Summary
Full Decision
ARBITRAL DECISION
I – REPORT
1. On 20-09-2016, the Claimant, A…, S.A., taxpayer no. …, with registered office in …, Avenue …, …, Lisbon, having been notified of the decision dismissing the hierarchical appeal of the decision that rejected the administrative complaint filed against the stamp duty assessment made by the Respondent under Item 28.1 of the respective general table, for the year 2012, with the Claimant as taxpayer, in the amount of €11,390.90, relating to building land located in …, …, …, parish of …, municipality of Loures, registered in the urban property register under article …, requested from CAAD the constitution of an arbitral tribunal, under the terms of art. 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter only referred to as "RJAT"), in which the Tax and Customs Authority is the Respondent, with a view to annulling the identified assessment.
The Claimant, alleging that it has paid the assessed amount of tax, further petitions for its reimbursement, plus default interest that may be due, at the statutory rate.
2. The request for the constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.
In accordance with the provisions of no. 1, art. 6, of the RJAT, by decision of the President of the Ethics Council, duly communicated to the parties, within legally applicable periods, the signatory was appointed as arbitrator, who communicated to the Ethics Council and to the Administrative Arbitration Centre the acceptance of the assignment within the regularly applicable period.
The Arbitral Tribunal was constituted on 12-12-2016.
3. Inasmuch as there was no situation provided for in art. 18, no. 1, of the RJAT that would have made necessary the arbitral meeting provided therein, the realization of the same was dispensed with, on the grounds of the prohibition of the performance of useless acts.
Furthermore, the submission of pleadings was also dispensed with, under the terms of art. 18, no. 2, of the RJAT, "a contrario".
4. The illegalities pointed out by the Claimant, as the basis of its claim, were, in summary, the following:
A) Violation of the provisions of article 1 of the CIS [Stamp Duty Code], combined with Item 28 of the TGIS [General Stamp Duty Table], in the wording and amendments introduced by Law no. 55-A/2012, of 29 October, inasmuch as it was not the legislator's intention to tax building land, such as that in the present case;
B) Double taxation, inasmuch as on the same taxable event, for the same period of time, one tax has been paid in full and, on the same legal situation, another tax of the same nature has been levied (Municipal Property Tax);
C) Violation of the provisions of no. 3 of article 11 of the LGT [General Tax Law], inasmuch as, if the challenged assessment were to be maintained, it would conflict with the principle of the prevalence of substance over form;
D) The taxation of the ownership of building land by stamp duty exceeds the limits of taxpaying capacity, infringes the constitutionally enshrined right to property, and has an evident confiscatory nature;
E) The interpretation that the TA [Tax Authority] makes of the applicable legal norms is manifestly unconstitutional, by violation of, inter alia, the provisions of articles 13, 62, 103 and 104 of the CRP [Constitution of the Portuguese Republic].
5. The TCA – Tax and Customs Administration, called upon to state its position, contested the Claimant's claim. From its reply it appears that its position is, in summary, as follows:
a) The property on which the challenged assessment is levied has the nature of a property with residential use, an expression different and broader than the realities identified in art. 6, no. 1, paragraph a), of the CIMI [Municipal Property Tax Code], whereby the assessment act which is the subject of the present request for arbitral pronouncement should be maintained, as it constitutes the correct interpretation of Item 28.1 of the General Table, amended by Law 55-A/2012, of 29/12.
b) Furthermore, the norm in question does not violate any constitutional principle.
6. The tribunal is materially competent and is regularly constituted under the terms of the RJAT.
The parties have legal personality and capacity, are legitimate, and are legally represented.
The proceedings do not suffer from vices that would invalidate them.
7. The issue to be resolved consists in ascertaining whether the act in question suffers from the vice of violation of law, due to error in the legal assumptions.
II – THE RELEVANT FACTS
8. The following facts are considered proven:
a) The Claimant was, at the date of the facts, the owner of building land located in …, …, …, parish of …, municipality of Loures, registered in the urban property register under article….
b) The Respondent made, on 22.03.2013, an assessment of Stamp Duty under Item 28.1 of the respective General Table, relating to the year 2012, levied on the identified building land, with the Claimant as taxpayer, in the amount of €11,390.90 (eleven thousand three hundred and ninety euros and ninety cents).
c) The Claimant filed an administrative complaint against this assessment, which was registered under no. …, subject to a decision of dismissal, and from which it filed a hierarchical appeal, which was registered under no. …2014…, also dismissed by the Respondent on 31.05.2016, a decision notified to the Claimant on 23.06.2016.
d) The Claimant paid the amount of the tax assessment in question in three legally provided instalments.
For the purposes of the decision of the case, there are no unproven facts.
9. The Tribunal's conviction as to the decision of the factual matter was based on the documents in the proceedings as well as the pleadings submitted, it being noteworthy that there was complete agreement between the parties as to the facts, with the disagreement being limited to matters of law.
III – APPLICABLE LAW
10. Item 28 of the General Stamp Duty Table, in the wording applicable at the date of the facts, provided that the ownership of properties with residential use with a patrimonial value equal to or exceeding €1,000,000 was subject to stamp duty, as follows:
"28 – Ownership, usufruct or right of superficies of urban properties whose patrimonial taxable value according to the register, under the Municipal Property Tax Code (CIMI), is equal to or exceeding 1,000,000 euros – on the patrimonial taxable value used for IMI purposes:[1]
28.1 – For property with residential use – 1%;
28.2 – For property, when taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, included in the list approved by an order of the Minister of Finance – 7.5%".
11. It has already been abundantly emphasized in various arbitral decisions[2] (in particular 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 "property with residential use" (which is not subject to any specific definition in the Stamp Duty Code) is not used by the CIMI[3], nor in any other legislative instrument.
All these arbitral decisions, whose doctrine is supported, are, essentially, to the effect that such a concept requires for its fulfillment, at least, the actual possibility of the existing property being used for residential purposes and, in all of them, it was understood that building land, even if destined for the construction of residential buildings, does not fall within the concept of "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 residential 'use', that is, urban properties that have an actual use for residential purposes, whether because they are licensed for that purpose or because that is their normal destination.
And we cannot confuse 'residential use' which implies an actual dedication of an urban property to that end, with the expectation, or potential, of an urban property possibly coming to have 'residential use'.
Case 49/2013-T:
"The expression 'with residential use' suggests, from a simple reading, an idea of real and present functionality. From the norm in question, it is not possible to extract, by interpretation, that, as stated in the respondent's reply, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, no. 1, paragraph a), of the CIMI.' Such interpretation has no legal support, in light of the principles contained in arts. 9 of the Civil Code and 11 of the General Tax Law.
Indeed, if the legislator intended to encompass in the scope of application of the tax other realities than those resulting from the classification governed by art. 6 of the CIMI, it would have said so expressly. But it does not, instead referring, in bloc, to the concepts and procedures provided for in the said Code"
Case 51/2013-T:
"The point that matters to decide is this: is there a difference between the expression that the CIMI uses of 'residential urban property' and the expression used by art. 4 of Law no. 55-A/2012, when referring to 'property with residential use'?
We believe not, since there prevails, although using words somewhat different, the same fundamental meaning of taxing the ownership of properties with the same destination, the actuality or the possibility of use being for purposes of human habitation, with all the consequences that 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 refer to a distinct reality, whereby, in good hermeneutics, 'property with residential use', cannot be a property merely licensed for residential use or intended for that purpose (that is, it will not be sufficient that it is a 'residential property'), but must be a property that already has actual dedication to that purpose."
Case 144/2013-T:
"(..) we consider that, in the interpretation of the provisions of item 28.1 of the TGIS, an understanding is required according to which the residential use of an urban property suggests that it be given that actual destination, or that it can directly be given that destination."
Case 202/2014-T
"The expression 'with residential use' suggests, from a simple reading, an idea of real and present functionality. From the norm in question, it is not possible to extract, by interpretation, that, as stated in the Respondent's reply, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, no. 1, paragraph 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."
12. Also in the Supreme Administrative Court judgment of 09-04-2014, case no. 048/14[4] it was considered that:
"The concept of 'urban property 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 no. 2 of article 67 of the Stamp Duty Code (also introduced by that Law) refers subsidiarily. And it is a concept that, probably by virtue of its imprecision – a fact all the more serious since it is by reference to it that the objective scope of the new taxation is delimited –, had a short life, since 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 delimits its objective scope of application 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 he did –, merely makes clear for the future that building land whose construction, authorized or planned, is for residential purposes is covered within the scope of item 28.1 of the General Table of Stamp Duty (provided that its patrimonial taxable value is equal to or exceeding 1 million euros), but clarifies nothing, however, with respect to 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 follow the interpretation of the appellant, since, contrary to what is alleged, it does not result unequivocally either from the letter or from the spirit of the law that its intention was, ab initio, to encompass in its objective scope of application building land for which the construction of residential buildings was authorized or planned, as clearly results today from item 28.1 of the General Table of Stamp Duty."
(…)
"It is concluded therefore, with the respondent and in accordance with the decision in the judgment under appeal that, as a clear distinction results from article 6 of the Municipal Property Tax Code between urban properties "residential" and "building land", these cannot be considered, (…) as 'properties with residential use' for the purposes of item no. 28.1 of the General Table of Stamp Duty, in its original wording, as given by Law no. 55-A/2012, of 29 October."
13. This understanding continued to be followed by the Supreme Administrative Court, uniformly, in the other cases in which it was called upon to rule. As can be read in the judgment handed down in case 0707/14, of 10.09.2014[5]:
"The question has already been decided by this Tax Litigation Section of the Supreme Administrative Court on 9 April 2014, in cases nos. 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 judgments, whereby it may be considered settled case law to the effect that building land cannot be considered for the purposes of the application of Stamp Duty provided for in Item 28.1 (as worded by Law no. 55-A/2012, of 29 October) as urban properties with residential use.
This is case law that is also accepted here, as we fully agree with it, given the provisions of no. 3 of art. 8 of the Civil Code (CC) (…).
14. Thus, a point unequivocally common to all these decisions, and which we follow, is the understanding that building land, even if intended for residential construction, are not properties with residential use. We consider that the application of item no. 28.1 of the General Table of Stamp Duty, as amended by Law no. 55-A/2012, requires, at minimum, the current dedication of the property to residential use, and the mere potential for construction for residential purposes is not sufficient.
In fact, we consider that, regardless of the reasons that may have led Law no. 55-A/2012 to use the expression "property with residential use", instead of "residential property" contained in art. 6, no. 1, al. a) of the CIMI, for the subsumption to item 28.1 of the CIS it cannot fail to require, at minimum, the real and current potential (relative to the taxable event) of the property in question being used for residential purposes.
Building land cannot, therefore, be considered a property with "residential use", since it consists of a reality not suited to human habitation. To achieve that suitability, the occurrence of a reality external to it is necessary - the construction of a building suited for habitation - and with such an event the building land ceases to exist and a new reality comes into being: the building. And it is this that can have residential use.
Therefore, building land does not fall within the concept of "property with residential use", and item 28.1 of the General Table of Stamp Duty is not applicable to it.
15. Taking into account the foregoing, as item 28.1 of the Stamp Duty Code is not applicable to the Claimant's property, the Claimant's claim for annulment cannot fail to succeed, since the tax act is tainted with the vice of violation of law due to error in the legal assumptions, thus prejudicing knowledge of the other issues capable of supporting the annulment of the assessment in question.
16. The Claimant further requested that the Respondent be condemned to reimburse the amounts paid corresponding to the assessment which is the subject of the present proceedings, as well as the respective indemnification interest.
Let us examine this.
In accordance with the provisions of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim for which no appeal or challenge lies is binding on the tax administration from the end of the period provided for the appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and up to the end of the period provided for voluntary execution of the judgments of tax courts, "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose", which is in line with the provision in article 100 of the LGT [applicable by force of the provision in paragraph a) of no. 1 of article 29 of the RJAT] which provides that "the Tax Administration is obliged, in case of total or partial success of an administrative complaint, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation which is the subject of the dispute, including the payment of indemnification interest, if appropriate, from the end of the period for execution of the decision".
Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals that function in the CAAD, making no reference to condemnatory decisions, it should be understood that the competencies include the powers that in judicial challenge proceedings are attributed to tax courts, and this is the interpretation that is consonant with the meaning of the legislative authorization on which the Government based itself for approving the RJAT, in which it proclaims, as a first directive, that "the tax arbitration proceedings must constitute an alternative procedural remedy to the judicial challenge proceedings and to the action for recognition of a right or legitimate interest in tax matters".[6]
The judicial challenge process, although it is essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of indemnification interest, as is apparent from article 43, no. 1, of the LGT, which provides that "indemnification interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services which resulted in payment of the tax debt in an amount greater than legally due" and from article 61, no. 4 of the CPPT (as amended by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which provides that "if the decision that recognized the right to indemnification interest is judicial, the period of payment shall be counted from the beginning of the period for voluntary execution".
Thus, no. 5 of article 24 of the RJAT, in providing that "payment of interest, regardless of its nature, is due in accordance with the terms provided in the general tax law and in the Code of Tax Procedure and Process" should be understood as permitting recognition of the right to indemnification interest in the arbitration proceedings.
In the case at hand, it is manifest that, following the declaration of illegality of the assessment act, there is a place for reimbursement of the tax, by force of the aforementioned arts. 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, as such is essential for "restoring the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed".
As for the indemnification interest, it remains to assess this claim in light of article 43 of the General Tax Law.
No. 1 of that article provides that "Indemnification interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the services which resulted in 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 argue that "The error attributable to the services that carried out the assessment is demonstrated when an administrative complaint or judicial challenge of that same assessment is filed and the error is not attributable to the taxpayer" (GENERAL TAX LAW, Annotated and Commented, 4th Edition, 2012, p. 342).
In the case "sub judice", since the error that gave rise to the assessment now being annulled is not attributable to the Claimant, the request for condemnation of the Respondent for indemnification interest cannot fail to succeed.
Therefore, the Tax and Customs Authority should execute this decision, under the terms of article 24, no. 1, of the RJAT, reimbursing the amounts paid by the Claimant relating to the annulled assessment, with indemnification interest, at the statutory rate.
The indemnification interest is due from the date of payment until the date of processing of the credit note, in which it is included (article 61, no. 5, of the CPPT).
IV – DECISION
Accordingly, the Arbitral Tribunal decides, ruling totally in favor of the request for arbitral pronouncement:
a) To decree the annulment of the assessment which is the subject of the present proceedings.
b) To condemn the Respondent to reimburse to the Claimant the amounts paid with indemnification interest at the statutory rate, calculated from the date of payment by the Claimant until the date of processing of the credit note.
Amount in controversy: €11,390.90 (eleven thousand three hundred and ninety euros and ninety cents) in accordance with the provisions of art. 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Arbitration Proceedings.
Costs borne by the Respondent, in the amount of €918.00 (nine hundred and eighteen euros) in accordance with no. 4 of art. 22 of the RJAT.
Let it be notified.
Lisbon, CAAD, 17.04.2017
The Arbitrator
Marcolino Pisão Pedreiro
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