CAAD Ruling 561/2014-T: Stamp Tax on Building Land Under Clause 28.1 TGIS

ARBITRATION DECISION

CAAD: Tax Arbitration

Case No. 561/2014 – T

Subject Matter: Land for construction – Item 28.1 of the General Stamp Tax Table

I – Report

1. On 29.07.2014, A… – Closed Investment Fund, with tax identification number …, legally represented by B… – …, Real Estate Investment Fund Management Company, S.A., with registered address on Rua …, collective entity number …, requested the CAAD to establish an Arbitral Tribunal, pursuant to article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT"), in which the Tax and Customs Authority is the Respondent, with a view to annulling the tax assessment act for Stamp Tax No. 2014..., dated 17.03.2014, in the amount of € 56,951.70.

The Claimant petitioned for the payment of compensatory interest.

1. The request to establish the Arbitral Tribunal was accepted by the Esteemed President of CAAD and notified to the Tax and Customs Authority.

Pursuant to the provisions of article 6, paragraph 1 of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable time periods, the undersigned was appointed as arbitrator, and communicated to the Deontological Council and to the Administrative Arbitration Center the acceptance of the appointment within the regularly applicable time period.

The Arbitral Tribunal was established on 1.10.2014.

1. The grounds presented by the Claimant in support of its claim were, in summary, that there was erroneous application of item No. 28.1 of the General Stamp Tax Table, amended by Law No. 55-A/2012, of 29 October, given that the real estate in question is land for construction and not a building intended for habitation, not falling within the definition of "urban real property with residential use," and therefore not being an urban real property with residential use, but rather land for construction.

Alternatively, the Claimant also considers that the assessment sub judice and item 28.1 of the General Stamp Tax Table, as interpreted by the Respondent, violate the constitutional principles of fiscal equality and contributive capacity, enshrined in the Constitution of the Portuguese Republic.

1. The Tax and Customs Administration, called upon to respond, contested the Claimant's claim.

From its response it follows that its position is, in summary, that the real property in question subject to the assessment in question has the nature of real property with residential use, and therefore the assessment act that is the subject of this request for arbitral pronouncement should be upheld, as it constitutes a correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12. To this end, the Respondent argues that the legislator chose to apply the valuation methodology for real property in general to the valuation of land for construction, and therefore to them is applicable the use coefficient provided for in article 41 of the Municipal Property Tax Code (CIMI), from which results a different and broader meaning of the realities identified in article 6, paragraph 1, subparagraph a) of the CIMI.

The Respondent further states its understanding that the assessment in question does not violate any constitutional provision.

1. By order of 2.12.2014 it was decided to dispense with the holding of the meeting provided for in article 18, paragraph 1, of the RJAT, as well as the holding of arguments, on the grounds of its unnecessary nature, following a request by the Respondent to this effect, which met with the agreement of the Claimant.

2. The Tribunal is materially competent and is regularly constituted in accordance with the RJAT.

The parties have legal personality and capacity, are legitimate, and are legally represented.

The case does not suffer from defects that would invalidate it.

II – Relevant Facts

1. The Tribunal considers the following facts to be proven:

1- The Claimant appears on the property registry as owner of the urban real property located in the parish of …, municipality of Lisbon, registered on the property registry under number …, which consists of a plot of land intended for construction.

2- The Claimant was notified of the stamp tax assessment dated 17.03.2014, in the amount of € 56,951.17 relating to the year 2013, corresponding to document No. 2014... and relating to the ownership of the identified plot of land for urban construction.

3- According to the notification made to the Claimant, the payment of the assessed tax should be made in 3 installments, of € 18,983.90 each, with the first installment to be paid during the month of April 2014.

FACTS NOT PROVEN

It was not proven that the Claimant paid any installment relating to the assessed tax.

BASIS FOR THE FINDINGS OF FACT

1. The decision on the facts is based on the property register and on the notification of the assessment sub judice, documents attached to the file by the Claimant with the request for arbitral pronouncement and which were not subject to challenge, and it should further be noted that there was no disagreement between the parties regarding the facts alleged and proven, the disagreement being limited to matters of law.

With respect to the facts not proven, regarding the second and third installments relating to the assessed tax, although the Claimant announced in the initial petition its intention to make such payment, it subsequently communicated nothing further to the tribunal.

Regarding the first installment, which the Claimant, in the same procedural document, alleged to have paid, the documents attached do not provide proof of such payment.

In the document attached, issued by the Respondent which supposedly would certify the payment, there appears the issuance of the collection document with the elements necessary for payment, but there does not appear certification that such payment took place.

Moreover, a copy of the check which allegedly would have been used to pay the installment in question was attached, only partially filled in as to the date, containing the year (2014) and the month (07), but not the day, with the notation "Not accepted" written by hand.

Moreover, such check is dated from the month of July when payment should have been made in April.

Accordingly, from the documents attached it does not follow that the payment in question occurred and therefore such fact must be considered unproven.

III – Applicable Law

1. Item 28 of the General Stamp Tax Table, in the wording as of the date of the facts, provided that the following was subject to stamp tax:

"28 – Ownership, usufruct or right of superficies of urban real property whose patrimonial value for tax purposes contained in the registry, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than 1,000,000 euros – on the patrimonial tax value used for the purposes of Municipal Property Tax (IMI):

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

28.2 – For real property, when the taxable persons who are not individuals are resident in a country, territory or region subject to a clearly more favourable tax regime, appearing on the list approved by order of the Minister of Finance – 7.5%".

1. It has been abundantly emphasized in several arbitral decisions (namely in cases 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 53/2013-T, 144/2013-T and 202/2014-T) that the concept of "real property with residential use" (which is not the subject of any specific definition in the Stamp Tax Code) is not used by the CIMI, nor in any other legislative instrument.

All these arbitral decisions, whose doctrine is followed, go, in essence, in the direction that such concept requires for its fulfillment, at least, the effective possibility of the existing real property being able to be used for habitation and, in all of them, it was understood that land for construction, even if intended for the construction of residential buildings, do not fall within the concept of "real property with residential use," as results from the following passages from the aforementioned cases:

Case 42/2013-T:

"The expression 'residential use' does not appear to be able to have any other meaning than that of 'use' for habitation, that is, urban real property that have an effective use for residential purposes, whether because they are licensed for that, or because that is their normal destination.

And we cannot confuse 'residential use' which implies an effective dedication of an urban real property to that end, with the expectation, or potentiality, of an urban real property being able to come to have 'residential use.'

Case 49/2013-T:

"The expression 'with residential use' conveys, on a simple reading, an idea of real and present functionality. From the rule in question it is not possible to extract, through interpretation, that, as is asserted in the respondent's response, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, subparagraph a), of the CIMI.' Such interpretation has no legal support, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law.

In fact, if the legislator intended to encompass within the scope of incidence of the tax other realities than those resulting from the classification governed by article 6 of the CIMI, it would have said so expressly. But it does not, instead referring, as a whole, to the concepts and procedures provided for in the aforementioned Code."

Case 51/2013-T:

"The point that is important to decide is this: is there a difference between the expression that the CIMI uses of 'residential urban real property' and the expression used by article 4 of Law No. 55-A/2012, when referring to 'real property with residential use'?

We are inclined to believe that there is not, since there prevails, even though using somewhat different words, the same fundamental sense of taxing the ownership of real property with the same destination, the actuality or the possibility of use being for purposes of human habitation, with all the consequences that the legislation in general and the CIMI in particular gives to it."

Case 53/2013-T:

"(...) it should be presumed that the use of a different expression is intended to convey a distinct reality, and therefore, in good hermeneutics, 'real property with residential use' cannot be a real property merely licensed for habitation or intended for that purpose (that is, it will not suffice that it be a 'residential real property'), but must be a real property that already has actual dedication to that end."

Case 144/2013-T:

"(...) we believe that it is incumbent, in the interpretation of the provision in item 28.1 of the General Stamp Tax Table, to understand that the residential use of an urban real property suggests that it be given that effective purpose, or that it may be directly given that purpose."

Case 202/2014-T

"The expression 'with residential use' conveys, on a simple reading, an idea of real and present functionality. From the rule in question it is not possible to extract, through interpretation, that, as is asserted in the respondent's response, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, subparagraph a), of the CIMI.' Such interpretation has no legal support, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law."

1. Also in the decision of the Supreme Administrative Court, of 09-04-2014, case No. 048/14 it was held that:

"The concept of 'real property (urban) with residential use' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the Municipal Property Tax Code, to which paragraph 2 of article 67 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept which, probably owing to its imprecision – a fact all the more serious given that it is in function of it that the scope of objective incidence of the new taxation is determined – had a short life, as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law No. 83-C/2013, of 31 December), which gave new wording to that item No. 28 of the General Table, and which now determines its scope of objective incidence through the use of concepts that are legally defined in article 6 of the Municipal Property Tax Code.

This amendment – to which the legislator did not give an interpretive character, nor does it appear to us that it did – merely makes it unequivocal for the future that land for construction whose construction, authorized or foreseen, is for habitation is included within the scope of item 28.1 of the General Stamp Tax Table (provided that its patrimonial tax value is equal to or greater than 1 million euros), but clarifies nothing, however, regarding past situations (assessments of 2012 and 2013), such as the one at issue in the present case.

Now, as to these, it does not appear possible to adopt the interpretation of the applicant, because, contrary to what is alleged, it does not follow unequivocally either from the letter or from the spirit of the law that its intention was, ab initio, to encompass within its scope of objective incidence land for construction for which the construction of residential buildings was authorized or foreseen, as now unequivocally results from item 28.1 of the General Stamp Tax Table."

"It is thus concluded, with the respondent and in accordance with what was decided in the judgment under appeal, that, as results from article 6 of the Municipal Property Tax Code a clear distinction between urban real property that are 'residential' and 'land for construction,' these cannot be considered (...) as 'real property with residential use' for purposes of the provision in item No. 28.1 of the General Stamp Tax Table, in its original wording, as given to it by Law No. 55-A/2012, of 29 October."

1. This understanding continued to be followed by the Supreme Administrative Court, uniformly, in the other cases in which it was called upon to pronounce. As can be read in the decision rendered in case 0707/14, of 10.09.2014:

"The issue was already decided by this Section for Tax Litigation of the Supreme Administrative Court on 9 April 2014, in cases No. 1870/13 (Not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/f6fd29ac6d6ebaf380257cc30030891a?OpenDocument.) and 48/14 (Not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/0e28073928824e5080257cc3003a0cbd?OpenDocument.), and since then, reiterated and uniformly in numerous decisions, and can be considered established jurisprudence to the effect that land for construction cannot be considered for purposes of the incidence of Stamp Tax provided for in Item 28.1 (in the wording of Law No. 55-A/2012, of 29 October) as urban real property with residential use.

This is jurisprudence which is also accepted here, as we fully agree with it and in light of the provision in paragraph 3 of article 8 of the Civil Code (CC) (...).

1. Thus, an unequivocally common point in all these decisions, which we follow, is the understanding that land for construction, even if intended for residential construction, are not real property with residential use. Consequently, we consider that the application of item No. 28.1 of the General Stamp Tax Table, in the wording amended by Law No. 55-A/2012, requires, at least, the actuality of the dedication of the real property for habitation, it being insufficient the mere potentiality of construction for residential purposes.

In truth, we understand that, regardless of the reasons that may have led Law No. 55-A/2012 to use the expression "real property with residential use," instead of "residential real property" contained in article 6, paragraph 1, subparagraph a) of the CIMI, for subsumption to item 28.1 of the Stamp Tax Code one cannot fail to require, at least, the real and current potentiality (relative to the taxable event) of the real property in question being used for habitation.

Land for construction cannot, thus, be considered real property with "residential use," as it consists of a reality not suited to human habitation. To achieve such suitability the occurrence of a reality external to it is necessary – the construction of the building suited to habitation – and, with such event ceases to exist land for construction and comes to exist a new reality: the building. And it is this that may have residential use.

Accordingly, land for construction does not fall within the concept of "real property with residential use," and item 28.1 of the General Stamp Tax Table is not applicable to it.

1. Having regard to the foregoing, as item 28.1 of the Stamp Tax Code is inapplicable to the Claimant's real property, the Claimant's claim for annulment cannot fail to be granted, as the tax act is tainted with the defect of violation of law by error in the factual presuppositions of law.

2. The Claimant further petitioned for the right to compensatory interest.

This claim must also be assessed in light of article 43 of the General Tax Law.

Paragraph 1 of that article provides that "Compensatory interest is due when it is determined, in a voluntary reconsideration or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount greater than legally due."

We support the understanding of Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa who maintain that "The error attributable to the services that carried out the assessment is demonstrated when they proceed with a voluntary reconsideration or judicial challenge of that same assessment and the error is not attributable to the taxpayer" (General Tax Law, encounters of the written word, 4th Edition, 2012, page 342).

In the case sub judice, as the error that gave rise to the assessment is not attributable to the Claimant, the request for the Respondent to be ordered to pay compensatory interest could not fail to be granted, had the Claimant made proof of having paid the assessment in question or one of its installments.

However, in the case at hand, such proof was not made, and therefore, in this measure, the claim in question cannot fail to be denied.

IV – Decision

Accordingly, the Tribunal decides:

a) To declare the non-application of item 28.1 of the General Stamp Tax Table to the real property in question, of which the Claimant is the registered owner on the urban property registry.

b) To declare the illegality and consequent annulment of the tax act sub judice.

c) To dismiss the claim for the Respondent to be ordered to pay compensatory interest to the Claimant.

Value of the action: 56,951.70 € (fifty-six thousand nine hundred and fifty-one euros and seventy cents), pursuant to the provision in article 315, paragraph 2, of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and 3, paragraph 2, of the Regulation of Costs in Arbitration Proceedings.

Costs against the Respondent, in the amount of 2,142.00 € (two thousand one hundred and forty-two euros) pursuant to paragraph 4 of article 22 of the RJAT.

Notify.

Lisbon, CAAD, 18 December 2014.

The Arbitrator

Marcolino Pisão Pedreiro

This provision was amended upon the entry into force of the State Budget Law for 2014, Law No. 83-C/2013, of 31 December, expressly broadening the tax base, now including land for construction.

[2] Which may be consulted on the website "https://caad.org.pt/tributario/decisoes/"

[3] Article 67, paragraph 2, of the Stamp Tax Code provides that "To matters not regulated in the present Code relating to item No. 28 of the General Table, the provisions of the Municipal Property Tax Code shall apply, on a subsidiary basis." For its part, the Municipal Property Tax Code uses the concept of residential urban real property, being considered as such buildings/constructions licensed for such purpose or those which have as their normal destination each of these purposes, pursuant to article 6, paragraph 1, subparagraph a) and paragraph 2. This same article clearly differentiates the concept of land for construction, in its paragraph 1, subparagraph c) and paragraph 3.

[4] Available at http://www.dgsi.pt/.

[5] Also available at http://www.dgsi.pt/.