CAAD 563/2014-T: Stamp Tax on Building Land Under Verba 28.1 TGIS – Arbitral Decision

ARBITRAL DECISION

REPORT

1. On 29 July 2014, A… – …, Lda, taxpayer number …, with registered office at …, in Lisbon, hereinafter referred to as the Claimant, with seat in Portugal, requested the establishment of an arbitral tribunal and submitted a petition for arbitral pronouncement, pursuant to paragraph a) of section 1 of article 2 and paragraph a) of section 1 of 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 (hereinafter referred to as TA) is the Respondent.

2. The Claimant is represented in these proceedings by its representative, Dr. …, and the Respondent is represented by jurists, Dr. … and Dr. ….

3. The request for establishment of the arbitral tribunal was accepted by the President of CAAD and was notified to the Respondent on 1 August 2014.

4. By means of the request for establishment of the arbitral tribunal and petition for arbitral pronouncement, the Claimant seeks the annulment of the Stamp Tax assessment No. 2014 …, relating to the year 2013, in the amount of € 10,201.90 (ten thousand, two hundred and one euros and ninety cents).

5. Upon verification of the formal regularity of the request presented, pursuant to paragraph a) of section 2 of article 6 of the RJAT and given that the Claimants did not proceed with the appointment of an arbitrator, Dr. Jorge Carita was appointed by the President of the Deontological Council of CAAD.

6. The Arbitrator accepted the appointment made, and the arbitral tribunal was constituted on 1 October 2014, at the registered office of CAAD, located at Avenida Duque de Loulé, No. 72-A, in Lisbon, as evidenced by the act of constitution of the arbitral tribunal which was drawn up and is attached to these proceedings.

7. The first meeting of the arbitral tribunal did not take place as it was dispensed with, given the request contained in the Respondent's response of 28.10.2014, and, having been notified for this purpose, the Claimant made no objection.

8. No exceptions having been raised, there being no need for additional evidence production beyond that which is already documentarily incorporated in the case file, there being no apparent need for the parties to correct their respective procedural documents, and the process containing all necessary elements for pronouncement of the decision, for reasons of procedural economy and expedition, the prohibition of performing useless acts, and given the position manifested by the parties, expressly and tacitly (given the Claimant's silence), the Tribunal deemed it appropriate to dispense with the holding of the meeting referred to in article 18 of the RJAT, as well as the presentation of submissions.

9. The Tribunal, in compliance with section 2 of article 18 of the RJAT, set 31 March 2015 as the date for pronouncement of the arbitral decision, having warned the Claimant that it should proceed with payment of the subsequent arbitral fee, pursuant to section 3 of article 4 of the Regulations on Costs in Tax Arbitration Proceedings, and communicate such payment to CAAD.

II. The Claimant's Submissions

The Claimant substantiates its petition for annulment of the Stamp Tax assessment to which it was subject, relating to the land for construction of which it is the owner, located in the district of Porto, municipality of Matosinhos, Union of parishes of … and …, registered in the respective cadastre under item ..., as illegal, for suffering from the following defects:

a) Error regarding the prerequisites for application of item 28.1 of TGIS, in that, "It follows from section 28.1 of TGIS that there are three elements that constitute the taxable fact: ownership, usufruct or right of superficies over urban properties; that these urban properties have 'residential use' and that such properties have a tax property value equal to or exceeding €1,000,000. That the Claimant is the owner of the property in question and that such property has a tax property value equal to or exceeding €1,000,000, are indisputable facts. But the third prerequisite that integrates the taxable fact is not present: the property in question does not have 'residential use'.

b) The Claimant contends that: "land for construction is a species of urban property distinct from residential properties", not to be confused with them, pursuant to sections 1 and 2 of article 6 of CIMI.

c) Furthermore, it adds that "there is no use in land for construction, whether for residential purposes, commerce, or services. There is none, first and foremost, for a 'naturalistic' reason: if they are land... for construction, land is not used for residential purposes, nor for commerce. There is also none because, in accordance with this obvious 'naturalistic' reason, the IMI Code always refers to the residential character, that is, residential use, in relation to 'buildings or constructions' (art. 6, section 2) or 'built properties' (art. 41).

d) It further submits that: "land for construction are not urban properties with residential purposes." At most, they are "intended... for construction and not for any residential use – if it were otherwise, that is, if land for construction were intended for 'residential use', it would not be land for construction, but an urban property with residential use. Even if the land is intended for construction of properties used for residential purposes, such use only occurs with the actual construction of the property, with the consequent elimination of the cadastral registration of the land for construction and its replacement by new cadastral registration of the built urban property or autonomous unit.

e) Concluding that: "the land for construction, over whose ownership the Stamp Tax assessment that was directed to the Claimant fell, does not fall within the provision of item 28.1 of TGIS."

f) Defect of violation of the principle of taxation on wealth and the principle of contributory capacity, in that the Claimant believes that, on the one hand "taxation by Stamp Tax on land for construction, owned by companies that acquired it either for sale or for construction, is an absurdity that violates the nature of taxation," in that "the CIMI establishes non-taxation, in this tax, until the fourth year following the year of its acquisition, of properties owned by companies whose purpose is the construction of buildings for sale (paragraph d)) and non-taxation, until the third year following the year of its acquisition, of land for construction of companies whose purpose is its sale (paragraph e))". (article 9).

g) Indeed, the Claimant considers that "IMI is a tax on wealth held by taxpayers in their assets – now, properties existing in a company's assets, while awaiting sale or while being used for construction of buildings, do not reveal that wealth which IMI intends to tax."

h) Furthermore, the Claimant argues that: "the new taxation by Stamp Tax has the same objective: to tax wealth embodied in ownership of real property", therefore, the intention to subject to Stamp Tax, land for construction "which form part of the Claimant's assets as merchandise or as raw material, such constitutes a blatant violation of the principle of taxation on wealth and, therefore, violation of the principle of taxation of contributory capacity," since "the contributory capacity that the legislature intends to 'reach' with the Stamp Tax provided for in section 28 of TGIS, is the wealth expressed in the ownership of high-value properties, and land for construction 'are not demonstrative of wealth, in that they are, solely and only, productive instruments."

i) The Claimant further considers that the taxation of land for construction violates the principle of equality, in that "a company that acquires in its assets, as merchandise or as raw material, other types of goods, is not subject to this taxation by Stamp Tax. Instead, a company that acquires properties as merchandise or raw material, namely, land for construction, is already subject to taxation on assets, as that established in section 28 of TGIS."

j) The Claimant thus concludes that: "the assessment now contested is illegal, for violation of section 28 of TGIS."

III. The Respondent's Response

For its part, the TA alleges, in its response, in summary, the following:

a) As to the alleged error regarding the prerequisites of the assessments, the Respondent contends that: "the notion of use of the urban property is found in the section relating to valuation of properties, which is well understood since the valuation of the property (purpose) incorporates value to the property, constituting a fact of decisive distinction (coefficient) for purposes of valuation. As results from the expression '…value of authorized buildings,' contained in article 45, section 2 of CIMI, the legislature opted for determining the application of the valuation methodology of properties in general, to the valuation of land for construction, being therefore applicable to them the use coefficient provided for in article 41 of CIMI."

b) The Respondent contends that: "for purposes of determining the tax property value of land for construction, the application of the use coefficient in the valuation context is clear, therefore its consideration for purposes of applying item 28 of TGIS cannot be ignored."

c) Following this, the TA understands that "the concept of 'properties with residential use', for purposes of the provision in item 28 of TGIS, comprises both built properties and land for construction, first and foremost by attending to the literal element of the rule," since "the legislature does not refer to 'properties intended for residential purposes,' having opted for the notion of 'residential use'. An expression different and broader whose meaning is to be found in the need to integrate other realities beyond those identified in article 6, section 1 paragraph a) of CIMI."

d) Furthermore, it states that: "the mere establishment of a right of potential construction immediately increases the value of the property in question, hence the rule contained in article 45 of CIMI which mandates the separation of the two parts of the land. (…) As to the value of land adjacent to the construction area, this is determined in the same manner as the value of the free land area and the excess land area are determined for purposes of any urban property."

e) Concluding, in the sense that: "(…) well before the actual building of the property, it is possible to establish and determine, by the legal regime of urbanization and building and by Municipal Master Plans, the use of the land for construction", therefore, the Claimant's thesis regarding the illegality of the Stamp Tax assessment contested is lacking.

f) With regard to the alleged defect of violation of constitutional law – by violation of the principle of legality, tax equality and contributory capacity, - the Respondent defends by stating that: "taxation under Stamp Tax complies with the criterion of suitability, applying itself indistinctly to all holders of properties with residential use of value exceeding € 1,000,000.00, falling upon the wealth embodied and manifested in the value of properties, (…) the measure implemented seeks to achieve maximum effectiveness as to the objective to be attained, with minimum injury to other interests considered relevant."

g) Concluding, thus, in the sense that "the assessments at issue constitute a correct interpretation and application of law to the facts, suffering from no defect of violation of law, whether from the Constitution or the Tax Code".

IV. Preliminary Matters

The Tribunal is competent and is duly constituted, pursuant to paragraph a) of section 1 of article 2 and articles 5 and 6, all of the RJAT.

The parties have legal standing and capacity, are shown to be legitimate and are duly represented.

There are no nullities, exceptions or preliminary questions that prevent knowledge of the merits of the petition.

V. Factual Findings

As relevant to the decision, the following facts are deemed proven:

• The Claimant is the owner of land for construction in the district of Porto, municipality of Matosinhos, Union of parishes of … and …, registered in the respective cadastre under item .... (cf. Document No. 2 attached with the initial petition);

• The land for construction was valued as such in 2012, with a tax property value (TPV) of € 1,020,190.00 (one million, twenty thousand one hundred and ninety euros) being determined (cf. Document No. 2 attached with the initial petition);

• In conducting such property valuation, the TA deemed it appropriate to apply a use coefficient, which was, in this case, that of "residential," provided for in article 41 of the IMI Code. (cf. Document No. 2 attached with the initial petition);

• The Claimant was notified of the Stamp Tax assessment relating to the year 2013, carried out under item No. 28.1 of the General Table of Stamp Tax, in the amount of € 10,201.90 (ten thousand, two hundred and one euros and ninety cents) (cf. Documents No. 1 and 3 attached with the initial petition);

• The Claimant, on 30.04.2014, proceeded with payment of the amount of € 3,400.64 referring to the first installment of the Stamp Tax contested. (cf. Document No. 3 attached with the initial petition).

VI. Justification of Factual Findings

For the conviction of the Arbitral Tribunal, regarding the proven facts, the documents attached to the proceedings were relevant, as well as the administrative process, all analyzed and considered in conjunction with the party submissions, from which results agreement regarding the factuality presented by the Claimant in its petition for arbitral pronouncement.

VII. Facts Deemed Not Proven

There are no facts deemed not proven, because all facts relevant to the consideration of the petition were deemed proven.

VIII. Legal Reasoning

In the present case, there are three disputed legal questions:

1. whether, in the year 2013, land for construction is subject to Stamp Tax, pursuant to the provision of item No. 28 of TGIS;

2. whether the provision in item No. 28 of TGIS is unconstitutional for violation of the principle of equality, as well as, of the provision in article 104, section 3, of the Constitution, for violation of the principle of contributory capacity, in the interpretation that the TA makes of it.

3. whether the Claimant, should the preceding questions proceed, is entitled to compensatory interest.

Let us examine this:

I – Classification of Land for Construction Within the Scope of Application of Item 28.1 of TGIS

1. Law No. 55-A/2012, of 29 October (which we shall hereinafter refer to as Law No. 55-A/2012, of 29.10 or simply the Law), made amendments, among others, to various articles of the Stamp Tax Code, more precisely 12 of its articles. We shall not pronounce on all of them, but only on those we deem to have greater relevance for the analysis of the case at hand.

2. Thus, in the rule of incidence provided for in article 1 of the Code of Stamp Tax, the legislature determined that, in addition to acts, contracts, documents, titles, papers and other facts provided for in the General Table, including gratuitous transfers of property, Stamp Tax would also fall upon "legal situations," now equally provided for in TGIS.

3. The new wording of section 4 of article 2 now determined that for these "legal situations," the passive subjects of the tax are those referred to in article 8 of CIMI, that is, in most cases, the tax is due by the owner of the property on 31 December of the year to which the tax relates.

4. In these "legal situations," the tax constitutes an obligation of the passive subject provided for in section 4 of article 2 of the Code of Stamp Tax, that is, the property owner identified above (general rule), by referral for application of the rule in article 8 of CIMI.

5. In these "legal situations," the application of the principle of territoriality makes the tax due whenever the properties are located in national territory, in accordance with the addition to article 4 of the Code of Stamp Tax of its section 6, by Law No. 55-A/2012.

6. As to the arising of the tax obligation, for these new "legal situations" it is considered constituted "… at the time and in accordance with the rules provided for in CIMI, with the necessary adaptations" (See paragraph u) of article 5 of the Code of Stamp Tax, added by Law No. 55-A/2012, of 29 October), which refers us to the rules provided for in articles 9 and 10 of CIMI.

7. Now, the fundamental amendment, which conditions all the others, is contained in article 4 of Law No. 55-A/2012, which adds to the General Table of Stamp Tax (TGIS), attached to the Stamp Tax Code (CIS), a new item, No. 28, with the following wording:

"28. Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the cadastre, pursuant to the Municipal Real Estate Tax Code (CIMI), is equal to or exceeding (euro) 1,000,000 - based on the tax property value used for IMI purposes:

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

28.2 Per property, when the passive subjects that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance ----------------------------------------------------------------- 7.5%"

1. Thus, in accordance with the said item, and in what concerns us here, only the following is subject to Stamp Tax: ownership, usufruct, right of superficies of:

a) "urban properties,

b) with residential use,

c) And whose tax property value contained in the cadastre, pursuant to the Municipal Real Estate Tax Code (CIMI), is equal to or exceeding (euro) 1,000,000;" (underlined)

1. In truth, the greatest difficulty that the taxpayer has faced, given the amendments introduced by Law No. 55-A/2012, of 29.10, expressed in the case at hand, has manifested itself in the interpretation of the expression "property with residential use".

2. A concept which determines, or not, the application, of land for construction, in item 28.1 of TGIS, whose assessment is contested here.

3. Now, the obstacle arises from the absence of a definition of the concept "property with residential use" in tax legislation, namely in the IMI Code, to which the Code of Stamp Tax refers, as subsidiary law, in accordance with its article 67, introduced by Law No. 55-A/2012, 29.10.

4. In truth, CIMI provides, in its articles 2 to 6, as to: the concept of property (article 2), defines what should be understood as rural properties (article 3), what should be understood as urban properties (article 4); what should be understood as mixed properties (article 5) and enumerates the species of urban properties (article 6), to whose wording we refer.

5. However, none of the legal rules identified above admits the concept of "property with residential use", therefore, and in accordance with the essential rules of legal hermeneutics and interpretation of tax laws, we shall have to resort in the first place to the letter of the law, presuming that the legislature expressed itself appropriately, and then to its systematic integration with the rules contained in CIMI, without, however, disregarding the intention or spirit of the legislature.

6. Thus, the question arises: what did the legislature intend when it drafted item 28.1 of TGIS, in indicating as a prerequisite for its application "property with residential use". Did the legislature intend to encompass in this concept land for construction – the matter that concerns us here -?

7. Was it intended to interpret the expression "property with residential use" in the sense that the Respondent makes, of which 'the concept of "properties with residential use", for purposes of the provision in item 28 of TGIS, comprises both built properties and land for construction, first and foremost by attending to the literal element of the rule', since 'the legislature does not refer to "properties intended for residential purposes," having opted for the notion of "residential use". An expression different and broader whose meaning is to be found in the need to integrate other realities beyond those identified in article 6, section 1 paragraph a) of CIMI.'?

8. Or, rather, as the Claimant refers, that '"urban properties with residential use are, thus, those which, pursuant to their construction process to which articles 62 and following of the Legal Framework for Building (RJEU, approved by article 1 of Decree-Law No. 555/99, of 16.12) refer, have been, licensed or by virtue of their physical characteristics, have as their normal purpose residential use.'"?

Let us examine this:

1. For clarity in exposition, and as to the matter of the concept of "properties with residential use" we recall that affirmed in the arbitral decision rendered in proceedings No. 53/2013-T, to which we adhere, according to which: "The concept closest to the literal tenor of this expression used is manifestly that of 'residential properties,' defined in section 2 of article 6 of CIMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of a license, which have as their normal purpose residential purposes. (…) However, the non-coincidence of the terms of the expression used in item No. 28.1 of TGIS with that which is drawn from section 2 of article 6 of CIMI, points in the direction of not intending to use the same concept."

2. Furthermore, and following this logical sequence, the position taken in the Decision of the Administrative Court of Appeals rendered in appeal No. 317/14, which we adopt, in the sense that: "residential use" always appears in the IMI Code referred to "buildings" or "constructions," existing, authorized or foreseen, since only these can be inhabited, which is not the case with land for construction, which do not have, in themselves, conditions for such, not being susceptible of being used for residential purposes except if and when construction authorized and foreseen for them is built on them (but in that case they will no longer be "land for construction" but another species of urban properties – "residential," "commercial, industrial or for services" or "other" – article 6 of CIMI)".

3. Thus, following this path, with which we agree in full, it appears that the Respondent's thesis regarding the possible connection of the concept of "residential use" to land for construction, without any building susceptible of being inhabited, is lacking.

4. It is also to be noted that the imprecision of the concept under consideration – "property with residential use" -, was amended by the State Budget for 2014, approved by Law No. 83-C/2013, 31.12, giving new wording to item 28 of TGIS, now specifying its scope of application and objective incidence with the use of objective concepts legally defined in article 6 of CIMI.

5. In truth, this amendment – which the legislature does not attribute an interpretative character – reinforces the unequivocal character, for the future, that land for construction whose building, authorized or foreseen, is for residential use is encompassed within the scope of item 28 of TGIS (provided that its tax property value is equal to or exceeding € 1,000,000.00), saying nothing or clarifying regarding situations prior to this legislative amendment, namely the one that is pending, therefore it is to be concluded that in the year 2013, land for construction was not included in the provision of item 28 of TGIS.

6. Furthermore, the Respondent still invokes, in support of its position, that "the notion of use of the urban property is found in the section relating to valuation of properties, which is well understood since the valuation of the property (purpose) incorporates value to the property, constituting a fact of decisive distinction (coefficient) for purposes of valuation." Notably, because and "as results from the expression '---value of authorized buildings,' contained in article 45, section 2 of CIMI, the legislature opted for determining the application of the valuation methodology of properties in general, to the valuation of land for construction, being therefore applicable to them the use coefficient provided for in article 41 of CIMI".

7. Concluding, in the sense that: "(…) for purposes of determining the tax property value of land for construction, the application of the use coefficient in the valuation context is clear, therefore its consideration for purposes of application of item 28 of TGIS cannot be ignored."

8. Now, the truth is that we also do not believe we should consider and accept the legitimacy or legality of the Stamp Tax assessment to land for construction on the terms alleged by the Respondent, because, and as referred to in the arbitral decision rendered in proceedings No. 53/2013-T, to which we adhere in full, "With regard to article 45 of CIMI, it has no relationship with the classification of properties, only indicating the factors to be considered in the valuation of land for construction."

9. On this matter, CAAD has already pronounced itself, in proceedings No. 158/2013-T, with which we agree and adhere, in the sense that: "It is true that CIMI determines the application, to the valuation of land for construction, of the valuation methodology applicable to constructed buildings, incorporating for this purpose, in the value of the land, the estimated value of the building to be constructed; and that this value is determined, in turn, by the type of use foreseen for the properties to be built. Put in simpler terms, the law (CIMI) says that to determine the tax property value of land for construction, incorporates in this a part of the estimated value of buildings to be constructed; and to estimate the value of buildings to be constructed, account is taken of the use foreseen for the same. Contrary to what the TA contends, results precisely from the letter of these provisions the inapplicability of the concept of "use" to land for construction. The use that is taken into account, for purposes of valuation, even of land for construction, is always and solely the use of the buildings to be constructed. The use foreseen for the buildings to be constructed influences the tax property value taxable of the land for construction, but nothing more. From the rule relating to the determination of the value of properties which determines that, in the value of land for construction is incorporated the estimated value of buildings to be built, which, in turn, is influenced by the future use of such buildings, one cannot derive that the use in question is a use of the properties themselves, and this for two reasons: The first, because this interpretation would be contrary to the very literality of the provisions that mandate taking into account, in the valuation of land for construction, the use of properties to be built; And the second, because the way in which the law mandates valuing a particular asset cannot be determinative of the nature or the legal qualification of that same asset, with regard especially to the principle of typicality of tax incidence rules. The fact that the law mandates applying to one asset the same valuation methodology that is applied to another different asset does not make the first asset share in the nature of the second. Thus, if it is true that the value of authorized or foreseen buildings influences the real value of construction land, and that value must therefore be reflected in the tax property value of the same land, it does not follow that land acquires residential use upon the foreseen construction, in it, of residential properties, this distinction being extracted clearly from the very provisions on valuation of CIMI."

10. Thus, what matters for purposes of application of item No. 28.1 of TGIS is that the property be urban, that it have a TPV equal to or exceeding € 1,000,000.00, and that it be actually used for residential purposes, which is not the case with land for construction, whose assessment is contested in these proceedings.

11. It is this that results from the jurisprudence of arbitral tribunals¹ and superior tax tribunals² that have been interpreting item No. 28.1 of TGIS and its prerequisites for application, and to which we adhere in full.

12. To note, finally, the position of the Administrative Court of Appeals, the summary of one of the Decisions referenced here is transcribed and which has been the guidance in various decisions rendered in that learned Court, regarding the illegality of Stamp Tax under item 28.1 of TGIS on land for construction:

"Not having the legislature defined the concept of "properties (urban) with residential use", and resulting from article 6 of the Municipal Real Estate Tax Code (subsidiarily applicable to Stamp Tax provided for in the new item No. 28 of the General Table) a clear distinction between "urban residential properties" and "land for construction", these cannot be considered, for purposes of application of Stamp Tax (Item 28.1 of TGIS, as worded by Law No. 55-A/2012, of 29 October), as urban properties with residential use."

1. Thus, the TA could never have subjected the Claimant to Stamp Tax, under item 28 of TGIS, for the year 2013, which is now contested, and therefore, the same should be annulled, as illegal.

B - Violation of Constitutional Law

1. The logic of taxation on wealth and fortune prevails, with greater or lesser intensity, in the framework of Law No. 55-A/2012, 29.10, a conclusion that results from the generalized increase in tax burden, in the financial logic, directed exclusively to fiscal situations that would produce immediate income.

2. The taxation of capital income is aggravated, the list of manifestations of fortune is expanded, the taxation of income obtained in Portugal by entities domiciled in tax havens is aggravated, and finally, to all this is added the taxation of residential properties, of value exceeding € 1,000,000.00.

3. And if the legislature includes in this enactment residential properties, setting a value above which they would pass to be taxed by another tax, such could only mean that it considered that whoever was the owner of property of that value, such expressed an element indicative of additional means of fortune, which could be called to participate in the collective effort of supplemental collection of tax income.

4. In truth, the legislature, in introducing this legislative innovation, considered as a determining element of contributory capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or exceeding € 1,000,000.00, on which it proceeded to apply a special rate of Stamp Tax, intending to introduce a principle of taxation on wealth externalized in ownership, usufruct or right of superficies of high-value urban properties with residential use. Therefore, the criterion was for application of the new rate to urban properties with residential use, whose TPV is equal to or exceeding € 1,000,000.00.

5. This is concluded from the analysis of the discussion of bill No. 96/XII in the National Assembly, available for consultation in the Journal of the National Assembly, I series, No. 9/XII/2, of 11 October 2012.

6. The justification of the measure designated as "special rate on urban residential properties of highest value" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intensive manner the holders of properties of high value intended for residential purposes, applying the new special rate to "houses of value equal to or exceeding 1 million euros."

7. Indeed, the legislature clearly considered that this value, when attributed to residential use (house, autonomous unit or apartment with independent use) translated a contributory capacity above average and, as such, susceptible of determining a special contribution to ensure just distribution of the tax effort.

8. Also following these considerations inspiring the legislative innovation under examination, it is to be concluded that the existence of land for construction cannot be, by itself, an indicator of contributory capacity.

9. In truth, land for construction belonging to a company such as the Claimant, does not translate wealth susceptible of taxation, under Stamp Tax, given its indexing as an asset, as merchandise or raw material.

10. In view of the foregoing, the act of Stamp Tax assessment relating to the year 2013, contested, in the amount of € 10,201.90 is null, for violation of the provision in item 28.1 of TGIS, of the principle of contributory capacity and of the principle of taxation on wealth.

C – Compensatory Interest

1. The Claimant further petitions that the right to compensatory interest be recognized, on the basis of error attributable to the administration.

2. Section 1 of article 43 of the General Tax Code and article 61 of the Tax Procedure and Process Code provide that compensatory interest is due when it is determined in a gracious reclamation or judicial challenge that there was error attributable to the services resulting in payment of tax debt in an amount exceeding what is legally due.

3. Error attributable to the administration is considered to exist when the error is not attributable to the taxpayer and is based on erroneous factual assumptions that are not the responsibility of the taxpayer.

4. Now, resulting from the tax acts contested, the obligation to pay tax exceeding what would be due, compensatory interest is due pursuant to legally provided terms, the legislature presuming, in these cases, in which annulment of the assessment is verified, that injury occurred in the taxpayer's sphere by virtue of having been deprived of the patrimonial sum that had to be delivered to the State by virtue of an illegal assessment. Consequently, the taxpayer is entitled to such indemnification, independently of any allegation or proof of injury suffered.

5. In the present case, it will be unquestionable that, following the establishment of the illegality of the acts of assessment, there will be place for reimbursement of the tax by force of the provision in section 1 of article 43 of the General Tax Code, and article 100 of the General Tax Code, passing necessarily through the restoration of the "situation that would have existed if the tax act object of the arbitral decision had not been performed".

6. Similarly, it is understood that it will be free of doubt that the illegality of the act is attributable to the Tax Authority, which autonomously performed it illegally.

7. As to the concept of "error," it has been understood that only in cases of annulments based on defects concerning the tax law relationship will there be place for payment of compensatory interest, such right not being recognized in the case of annulments for procedural defects or formal defects.

8. Thus, being confronted with a defect of violation of substantive law, which is embodied in error in the legal assumptions, attributable to the Tax Authority, the Claimant is entitled to compensatory interest, in accordance with articles 43, section 1 of the General Tax Code, and 61 of the CPPT, calculated from the payment of the tax, by the amount actually paid, until the complete reimbursement of the said amount.

DECISION

In harmony with the foregoing, it is decided:

1. To annul the Stamp Tax assessment contested by the Claimant, relating to the year 2013.

2. To condemn the Tax and Customs Authority to reimburse the Claimant of the amount paid, plus compensatory interest, calculated at the legal rate, from the payment of the tax until the complete reimbursement.

Value of Case

The value of the case is fixed at € 10,201.90 (ten thousand, two hundred and one euros and ninety cents) pursuant to article 97-A, section 1, a), of the CPPT, applicable by force of paragraphs a) and b) of section 1 of article 29 of the RJAT and section 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

Costs

Costs to the charge of the Respondent in accordance with article 22, section 2 of the RJAT, article 4 of the Regulations on Costs in Tax Arbitration Proceedings, and Table I attached to the latter, which are fixed in the amount of € 918.00.

Notify.

Lisbon, 31 March 2015

The Arbitrator

(Jorge Carita)

¹ Decisions of CAAD rendered in proceedings No. 50/2013-T, No. 132/2013-T, No. 181/2013-T, No. 183/2013-T, No. 185/2013-T, No. 248/2013-T, among others.

² Decisions of the Administrative Court of Appeals rendered in proceedings No. 046/14, of 14.05.2014; No. 0271/14, of 14.05.2014; No. 0395/14, of 28.05.2014, 01871/13, of 14.05.2014, 055/14, of 14.05.2014, among others.