of Law No. 55-A/2012), with the objective of demonstrating that the legislative intent was exclusively to increase the taxation of real properties with residential use whose taxable property value exceeded one million euros, on the assumption that such properties would reveal especially high tax-paying capacity – because, it was tacitly understood and corresponded to public statements, the intention with this "additional to the Municipal Property Tax ("MPT")" was to tax luxury homes, residences enjoyed by those who had a million euros to invest in their acquisition.

c) It was, the Applicant argues, a matter of responding to cyclical needs for increased tax revenue through the creation of an "additional" modelled on the MPT but separate from it, so that the revenue could revert to the State and not, as in the case of the MPT, to the Municipalities.

d) The Applicant contends that unconstitutionality (and illegality of violation of principles of the General Tax Law ("GTL")) emerges especially from the consequences of the transitional regime established by Article 6 of Law No. 55-A/2012, insofar as it creates an instantaneous taxable event during the year 2012, violating the principle of protection of legitimate expectations, proportionality, equality and the prohibition of retroactivity (this by effect of both Article 6 and Articles 3 and 4 of Law No. 55-A/2012, from which would result, in the Applicant's view, not only retroactivity but also violation of proportionality and legality, with the duplication of taxable facts subject to the same tax resulting from the overlap of temporal criteria of incidence – and hence the duplication of tax collection).

e) The Applicant especially emphasizes the unconstitutionality that, in its view, results from the violation of the principle of equality: either because the discrimination between residential use (which is the only one burdened) and other possible uses, rural, urban (non-residential) or mixed that are possible in properties of the same value is unjustified; or because, relating to a past tax basis, it introduces a discrimination between those who promoted, and those who did not promote, transformations in their properties with impact on their respective value; or further because the attachment to total taxable property value leads to exacerbate form over substance, inducing the indiscriminate treatment of very diverse realities (namely privileging residential properties in horizontal property division to the detriment of others, even if these are in an identical situation of division into units capable of independent use).

f) On the other hand, the referral in Law No. 55-A/2012 to the conceptual and interpretive framework of the Municipal Property Tax Code ("MPTC") generates an irremediable ambiguity, in the Applicant's view, which is the use in item 28.1 of the GTSD of a concept – "residential use" – which finds no precise correspondence in that other conceptual and interpretive framework.

g) Moreover, in the case at hand, that referral to the MPTC would immediately make clear that this other statute divides, in its Article 6, the categories of "buildings or constructions", on the one hand, from the category "building land", on the other, as subcategories within the set "urban real properties", reserving exclusively to the first subcategory the purposes "residential, commercial, industrial" – thus refusing, outright, the possibility of "residential use" having either effectiveness or legal relevance, or legal-tax relevance, in "building land".

h) Indeed, the Applicant adds, even the admission of such "residential use" to building land would not preclude that the mere constructive potential of these could never be realized, translating into an effective residential use – so that such "use" could never designate, in that case, more than a potential of a future and hypothetical destination – incomparable with the "actuality" of a building or construction apt to immediately perform its residential function.

i) Taking these implications as evident, the Applicant draws therefrom the conclusion that the assessments that disregarded them can only be vitiated by error of fact or law imputable to the TCA services – either the factual error of confusing "building land" with "buildings or constructions", or the legal error of considering that both categories – "building land" on the one hand, "buildings or constructions" on the other – would be subsumable indiscriminately under the same provision, item 28.1 of the GTSD.

j) To this latter end, the Applicant further appeals to Article 11(1) of the GTL, insofar as it establishes the subordination to terminology employed in other branches of Law, when reference is made to them – which would precisely occur in the case at hand, making use of civil law meanings of "real property" to also infer therefrom that a building land can never be considered a construction serving residential purposes. Concomitantly, the principle of "specific typicality" is emphasized to prevent any "densification" of the concept of "residential use" that goes beyond the limitations resulting from the conceptual importation from other branches of Law.

k) In support of its allegation that there was a factual error and a legal error, the Applicant concludes by invoking the jurisprudence meanwhile accumulated on the subject, in judicial and arbitral proceedings.

l) The Applicant further contends that the assessments are vitiated by lack of reasoning pursuant to Articles 36 et seq. of the Tax Procedure and Process Code ("TPPC"), Article 77(6) of the GTL, Article 125 of the Code of Administrative Procedure ("CAP") and Article 268 of the Constitution of the Portuguese Republic ("CPR") and by absence of prior hearing, for the purposes of Article 60(1)(a) of the GTL.

m) Given the existence of error imputable to the services, which may result in payment of tax debt in excess, the Applicant claims compensatory interest, pursuant to Articles 61 of the TPPC and 100 of the GTL.

n) It concludes by invoking "bad faith litigation", which in its view would result from the fact that the TCA cannot ignore the non-existence or error of grounds for the assessments it made; which in the Applicant's view would even result from the amendment to item 28.1 of the GTSD carried out by Article 194 of Law No. 83-C/2013, of 31 December, which, by expressly including in the scope of the provision "building land whose building, authorized or foreseen, is for residential purposes", would be acknowledging the prior omission or ambiguity.

III.B. Position of the Respondent

a) In response, the TCA contends that the Applicant has no grounds, and that the reasoning of the assessments is based on the correct interpretation and application of the relevant regulatory framework.

b) The Respondent argues that the wording of item No. 28.1 of the GTSD is unambiguous in its sense and scope, both in the generality with which it encompasses ownership of urban real properties whose taxable property value is equal to or exceeding one million euros, and in its referral to the concepts and criteria of the MPTC.

c) The Respondent points out that such referral makes clear that building land is included in the category "urban real properties" (Article 6(1) MPTC), and that their taxable property value cannot fail to be assessed taking into account their use, residential or non-residential (pursuant to Article 45(2), and for the purposes of Article 41, both of the MPTC).

d) Being so, "residential use" would not be a characteristic to be considered autonomously, but an element intrinsic to the very classification of the property, something already reflected in the calculation of its taxable property value (as would result from Article 45 of the MPTC). That "use" would thus be determined in a moment prior to that in which other rules (such as the Urban Property Regime, for example) specify the concrete uses of the properties.

e) The TCA further contends that such regime of item No. 28.1 of the GTSD does not violate any constitutional principle or rule, either because there is nothing retroactive about it (given that in 2013, the year to which the assessments relate, there was no change of regime), or because it does not violate equality (given that it discriminates only what is different, and does so by application of general and abstract criteria, and given further that it is subject to an explicit criterion of adequacy).

f) The Respondent defends itself from the argument of lack of reasoning of the assessments by invoking the principle that reasoning is sufficient when it leads the recipient to an understanding of the determining reasons for the decision, without need for exhaustive description or full enumeration of all the conditions, proximate and remote, of those reasons.

g) The Respondent even recalls that insufficiency of reasoning should have led, on the part of the Applicant, to requesting the issuance of a certificate as provided for in Article 37 of the TPPC, which did not happen; and that, on the other hand, the very application for arbitral pronouncement demonstrates, in the precision of its arguments, that the Applicant understood well the reasons for the decision underlying the assessments, with which it disagrees precisely insofar as it does not ignore them.

h) On the other hand, the TCA seeks to remove the idea that there may have been error imputable to the services in the issuance of the assessments, so as to rule out the possibility of compensatory interest being owed to the Applicant.

i) Likewise, and finally, it contests the Applicant's allegation that there was bad faith litigation, and for this recalls that the condition of Article 104(1) of the GTL, which is the applicable rule – and not another rule such as those to which the Applicant resorted in its argument – is not met.

III.C. Issues to be Decided

1. Given the application for arbitral pronouncement that was filed, and as results from the facts described above (see subsection (a) of the evidentiary section), the present proceedings have as their object the SD assessments resulting from notes Nos. 2014 …, 2014 …, 2014 … and 2014 … which relate to the year 2013. In consequence, it only matters to examine in these proceedings the issues that are relevant for the resolution of the dispute regarding this object, it not being incumbent on this Tribunal, given the mission assigned to it (Articles 1 and 2 of the LFTA), to pronounce on matters that do not assume relevance for the decision because they are not capable of affecting the case at hand.

2. Now, as easily results from the description of the Applicant's position made above, it is evident that throughout the Application various matters are exposed on the topic of stamp duty on urban real properties with taxable property value equal to or exceeding €1,000,000.00 subject to item 28.1 of the GTSD introduced by Law No. 55-A/2012, of 29.10, which entirely go beyond the confines of the procedural object under examination here.

3. This is the case with the allegation of unconstitutionality of Articles 3, 4 and 6(1) of Law No. 55-A/2012, of 29.10, based on the invocation that the creation of a new instantaneous taxable event relating to 31 October 2012, as well as the subsequent constitution of another taxable event on 31 December 2012, violate the "principle of the democratic rule of law in the aspect of the sub-principle of protection of legitimate expectations and proportionality, as well as the principle of equality and prohibition of retroactivity of tax law (Articles 2, 13 and 103 of the CPR)" (Articles 32 to 44, 52 to 54, 58 to 59 of the Application), which is manifestly irrelevant to these proceedings, inasmuch as the assessments here challenged (see subsection (a) of the evidentiary section) relate to the year 2013, in collection in 2014, not having as supporting foundation the provision of Article 6(1) of the mentioned Law No. 55-A/2012.

4. Similarly, it is irrelevant for the resolution of the present dispute the invocation of unconstitutionality of item 28 of the GTSD for violation of the principle of equality (Articles 55 to 57 of the Application) regarding the normative interpretation that, for the definition of the value of the property, the global value in urban real properties registered in the matrix in full ownership with flats or units capable of independent use is relevant, given that this pure and simple real property reality does not manifest itself in the proceedings (cf. subsections (a), (c), (d) and (e) of the evidentiary section).

5. In this way, extracting from the prolix statement filed by the Applicant the reasons alleged which, taking into account the object of the proceedings, can be effectively relevant for the resolution of the dispute, the following are the issues that it falls to address here for resolution of the case at hand (without prejudice to the response to a certain issue being able to prejudice knowledge of others):

a) unconstitutionality of the provision of item No. 28 of the GTSD on the taxation of "urban real properties" "with residential use" for violation of the principle of equality (Articles 13 and 103 of the CPR), by excluding from the new tax rural real properties (Article 3 of the MPTC), urban real properties with non-residential use (Article 6 of the MPTC), such as urban real properties of the kind "commercial, industrial or for services", and mixed real properties (Article 5 of the MPTC);

b) factual error or legal error in the assessments challenged, in the first case "for having considered that the building land of the applicant (...) were erroneously subsumed to the category buildings or constructions licensed or intended for residential purposes (...)" (Article 76 of the Application), in the second case "for interpreting the mention in the provision of item numbers 28 and 28.1 of the General Table (...) to "urban real properties" (...) "with residential use" in the sense of encompassing both categories of urban real properties provided for in Article 6(1)(a) and (b) and 6(2) (buildings or constructions) and 6(3) of the MPTC (building land)" (Article 77 of the Application);

c) lack of reasoning, in violation of Articles 36 et seq. of the TPPC, Article 77(6) of the GTL, Article 125 of the CAP and Article 268 of the CPR "because it is not apparent to a normal recipient the reason why parcels of land intended for construction but not constructed are taxed, when all known jurisprudence goes in the sense that the fattispecie of the provision (…) does not include the category of building land" (Article 94 of the Application);

d) lack of prior hearing of the Applicant at a moment prior to the making of the assessments (Article 60(1)(a) of the GTL);

e) right to compensatory interest pursuant to Articles 43 and 100 of the GTL and 61 of the TPPC, given the Applicant's request that "it be expressly declared that error of the services exists and recognized (...) right to compensatory interest on all amounts contested which (...) may, eventually, come to be paid until the end of the proceedings";

f) bad faith litigation of the Respondent, pursuant to the Applicant's request that the TCA "be condemned to pay compensation to the applicant for bad faith litigation, to be fixed by fair arbitration of the tribunal, ex vi of the provisions of Articles 542 and 543 of the Code of Civil Procedure, should the litigation against express law be maintained, deliberately or at least with gross negligence, because it cannot be unaware of the lack of grounds for its position".

1. Bearing in mind, as is evident from the foregoing description, the ordering effected by the Applicant regarding the defects invoked (cf. Article 124 of the TPPC), it is important to note that the adjudication of the dispute must necessarily begin with the matter of factual error or legal error of the assessments in question as to the inclusion of building land in item 28.1 of the GTSD. In effect, the issue regarding the (non-)constitutional conformity of the normative solution resulting from the law can only be known after the realization, in concreto, of the very interpretation of the relevant legal provision and the assessment of its application to the case at hand, given that, evidently, it only makes sense and has utility to examine the unconstitutionality of the normative solution contained in item 28.1 of the GTSD if it is concluded, in the context of its interpretation and concretization, that the same is applicable to the situation of the proceedings; if this is not the case, namely because it is judged that the tax incidence does not encompass the reality at issue then that issue of unconstitutionality of the rule does not arise procedurally.

2. In these terms, the first issue that it is important to begin to examine concerns the verification of the legal conformity of the tax assessment acts challenged with the law, specifically, with the provision subject to item 28.1 of the GTSD.

III.D. Item 28.1 of the GTSD and "Building Land"

1. For resolution of the issue relating to the invoked error concerning the factual or legal basis of the assessments challenged, which is basically founded on the allegation that item 28.1 of the GTSD did not permit the collection of this SD in relation to building land, it is important to bear in mind the version applicable ratione temporis of item 28 and sub-item 28.1 of the GTSD, which is constituted by the wording given by Article 4 of Law No. 55-A/2012, of 29 October (previous, therefore, to the modification made by Law No. 83-C/2013, of 31 December). Now, as of the date of the facts, item 28.1 provided as follows:

"28. Ownership, usufruct or right of superficies of urban real properties whose taxable property value as registered in the matrix, pursuant to the Municipal Property Tax Code (MPTC), is equal to or exceeding (euro) 1,000,000 - on the taxable property value used for purposes of MPT:

28.1 For real property with residential use 1%".

1. Now, there is no specific definition in the SDC of the concept of real property with residential use, which is necessary for the purposes of concretization of the tax subjection resulting from item No. 28.1 of the GTSD, so that such omission on a decisive issue in need of regulation must be duly overcome. To this end, it appears as indispensable the application of the determination contained in Article 67(2) of the MPTC, pursuant to which: "To matters not regulated in this Code relating to item No. 28 of the General Table, the provisions of the MPTC apply, subsidiarily". Thus, not appearing in the SDC any characterization of the reality "real property with residential use", as well as, indeed, of the very figure of building land, it is incumbent to operate with the referral to the MPTC that results from the direct and specific placement of this statute as subsidiary law (in which there is not even a reservation of the classic caveat "with the necessary adaptations") in relation to item No. 28 of the GTSD.

2. It should further be added that the SDC, before the introduction by Law No. 55-A/2012 of this item No. 28 of the GTSD, already contained a specific rule of referral to the MPTC for purposes of the definition of the concept of real property, as Article 1(6) of the SDC establishes that: "For purposes of this Code, the concept of real property is that defined in the Municipal Property Tax Code".

3. In these terms, by force of these referral provisions, the definition of "urban real property" "with residential use" and the understanding of the figure of building land necessarily involves the consideration of the provisions specific to the MPTC in which the legislator proceeded to the characterization of the various real property realities relevant, provisions that are constituted, regarding what matters here taking into account the references to "real property", "urban real properties" and real properties "with residential use" contained in item 28.1 of the GTSD, by Article 2 and by Article 6 of the MPTC.

4. Now, pursuant to Article 2(1) of the MPTC, "real property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or resting on it, with a character of permanence, provided 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 circumstances above, endowed with economic autonomy in relation to the land on which they are implanted, although situated on a fraction of territory that constitutes an integral part of assets other than its own or does not have proprietary nature". For its part, Article 6 of the MPTC provides concerning the "categories of urban real properties" as follows: subsection (1) provides that urban real properties are divided into "a) Residential; b) Commercial, industrial or for services; c) Building land; d) Other"; subsection (2) establishes that: "Residential, commercial, industrial or for services are buildings or constructions licensed for such or, in the absence of a license, that have as their normal purpose each of these ends"; subsection (3) states that: "Building land is considered the land situated within or outside an urban settlement, for which a license or authorization has been granted, prior notification admitted or favorable preliminary information issued for subdivision or construction operation, and also those which have been so declared in the acquisition title, excepting land in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning plans, are dedicated to spaces, infrastructure or public facilities".

5. According to these definitional legal provisions contained in the MPTC, under the categories of urban real properties, it is proper to differentiate entirely, as two autonomous and distinct categories, residential, commercial, industrial or service buildings or constructions and building land (cf., further, the manifestations of this distinction that result from the different regulations subject to Article 40-A(1), (2), (3) and (5) and Articles 41 and 45, all of the MPTC).

6. Now, the legal formula "real property with residential use" contained in item 28.1 of the GTSD, although not entirely coincident with the expression real properties "residential" resulting from Article 6(2) of the MPTC, immediately appeals, as is evident from the mention in this provision of "normal purpose" for the residential end, to the classification of categories of urban real properties subject to the said Article 6(2) of the MPTC, in which it selects residential buildings or constructions, selecting in these the buildings or constructions which actually have residential use.

7. Precisely, the characterization of building land that results from that legal definition in Article 6(3) of the MPTC does not pass through the concrete use, but rather through the destination for an operation, precisely, construction. In truth, while urban residential real properties are "buildings or constructions licensed for such or, in the absence of a license, that have as their normal purpose" that end (subsection (a) of Article 6(1) and 6(2) of the MPTC), building land is land "for which a license or authorization has been granted, prior notification admitted or favorable preliminary information issued for subdivision or construction operation, and also those which have been so declared in the acquisition title" (subsection (c) of Article 6(1) and 6(3) of the MPTC).

8. As such, the legal formula "real property with residential use" contained in item 28.1 of the GTSD does not comprise building land, as these, by force of the legal characterization in Article 6(3) of the MPTC, do not appear defined by a "residential use" proper to existing buildings or constructions (cf. Article 6(2) of the MPTC).

9. It should be clarified that, for the characterization of building land, the factors for consideration for purposes of assessment pursuant to Article 45 of the MPTC do not assume relevance, much less the use coefficient (Article 41 of the MPTC), which constitute elements of subsequent and autonomous consideration in relation to that characterization, not to mention the oddity that would be assumed by the determination of the scope of objective incidence of item No. 28 of the GTSD residing finally in a rule of determination of TPV (as noted in the award of the Administrative Supreme Court of 9.4.2014, proc. No. 1870/139).

10. Further, from a material or ontological standpoint, building land cannot be considered as real property with residential use (or any other use), because, by nature, building land, as long as it has that condition, has no use whatsoever, and, specifically, is not capable of being inhabited. For this reason, the Ombudsman, in a letter addressed to the Secretary of State for Tax Affairs, well questioned the following: "considering that in item 28.1 the legislator established taxatively the subjection to tax of real properties "with residential use", how is the taxation of building land explained, which, unless better informed, as long as there are no constructions on it capable of being used for residence and as such licensed by the competent authorities, are objectively incapable of having such use?".

11. Hence, in the award of the Administrative Supreme Court of 9 April 2014, proc. No. 1870/13, it was understood as follows: "given that building land – whatever the type and purpose of the building to be erected on it – does not of itself satisfy any condition to be so licensed or to be defined as having residence as its normal purpose, and given that the provision establishing the scope of the tax relates to urban real properties with "residential use", without any specific concept being established therefor, cannot therefrom be extracted that it contains a future potentiality, inherent in a distinct property that may perhaps be built on the land".

12. Add to this that this question of whether the concept of "real property with residential use" encompasses building land has already been examined in various instances by the Administrative Supreme Court which adopted a negative answer contained on the matter, establishing jurisprudence to the effect that "building land" cannot be considered for purposes of the incidence of Stamp Duty provided for in item 28.1 (as worded by Law No. 55-A/2012, of 29 October) as urban real properties with residential use. This unanimous jurisprudence of the Administrative Supreme Court, which can be gathered from the awards of 09.04.2014, proceedings Nos. 1870/13 and 48/14, of 23.04.2014, procs. Nos. 0270/14 and 0272/14, of 28.05.2014, proc. No. 0396/14, of 02.07.2014, proc. 0467/14, and of 09.07.2014, proc. 0676/14 (all available at dgsi.pt), is based precisely on the understanding that "not having the legislator defined the concept of "real properties (urban) with residential use", and resulting from Article 6 of the Municipal Property Tax Code - subsidiarily applicable to Stamp Duty provided for in the new item No. 28 of the General Table - a clear distinction between "urban residential real properties" and "building land", these cannot be considered, for purposes of the incidence of Stamp Duty (Item 28.1 of the GTSD, as worded by Law No. 55-A/2012, of 29 October), as urban real properties with residential use". Also in this CAAD it has been understood, in multiple arbitral decisions (cf. proceedings Nos. 42/2013-T; 48/2013-T; 49/2013-T; 53/2013-T; 75/2013-T; 144/2013-T; 158/2013-T; 180/2013-T; 189/2013-T; 191/2013-T; 215/2013-T; 231/2013-T; 288/2013-T; 310/2013-T), that item No. 28 of the GTSD, as worded by Law No. 55-A/2012, does not cover the autonomous category of urban real properties that are building land.

13. It is concluded, therefore, that the provision establishing the tax incidence contained in item 28.1 of the GTSD (cf., further, Article 1 of the SDC), to which the assessments challenged are based, in referring to "real property with residential use", does not encompass "building land". As stated, building land does not imply, as such, a residential use that would permit its subsumption to item No. 28 of the GTSD.

14. Given that the real properties subject to the assessments in question, that is, the real property located in …, parish of … (…), registered in the respective land registry under article …, the real property located in …, …, parish of … (…), registered in the respective land registry under article …, the real property located in …, …, union of parishes of … and … (…), registered in the respective land registry under article …, and the real property located in …, …, union of parishes of … (…), registered in the respective land registry under article … (cf. subsection (a) of the evidentiary section) constitute building land (cf. the facts deemed proven in subsections (c), (d) and (e) of the evidentiary section) and, as such, do not fall within the category of real properties "with residential use", it follows that they are not subject to the said item 28.1 of the GTSD, and SD thereunder cannot apply to them.

15. In consequence, the assessments challenged are vitiated by breach of law, due to error in the legal basis regarding the interpretation and application of item No. 28.1 of the GTSD, which does not apply to building land, which entails, pursuant to Article 135 of the CAP, the annulment of the assessments identified.

16. Given the merit of this illegality of the assessments in question, the examination of the issues alleged by the Applicant regarding the unconstitutionality of item 28.1 of the GTSD, the absence of reasoning and the lack of prior hearing is rendered unnecessary, by becoming moot.

III.E. Compensatory Interest

1. The Applicant invokes the right to compensatory interest, pursuant to Articles 43 and 100 of the GTL and 61 of the TPPC, on "amounts which may eventually come to be paid in the future", and thus formulates the request that "it be expressly declared that error of the services exists and recognized (...) right to compensatory interest on all amounts contested which (...) may, eventually, come to be paid until the end of the proceedings".

2. As is known, Article 43(1) of the GTL provides that "compensatory interest is due when it is determined, in amicable reclamation or judicial challenge, that there was error imputable to the services as a result of which payment of the tax debt was made in an amount greater than legally due" (cf. also Article 61 of the TPPC).

3. In the case, the illegality of the assessments challenged is imputable to the Respondent, because it made them in error concerning the legal basis, in the terms set out above, which implies the occurrence of error imputable to the services.

4. However, it is a prerequisite of the right to compensatory interest precisely the payment of a tax debt in an amount greater than legally due, that is, the existence of a tax to be reimbursed. Now, in the case, as results from the proceedings, there was no payment of any amount of the illegally assessed taxes, the Applicant even declaring that "up to the date of filing of this application has not proceeded to payment of the amounts assessed and challenged, and must request at the SF of Lisbon 10 the suspension of any executions to which the assessments in question may give rise, by indicating property for attachment" (see Article 100 of the Application).

5. Therefore, there is no factual basis for recognizing here, in the scope of the present proceedings, the right to compensatory interest, without prejudice, of course, to the duty incumbent on the TCA, in accordance with Article 24(1)(b) of the LFTA and Article 100 of the GTL, to restore the situation that would have existed if the illegal tax acts subject to the present arbitral decision had not been made, through the adoption of the acts and operations necessary thereto.

6. This claim for recognition of the right to compensatory interest invoked by the Applicant is therefore dismissed.

III.F. Bad Faith Litigation

1. Finally, the Applicant requests that the TCA "be condemned to pay compensation to the applicant for bad faith litigation, to be fixed by fair arbitration of the tribunal, ex vi of the provisions of Articles 542 and 543 of the Code of Civil Procedure, should the litigation against express law be maintained, deliberately or at least with gross negligence, because it cannot be unaware of the lack of grounds for its position and the tribunal should not condone arbitrary acts of the TCA for which there is not only no legal basis, with the TCA maintaining a deliberate attitude of violation of express rule".

2. The request thus formulated by the Applicant is notoriously without merit, for several reasons, and entirely lacks reasonable foundation.

3. First of all, given that the Applicant bases this claim on invocation of the provision in Article 542 of the current Code of Civil Procedure (and not on the provision of Article 104(1) of the GTL), it is appropriate to note that bad faith litigation presupposes a procedural action by the party, an unlawful act committed in the proceedings, so that, in this way, it is difficult to understand the consistency of a request for conviction as a bad faith litigant that precedes the very intervention in arbitral proceedings of the party subject to censure, in a true prognosis of the pleading of the response.

4. Second, as the Applicant bases this claim simply on the fact that the TCA adopts a certain normative interpretation of item 28.1 of the GTSD (which was not accepted here), it should be noted that the sustaining of theses controversial in doctrine or the defense of interpretations, without great solidity or consistency, of legal norms, does not constitute bad faith litigation, as consistently emphasized in jurisprudence (see, for example, the awards of the Constitutional Court No. 442/91, of 20.11.1992, Nos. 11 and 13, and No. 200/94, of 1.3.1994, No. IV.2).

5. In this way, and without obscuring that procedural good faith constitutes a relevant principle shaping arbitral proceedings, applicable, indeed, to the arbitrators, the parties and their representatives (cf. Article 16(f) of the LFTA), the claim for conviction of the Respondent as a bad faith litigant is manifestly unfounded, all the more so because, as the Respondent observes in its response, the application of the provision of Article 104 of the GTL is not at issue.

6. In these terms, this request for conviction of the Respondent for bad faith litigation is dismissed.

IV. Decision

In light of all the foregoing, it is decided:

a) To uphold the application for arbitral pronouncement and to annul the Stamp Duty assessments identified in collection notes No. 2014 …, with the amount of tax collection of €50,807.67, No. 2014 …, with the amount of tax collection of €48,224.97, No. 2014 …, with the amount of tax collection of €10,555.94, and No. 2014 …, with the amount of tax collection of €16,529.76, totalling the global amount of €126,118.34, with the legal consequences;

b) To dismiss the application for arbitral pronouncement as to the remainder;

c) To condemn the Respondent to pay the costs of the proceedings.

V. Value of the Case

The value of the case is fixed at €126,118.34, pursuant to Article 97-A of the TPPC, applicable by force of Article 29(1)(a) of the LFTA and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

VI. Costs

Costs are borne by the Respondent, given that the request for annulment of the assessments challenged was upheld in full, in the amount of €3,060.00, pursuant to Table I of the RCPAT, and in compliance with Articles 12(2) and 22(4), both of the LFTA.

Lisbon, 29 December 2014

The Arbitrators

José Poças Falcão
(President)

João Menezes Leitão

Fernando Borges Araújo