Summary
Full Decision
ARBITRAL DECISION
— Report
A…, S.A. (formerly named B…, S.A.), taxpayer number…, with registered office at…, …, …-… …, (hereinafter the Claimant) requested from the Centre for Administrative Arbitration (CAAD), on 30 October 2017, the constitution of an Arbitral Tribunal in tax matters, pursuant to the provisions of articles 2, no. 1, subparagraph a) and 10, nos. 1 and 2, of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to as "LRTA"), against the Tax and Customs Authority (TA), with a view to the declaration of illegality and consequent annulment of the Stamp Duty tax assessment ("SD") relating to the year 2015, in the amount of €13,339.90 (thirteen thousand three hundred and thirty-nine euros and ninety cents), assessment number 2015…, issued with reference to the urban property registered in the property register of the Union of Parishes of… and… municipality of…, district of Lisbon, under the property article… (defunct article… of the parish of…) corresponding to a land for construction called…, to which correspond 3 instalments in documents no. 2016…, of 5/4/2016, in the amount of €4,446.64 (four thousand, four hundred and forty-six euros and sixty-four cents), 2016…, of 5/4/2016, in the same amount and 2016…, of 5/4/2016, in the amount of €4,446.63 (four thousand four hundred and forty-six euros and sixty-three cents).
The Claimant opted not to designate an arbitrator.
The request for constitution of an arbitral tribunal was accepted by the President of CAAD on 30 October 2017 and automatically notified to the TA on the same date.
The Undersigned was designated by the President of the CAAD Deontological Council as arbitrator of a Singular Arbitral Tribunal, pursuant to the provisions of article 6 of the LRTA, having communicated acceptance of the assignment within the legal timeframe, in accordance with article 4 of the CAAD Deontological Code.
The Parties were notified of the designation of the Undersigned on 21 December 2017, pursuant to article 11, no. 1, subparagraphs a) and b) of the LRTA, and did not object thereto.
The Singular Arbitral Tribunal was thus duly constituted on 11 January 2018, in accordance with the provisions of subparagraph c) of no. 1 of article 11 of the LRTA.
The TA was notified of the arbitral order of 21 January 2018 to submit a response within 30 (thirty) days, which it submitted on 20 February 2018 and was immediately notified to the Claimant.
By arbitral order of 22 February 2018, the Claimant was notified to make, if it wished, submissions on the exception of absolute lack of jurisdiction raised by the TA.
By request submitted on 26 February 2018, a response to the exception was provided, which was immediately notified to the TA.
By arbitral order of 4 March 2018, the examination of the exception invoked was deferred to the rendering of the arbitral decision, and the Arbitral Tribunal also considered, pursuant to the provisions of article 16, subparagraphs c) and e) of the LRTA, that the meeting provided for in article 18 of the LRTA was dispensable, in accordance with the principle of the autonomy of the Arbitral Tribunal in the conduct of the proceedings, of celerity, and of procedural simplification and informality (articles 19, no. 2 and 29, no. 2 of the LRTA).
The parties were also notified to submit written submissions, which were delivered in the proceedings by both parties and duly notified by the Arbitral Tribunal.
The Parties possess legal personality and capacity and are entitled (articles 4 and 10, no. 2 of the LRTA and article 1 of Order no. 112-A/2011, of 22 March).
The proceedings do not contain defects that would invalidate them.
— Claimant's Request
The Claimant submitted a request for arbitral pronouncement with a view to the declaration of illegality and consequent annulment of the Stamp Duty assessment relating to the year 2015 following the dismissal of a petition for reconsideration which it also seeks to have declared illegal.
The Claimant submitted the present request on the basis of the following grounds briefly set out:
The Stamp Duty assessment refers to the urban property land for construction called… of subdivision permit no.…/88 issued on 8 November 1988 by the Municipal Chamber of…, corresponding to article… of the Union of Parishes of… and… (defunct article…), described in the… Registry of Property Deeds of… under sheet no.…, and registered in the property register of the parish of… under articles…, …, …, … .
The tax property value attributed to the property registered under article…, currently registered under article… of the Union of Parishes of… and… was €1,333,990.
Article… constitutes the non-built portion of lot…, of subdivision permit no.…/88 intended for the construction of agricultural and livestock facilities - that is, the property in question is intended for agricultural and livestock exploitation.
However, the TA proceeded with the assessment of Stamp Duty relating to the year 2015, based on the tax property value of the property.
Such assessment is illegal due to the absence of normative grounds.
Under article 1, no. 1 of the Stamp Duty Code ("SDC"), Stamp Duty applies, inter alia, to the facts or legal situations provided for in the respective General Table ("GTSDuty"), specifically that contained in respective item 28.
For the purposes of SDC, the concept of property is that defined in the Property Tax Code ("PTC") (article 2), there being several types of urban properties (article 6).
The rate of 1% contained in item 28.1 of the GTSDuty applies to the tax property value of a property with residential use.
As is evident, the property in question does not have such use, as results from the subdivision permit, being, at most, land intended for the construction of buildings intended for "other purposes".
Therefore, there is no legal basis for the assessment of the tax.
Lot… is intended for agricultural and livestock exploitation, as results from the subdivision permit.
The interpretation of the concept of residential use cannot have such a broad meaning, on the one hand, nor can it accept the TA's thesis, conveyed in dismissals of petitions for reconsideration and administrative appeals of assessments relating to 2012, 2013 and 2014, that, having been attributed by the TA, when the property was re-evaluated, the residential use and having been no petition for reconsideration, that is the purpose that counts for purposes of taxation.
It falls to the TA to demonstrate on what grounds it designated the property for residential use.
And it should, in accordance with the principle of material truth, among others, rectify a possible wrong situation.
Demonstrated the absence of urban-legal use of the land lot for residential purposes, by virtue of the provisions of the subdivision permit, there is no reason not to immediately revoke the tax assessment that is the subject of the petition.
Being manifestly illegal the assessment notified to the Claimant, the latter submitted, on 27 July 2016, a petition for reconsideration.
On 27 July 2017, the TA dismissed the Claimant's claim, a fact of which the latter was notified.
Arbitral decisions were rendered by CAAD with which the A. identifies itself completely, namely those rendered in proceedings 116/2016-T and 117/2016-T.
On the other hand, with regard to a land lot intended for an Equestrian Centre, for which Stamp Duty relating to 2014 was equally assessed, belonging to a company of the Group in which A. is integrated, a judgment was equally rendered by the Administrative and Fiscal Court of Sintra in the proceedings there conducted under no.…/16…BESNT, currently pending appeal, where a decision was made in identical terms to those previously referred to, that is, independently of the property register qualification, what is relevant is the legally admissible destination of the property, which, in this case, is not residential, therefore the assessment of the SD is illegal.
Being, consequently, the present request timely.
— Respondent's Reply
The Respondent submitted its Reply, which it bases on the following grounds:
By Exception:
The Claimant requests the constitution of the Arbitral Tribunal with a view to obtaining a declaration of the illegality of the Stamp Duty assessment- item 28, based on the erroneous qualification of the property registered in the register under article… of the Union of parishes of… and… .
From the reading of the initial request and the documents attached thereto, it is concluded that the present request is reduced to a request for arbitral decision determining that the urban property above identified does not have residential use and should have the consequent tax treatment.
That is, what the Claimant is contesting is the act of fixing the TPV, more specifically, one of the parameters that are considered for determining that value: the use coefficient.
Article 13 of the Code of Procedure in Administrative Courts (CPAC), combined with article 18 of the Code of Tax Procedure and Process (CTPP) and with articles 101 et seq. of the Code of Civil Procedure (CCP) establish that the infringement of rules of jurisdiction in reason of subject-matter and hierarchy determine the absolute lack of jurisdiction of the court.
Absolute lack of jurisdiction may be raised by the parties and must be raised by the Court at any stage of the proceedings, as long as there has not been a judgment with res judicata rendered on the merits of the case.
The scope of tax arbitral jurisdiction is delimited by the provisions of no. 2 of the Legal Regime for Tax Arbitration (LRTA), approved by Decree-Law no. 10/2011, of 23 January which, in its no. 1, establishes the criteria of material apportionment.
Thus, according to article 2 of the LRTA, the jurisdiction of arbitral tribunals is restricted to:
"a) the declaration of illegality of acts of tax assessment, of self-assessment, of withholding at source and of payment on account;
b) the declaration of illegality of acts of fixation of taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable matter and of acts of fixation of tax property values;"
Now, the jurisdiction of the Tribunal is determined by the request of the applicant and by the cause of action on which the same is based, expressed in the initial pleading, not depending on either the legitimacy of the parties or the merits of the action, constituting the violation of the rules of absolute jurisdiction of the Tribunal in reason of subject-matter an exception to be raised.
Verifying such exception immediately prejudices the examination of the remaining issues raised by the Claimant in the initial request and implies the absolution of the respondent entity.
In the case at hand, the act which is the subject of the dispute cannot be qualified as an act of tax assessment for the purposes of subparagraph a) of no. 1 of article 2 of the LRTA.
What is confronted here is the act of fixing the TPV, more specifically that of the use coefficient of the urban property in question.
Thus, the proper means to challenge this act, which does not entail the appreciation of the legality of a tax assessment act and which is also not an act of fixation of taxable matter or taxable matter, is not judicial challenge but special administrative action, in accordance with subparagraph p) of no. 1 of article 97 of the CTPP and article 37 of the CPAC.
We are dealing with an act of the Tax Administration that is not included in the acts provided for in subparagraphs a) and b) of no. 1 of article 2 of the LRTA, therefore the Arbitral Tribunal should judge the exception invoked of absolute lack of jurisdiction of the arbitral forum, in reason of subject-matter, as well-founded and, in consequence, reject the request for arbitral pronouncement, absolving the TA from the action.
By Contesting:
What is at issue is an assessment that results from the direct application of the legal norm, and which translates into objective elements, without any subjective or discretionary appreciation.
In the property record that is the basis of the present assessment, it is verified that the land for construction is affected by residential use.
Now, urban properties that are lands for construction and to which residential use has been attributed in the course of their respective evaluations, being such use contained in the respective property registers, are subject to Stamp Duty.
The fact that in the rule of incidence – item 28.1 of the GTSDuty – the property with residential use has been made explicit to the detriment of the residential property, appeals to the use coefficient, cf. article 41 of the PTC, which applies, without distinction, to all urban properties.
There is no definition in Stamp Duty of what is meant by 'urban property', 'land for construction' and 'residential use', therefore it is necessary to resort subsidiarily to the PTC to obtain a definition that allows assessment of the possible subjection to SD, in accordance with the provisions of article 67, no. 2 of the SDC in the wording given to it by Law no. 55-A/2012, of 29/10.
In the evaluation of lands for construction the legislator intended that the methodology of evaluation of urban properties in general be applied, thus all coefficients should be taken into account, namely the use coefficient provided for in article 41 of the PTC, with such legal obligation resulting further from no. 2 of article 45 of the PTC, by referring to the value of buildings authorized or provided for in the same land for construction."
Therefore, for the purposes of determining the tax property value of lands for construction, the application of the use coefficient in the context of evaluation is clear, an evaluation that the Claimant never challenged.
Item 28 itself of the GTSDuty refers to the expression 'properties with residential use', appealing to a classification that overlaps with the types provided for in no. 1 of article 6 of the PTC.
From the "Subdivision Permit no.…" issued by the Municipal Chamber of… on 1988-11-08 it expressly appears the total construction area and the total area of lots, leaving no doubt that the purpose of the property in question is construction.
The Claimant, if it considered there had been an error or even some illegality in the calculation of the TPV, because it considered that the property in question did not have residential use, should then have requested a second evaluation, which it did not do, agreeing with the TPV attributed.
It also did not present any challenge to the respective property register, in accordance with the provisions of article 130 of the Code of Property Tax, because it agreed with the qualification of the property.
Well before the actual construction of the property, it is possible to ascertain and determine the use of the land for construction.
Proof of this is the State Budget for 2014, Law no. 83-C/2013, of 31 December, see article 194, under the heading - Amendment to the General Table of Stamp Duty, according to which item 28.1 of the General Table of Stamp Duty, attached to the Stamp Duty Code, approved by Law no. 150/99, of 11 September, now has the following wording: «28.1 — For residential property or for land for construction the building of which, authorized or provided for, is for residential purposes, in accordance with the provisions of the Property Tax Code — 1 %».
It invokes constitutional and legal principles of hermeneutical and exegetical interpretation, such as equality, ratio of the norms, taxpaying capacity, material justice and proportionality.
It discourses on the basis of legislative policy measures, the legislator's will and makes an excursus on the grounds for creation of item 28.1 in the General Table of Stamp Duty.
It further invokes that neither the fact of the claimant presenting here borderline/frontier cases, imputing, in this context, some unconstitutionality of Item 28 by violation of the principle of equality, supports the thesis it propounds.
It concludes by maintaining that the assessment challenged remains entirely valid and legal, concluding to the legality of the same.
Written Submissions
The parties in their submissions reproduced their previously presented procedural pleadings.
Factual Matter
Proven Facts
Based on the elements contained in the file and in the administrative proceedings attached to the dossier, the following facts are considered proven:
The Claimant is the owner of an urban property, lot…, registered in the property register of the Union of Parishes of… and…, municipality of…, district of Lisbon under property article… (defunct article… of the parish of…), located in… in… .
The property is registered in the urban property register as land for construction, with registration since 1995.
The property is described in the Registry of Property Deeds of…, under number…, being classified as mixed property, covering 4 property articles, the…, …, … and… .
In this description, the rural part is described as intended for agricultural and livestock exploitation, having an area of 59,110.47 m.
It is also stated in the same description that from the rural part a one-storey building intended for a poultry slaughterhouse was constructed.
The tax property value of the property is €1,333,990.00.
For the property and others, a subdivision permit no.…/88 was issued by the Municipal Chamber of… on 08.11.1988.
In accordance with such permit, lot… (of which the property in question forms part) has an area of 59,390 m2 and is intended for agricultural and livestock exploitation.
The property in question was subject to evaluation, by virtue of the general evaluation carried out on 11.03.2013, in which the residential use is established and the respective tax property value.
The evaluation indicated was not challenged by the Claimant.
The Claimant was notified of the act of assessment of Stamp Duty, item 28.1, relating to the year 2015, in the amount of €13,339.90 (thirteen thousand three hundred and thirty-nine euros and ninety cents), assessment number 2015…, to which correspond 3 instalments in documents no. 2016…, of 5/4/2016, in the amount of €4,446.64 (four thousand, four hundred and forty-six euros and sixty-four cents), 2016…, of 5/4/2016, in the same amount and 2016…, of 5/4/2916, in the amount of €4,446.63 (four thousand four hundred and forty-six euros and sixty-three cents).
The Claimant submitted a petition for reconsideration of that assessment act on 27.06.2016.
By decision of the Finance Directorate of Lisbon notified to the claimant on 4/8/2017, the petition for reconsideration submitted was dismissed.
The Claimant filed the present arbitral action on 30.10.2017.
Facts Given as Not Proven
None with relevance for the decision of the case.
Preliminary Issue
In compliance with the provisions of article 29, no. 1, subparagraphs a) and e) of the LRTA, 13 of the Code of Procedure in Administrative Courts (CPAC) and 608, no. 1 of the CCP, the Arbitral Tribunal shall examine the exception raised by the TA:
To examine the possible lack of jurisdiction of the Arbitral Tribunal to appreciate the request submitted by the Claimant, for illegality of the decision to dismiss the petition for reconsideration submitted and the annulment of the Stamp Duty assessment.
The respondent invokes that the Claimant requests the constitution of the Arbitral Tribunal with a view to obtaining a declaration of the illegality of the Stamp Duty assessment- item 28, based on the erroneous qualification of the property registered in the register under article… of the Union of parishes of… and… .
It also invokes that the Claimant submits a request for arbitral decision determining that the urban property above identified does not have residential use and should have the consequent tax treatment, challenging the act of fixing the TPV, more specifically one of the parameters that are considered for determining that value: the use coefficient.
It thus invokes the absolute material lack of jurisdiction of this Tribunal, in view of what is delimited by the provisions of no. 2 of the Legal Regime for Tax Arbitration (LRTA), approved by Decree-Law no. 10/2011, of 23 January.
The Claimant's request is "It is requested that the claim for declaration of illegality of the act, of 27jul2016, of dismissal of the petition against the (act) (1) of tax assessment of Stamp Duty relating to 2015, in the amount of €13,339.90, issued by the Tax and Customs Authority on 5apr2016, under item 28.1 of the General Table of the Stamp Duty Code ("GTSDuty") with reference to the urban property, corresponding to a land…" be judged as well-founded.
Now, what is involved in this request is that this Tribunal pronounce itself on the illegality of the act of assessment of a tax, "in the present case" Stamp Duty, an act which it properly identifies, issued by the respondent entity. This has nothing to do with the argumentative appreciation that might, or might not, lead to the success or failure of the arbitral action.
Discussing whether a property register constitutes full proof of a fact, or merely simple proof, whether tax facts relate to material realities of an economic or legal nature, in short, defining whether the purpose of residential use requires or not a detailed analysis of general principles of Law, is all a matter to be discussed in the heart of the merits and not as a procedural prerequisite.
The request is objective and at some point it is requested alteration of an act, or administrative situation, even in the tax aspect, of alteration of the property register, whether in the aspect of the use element or in the TPV itself in a broad sense.
The invoked exception of absolute lack of jurisdiction of the present Arbitral Tribunal is therefore not well-founded.
Legal Matters
Question to be Decided:
Whether the property in these proceedings which was subject to taxation under item 28.1 of the General Table of Stamp Duty constitutes a tax fact for the purposes of that provision.
Evolution of the Normative Framework (2)
The Stamp Duty Code, approved by Law no. 150/99, of 11 September, began its entry into force in March 2000, being significantly amended by Decree-Law no. 287/2003, of 12 November, which re-published it.
With the reform of wealth taxation carried out in 2003, Stamp Duty came to be configured mainly as a tax on operations which, regardless of their materialization, reveal income and wealth, applying to a "heterogeneous multiplicity of facts or acts", without "a common trait that gives them identity" (JOSÉ MARIA FERNANDES PIRES, Lectures on Taxes on Wealth and Stamp Duty, p. 453). This capacity to accommodate within itself taxation of different nature created the path for the legislator to assign it a complementary role to other taxes.
As J. SILVÉRIO DIAS MATEUS and L. CORVELO DE FREITAS point out (Taxes on Real Property – Stamp Duty, p. 251, Lisbon 2005) "stamp duty is configured as a means of reaching manifestations of taxpaying capacity not covered by the incidence of any other taxes. Not having the nature of overlapping taxation, this tax tends to assume a residual function filling spaces left open by income and consumption taxation".
Law no. 55-A/2012, of 29 October, introduced a set of amendments to the codifying instruments of three taxes – IRS, IRC and Stamp Duty – as well as to the General Tax Law, among which the provision now under analysis, all guided to obtain supplementary fiscal revenue and, in general, to counteract budgetary imbalance. Thus, invoking the principles of social equity and fiscal justice, taxation of capital income and movable capital gains was aggravated, measures were introduced to strengthen the fight against tax fraud and evasion, through strengthening the regime applicable to manifestations of wealth of taxpayers and to transfers to and from tax havens, to which was added the introduction, within Stamp Duty, of taxation of legal situations (expression added to no. 1 of article 1 of the Stamp Duty Code), which was understood to be capable of bearing increased fiscal effort, thereby distributing more equitably the sacrifice to achieve the budgetary consolidation required of taxpayers.
Thus, with the addition of item no. 28 to the General Table of Stamp Duty by article 4 of Law no. 55-A/2012, a legal situation was subjected to this tax, consisting in the ownership, usufruct or right of superficies of urban property with residential use, whose tax property value contained in the property register, pursuant to the Property Tax Code, is equal to or greater than €1,000,000.00, with a rate of 1% being levied on such value.
The wording of item 28.1 was subsequently amended, by means of Law no. 83-C/2013, of 31 December, now extending the incidence of Stamp Duty, at the rate of 1%, to "(…)urban property or (for) land for construction the building of which, authorized or provided for, is for residential purposes, in accordance with the provisions of the Property Tax Code".
The incidence of Stamp Duty, characterized by a heterogeneous multiplicity of facts, refers, with regard to elements essential to the assessment of the tax, particularly as regards the normative criteria defining the tax property value to be considered, to the regulation contained in the Property Tax Code, ensuring, or at least promoting, a certain degree of harmony between the various legislative bodies in the field of wealth taxation. Doctrine even attributes to it the condition of "additional rate to the Property Tax", aimed at "discriminating properties of higher tax property value and subjecting them to a more burdensome tax regime than the others" (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 504), explaining the creation of a new fact subject to Stamp Duty, beyond the heterogeneity that this tax bears, by the need to increase the State's fiscal revenue, since the revenue from the Property Tax reverts to the municipalities and Stamp Duty is a revenue of the State (op. cit., p. 506).
Indeed, this condition was even achieved with the creation of the additional Property Tax realized by Law 42/2016, of 28/12, inserted as chapter XV in the Property Tax compendium, with rules of incidence, taxable value, rate, assessment and payment and diverse provisions, with its own rules, which expressly revoked item 28 of the General Table of Stamp Duty.
However, this additional has a personal nature of taxation, as it looks at global situations of real property wealth, from a wealth perspective, which together with the direction of revenues to the Social Security Stabilization Fund, allows understanding the difference in objectives and concrete regimes, which both pursued, since all of them ultimately had budgetary revenue purposes.
In fact, the taxation resulting from the rule of incidence housed in item no. 28 assumed the nature of a partial tax (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 507), taking as tax base the urban property affected by residential use, calculating the respective tax property value per relevant legal and economic unit. It does not constitute a general tax on wealth, or even a tax on all real property wealth, in terms of founding a comparison based on a personalization perspective of the tax and starting from a base that considers all the wealth of the taxpayer.
From the joint application of no. 4 of article 2 of the Stamp Duty Code and no. 1 of article 8 of the PTC, it is concluded that the tax fact to which item 28.1 of the GTSDuty refers occurs on 31 December of each year. To that extent, the legal-tax relationship will be fixed based on the legislation in force on that same date, regardless of subsequent amendments that may be in force on the date of assessment of the tax. Therefore, Stamp Duty of item 28.1 of the GTSDuty relating to the year 2015, to be assessed in 2016, should be calculated and fixed in accordance with the wording of the provision, introduced by Law no. 55-A/2012, of 29 October, with the wording given to it by the State Budget Law/2014 (Law no. 83-C/2013).
Recall the original wording of item 28 of the GTSDuty:
- Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the property register, pursuant to the Property Tax Code (PTC), is equal to or greater than (euro) 1,000,000 - on the tax property value used for the purpose of Property Tax:
28.1 For property with residential use-------1%
28.2 For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance------------------------------------------------------7.5%
This wording (original) was the subject of numerous disputes that opposed the TA and taxpayers, owners of lands for construction, and the Supreme Administrative Court understood, e.g., in the Decision rendered in case no. 048/14, of 09.04.2014, that "(...)not having the legislator defined the concept of "properties (urban) with residential use", and resulting from article 6 of the Property Tax Code (subsidiarily applicable to Stamp Duty provided for in the new item no. 28 of the General Table) a clear distinction between "residential urban properties" and "lands for construction", the latter cannot be considered, for the purposes of incidence of Stamp Duty (Item 28.1 of the GTSDuty, in the wording of Law no. 55-A/2012, of 29 October), as urban properties with residential use( (...)""
In fact, the concept of "property (urban) with residential use" was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Property Tax Code, to which no. 2 of article 67 of the Stamp Duty Code (also introduced by that Law), subsidiarily refers. And it is a concept which, probably due to its imprecision – a fact all the more serious in that it is based on it that the scope of objective incidence of the new taxation is defined -, 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 defines its objective scope of incidence through the use of concepts that are legally defined in article 6 of the Property Tax Code. This amendment - to which the legislator did not attribute an interpretative character, nor does it seem to us that it did and the question here does not interest us to address –, merely makes it clear for the future that lands for construction the building of which, authorized or provided for, is for residential purposes are included within the scope of item 28.1 of the General Table of Stamp Duty (provided that the respective tax property value is equal to or greater than 1 million euros).
When the respective bill was presented and discussed in the Assembly of the Republic, the State Secretary for Tax Affairs stated (see Parliamentary Record, I Series no. 9/XII – 2, of 11 October, p. 32) that: «The Government proposes the creation of a special tax on residential urban properties of higher value. It is the first time in Portugal that a special taxation of high-value properties intended for residential purposes is created. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to homes valued at equal to or greater than 1 million euros" from which it is gathered that the reality to be taxed that the legislator had in mind are, in fact, and notwithstanding the imprecision in the terminology of the law, "the (urban) residential properties", in common language "houses", and not other realities. The fact that it can be considered that in the determination of the tax property value of urban properties classified as lands for construction account should be taken of the use that the building authorized or provided for it will have in determining the respective value of the implementation area (see nos. 1 and 2 of article 45 of the PTC), does not determine that lands for construction can be classified as "properties with residential use", since "residential use" always appears in the Property Tax Code referred to "buildings" or "constructions", existing, authorized or provided, since only these can be inhabited, which is not the case with lands for construction, which do not, in themselves, have conditions for such, and cannot be used for residential purposes except if and when the construction authorized and provided for them is built on them (but in that case they would no longer be "lands for construction" but another type of urban property – "residential", "commercial, industrial or for services" or "other" – article 6 of the PTC).
It would indeed be strange if the determination of the scope of the tax rule of incidence of item no. 28 of the General Table of Stamp Duty were, after all, found in the rules for determination of the tax property value of the Property Tax Code, and that the imprecision in terminology of the legislator in the wording of that rule were, after all, clarified and finally explained by means of an indirect and equivocal referral to the use coefficient established by the legislator in relation to built properties (article 41 of the Property Tax Code). Thus, taking into account that a land for construction – whatever the type and purpose of the building that will be or may be erected on it – does not in itself satisfy any condition for it to be licensed or for one to be able to define its normal destination as residential use, and referring to the rule of incidence of stamp duty to urban properties with "residential use", without any specific concept being established for the purpose, cannot be extracted from it that it contains a future potentiality, inherent in a different property that may possibly be built on the land, simply because in cadastral terms it has been classified as land for construction.
In fact, referring to urban properties, no. 1 of article 6 of the PTC distinguishes various types, dividing them into residential, commercial, industrial or for services, lands for construction and others, in accordance with the following criteria: «residential, commercial, industrial or for services» – buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of those purposes (see article 6, no. 2 of the PTC); «lands for construction», lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, prior notice admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been declared so in the acquisition title, excepting lands where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land use plans, are affected by spaces, infrastructure or public facilities» (see article 6, no. 3 of the PTC, in the wording of Law no. 64-A/2008, of 31/12); «Others», are those lands situated within an urban agglomeration that are not lands for construction nor are classified as rural property, in accordance with their legal concept, and also buildings and constructions licensed, or in the absence of a license, that have as their normal destination other purposes than those referred to above (see article 6, no. 4 of the PTC).
In imposing taxation on urban properties «with residential use», the legislator in fact does not establish in the Stamp Duty Code any specific concept that should be considered for that purpose, but rather refers the application of the regime for taxation of properties to which item 28 refers to the provisions of the PTC, which establishes a clear distinction between residential properties and lands for construction, the former being classified in that manner based on their municipal license or, in the absence thereof, as a result of normal use and the latter are defined based on their legal potentiality.
From this excursus, one can immediately understand that the word "use" has no relationship with the use coefficient for the purposes of determining the TPV, the truth is that in the present proceedings we are faced with a legal and factual situation that is not of a residential reality.
Legally, because as will be seen we are faced with a reality inserted in a lot intended for agricultural and livestock exploitation and factually, because as stated in point 5 of the proven facts, from the description of the rural part of the property a one-storey building intended for a poultry slaughterhouse was constructed.
It is known that "The interpreter of tax law cannot fail to pay attention to the economic substance of tax facts, because, as is frequently emphasized, what actually matters to tax law are the economic realities, the real situations that express the perception of income or the taxpaying capacity and not the mere trappings with which they are sometimes presented externally." (3) and even in those cases where it would be necessary to inquire in evidentiary terms about the real material situation of a particular property, the simple classification in the property register would not constitute full proof, or even full proof of the reality existing, the truth is that in the case under discussion we do not even need to engage in that inquiry, being that, even in those cases we are of the opinion that "…a land for construction - whatever the type and purpose of the building that will be or may be erected on it, including that intended for residential purposes - does not in itself meet the requirement provided for in items 28 and 28.1 of the GTSDuty (wording of Decree-Law no. 7/2015), that is, that "(...) the building "authorized or provided for, is for residential purposes (...)." (4)
Legal Subsumption
Now, based on the evidence produced, we are faced with an urban property, in the modality of land for construction, called lot…, which under the description… of the Registry of… and…, the latter being the object of the present proceedings.
The rural part is described therein as intended for agricultural and livestock exploitation, having an area of 59,110.47, a one-storey building intended for a poultry slaughterhouse having been built.
It also results that, for the property and others, a subdivision permit no.…/88 was issued by the Municipal Chamber of… on 08.11.1988, where it appears that lot… (of which the property in question forms part) has an area of 59,390 m2 and is intended for agricultural and livestock exploitation.
In conclusion, lot…, urbanistically intended for agricultural and livestock exploitation, had a building constructed intended for a poultry slaughterhouse, therefore, it does not possess, nor could it possess, any use – however much the semantics of this concept may be debated - of a residential nature.
In view of the foregoing, this brings about the exclusion of taxation of the property in the light of article 28 of the GTSDuty (which, incidentally, was subsequently revoked by Law no. 42/2016 – State Budget Law for 2017 – article 210-2).
In view of what has just been said, the request for arbitral pronouncement submitted by the Claimant is well-founded by a clear breach of law and error as to the factual and legal assumptions.
INDEMNITY INTEREST
Absence of Express Request
It results from no. 1 of article 108 of the CTPP, applicable here by virtue of subparagraph a) of no. 1 of the LRTA, that the Claimant must formulate in its initial pleading (here request for arbitral pronouncement) "dependent requests on the principal request, such as condemnation of the Public Treasury to pay indemnity interest or indemnification for guarantee provided (5).
In the request which it formulates, with which it closes its pleading, the Claimant does not petition for the payment of any indemnity interest, the same being the case in the written submissions it presented.
The question here is whether, in the face of the absence of express petition for condemnation and payment of indemnity interest, it is lawful for the Tribunal to make such condemnation.
In favor of this impossibility works, first of all, the possibility of being faced with excess of pronouncement determining, ultimately, the nullity of the judgment, in view of the provision of article 125 of the CTPP applicable.
This Singular Arbitral Tribunal is not unaware of the subsistence of divergences at the level of case law regarding the necessity of an express request for payment of indemnity interest, namely that which results from the Supreme Administrative Court decision of 18/05/2005, in the context of case no. 296/05, reported by His Excellency Counselor Baeta de Queiroz: "In the contentious annulment appeal of an act of Sub-Director-General of Taxes which disregarded the administrative appeal of the decision which, in turn, had dismissed the petition for reconsideration against an assessment act, with no express request for indemnity interest, condemnation of the Administration to pay the same is not appropriate."
Similarly recognizing, as is signaled by Jorge Lopes de Sousa that "the dominant case law of the Supreme Administrative Court was to the effect that the formulation of a request for payment of indemnity interest in the petition of challenge or petition for reconsideration was mandatory" (6).
The author further adds: "This case law, however, does not appear to be followed after the entry into force of the General Tax Law (….)" concluding in a note to article 61 of the CTPP (cited work, Volume I, page 568) the following: " On the other hand, it is certain that after the General Tax Law, article 61, no. 3 of the CTPP, in its initial wording, came to establish that indemnity interest will be counted from the date of payment of the undue tax to the date of issuance of the respective credit note, but it is no less certain that neither the General Tax Law nor the CTPP results that the attribution of indemnity interest should be made ex officio by the court".
On the other hand;
In accordance with the provisions of subparagraph b) of no. 1 of article 24 of the LRTA, the arbitral decision on the merits of the claim from which no appeal or challenge is available binds the Tax Administration from the end of the term provided for appeal or challenge and the latter, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the term provided for the spontaneous execution of the sentences of tax arbitral tribunals "to restore the situation that would exist if the tax act which is the object of the arbitral decision had not been performed adopting the acts and operations necessary for that purpose", which is in harmony with what is provided for in article 100 of the General Tax Law (applicable by virtue of the provisions of subparagraph a) of no. 1 of article 29 of the LRTA) which establishes that "the tax administration is obliged, in case of total or partial success of a petition for reconsideration, judicial challenge or appeal in favor of the taxpayer, to the immediate and full reconstruction of the legality of the acts or situation which is the subject of the dispute, including the payment of indemnity interest, if applicable, from the end of the term of execution of the decision".(7)
Although article 2, no. 1, subparagraphs a) and b) of the LRTA uses the expression "declaration of illegality" to define the jurisdiction of arbitral tribunals functioning with the CAAD, making no reference to condemnatory decisions, it should be understood that their jurisdictions comprise the powers that in judicial challenge proceedings are attributed to Tax Courts, and that interpretation harmonizes with the sense of the legislative authorization on which the Government based itself to approve the LRTA, which proclaims, as the first directive, that "the arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".
The judicial challenge process, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to pay indemnity interest, as is evident from article 43, no. 1 of the General Tax Law, which establishes that "indemnity interest is due when it is determined, in a petition for reconsideration or judicial challenge, that there was an error of the services resulting in payment of the tax debt in an amount greater than that legally due" and from article 61, no. 4 of the CTPP (in the wording given by Law no. 55-A/2010, of 32 December, to which corresponds no. 2 in the initial wording), that "if the decision that recognized the right to indemnity interest is judicial, the payment term is counted from the beginning of the term for its spontaneous execution".
Indemnity interest has a compensatory function for damage, damage that results from the fact that the taxpayer was unlawfully deprived of a certain sum for a determined period of time, aiming to place the taxpayer in the situation in which the same would be if the payment that was wrongfully required of it had not been made.
From the present proceedings it is not clear whether the claimant made any payment of the assessed and required tax.(8)
In view of what has been set out, and considering the sense of the decision as to the merits of the case already indicated, this Singular Arbitral Tribunal considers it appropriate to condemn the Respondent to the payment of indemnity interest, only in the event that payment has occurred in any form, in part or in whole and to that extent.
Decision
In accordance with the foregoing, this Singular Arbitral Tribunal decides to:
Judgment that the request submitted by the Claimant is well-founded and in consequence annulment of the Stamp Duty assessments in question, with the consequent declaration of illegality and annulment of the act of dismissal of the administrative appeal,
Judgment that the request is also well-founded with respect to the recognition of the right to indemnity interest in favor of the Claimant, only in the event that payment has occurred in any form, in part or in whole and to that extent,
Condemnation of the Respondent to the payment of the costs of the proceedings.
VALUE OF THE CASE
In accordance with what is established in articles 296, nos. 1 and 2 of the Code of Civil Procedure, approved by Law no. 41/2013, of 26 June, 97-A, no. 1, subparagraph a) of the Code of Tax Procedure and Process, and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of €13,339.90 (thirteen thousand three hundred and thirty-nine euros and ninety cents).
COSTS
Pursuant to the provisions of articles 12, no. 2, 22, no. 4 of the LRTA, and articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached thereto, the amount of costs is fixed at €918.00, to be borne by the Respondent.
NOTIFY
Text prepared by computer, pursuant to the provisions of article 131 of the Code of Civil Procedure, applicable by referral from subparagraph e) of no. 1 of article 29 of the Legal Regime for Tax Arbitration, with blank lines, and revised by the arbitrator.
The drafting of the present decision is governed by the orthography prior to the Orthographic Agreement of 1990, except with regard to transcriptions made.
30 April 2018
The Arbitrator
(António Pragal Colaço)
(1) The word "act" does not appear in the initial request, appearing already in the submissions, but it is easily apparent that this was a lapse;
(2) See CAAD Decision, Case number 533/2016, of 20 March 2017, in which the undersigned was Associate Arbitrator, which we follow almost verbatim;
(3) See by way of example Decision of the Central Administrative Court of the South, Case number 07918/14 of 19/2/2015, Barbara Tavares Teles, in.www.dgsi.pt;
(4) See Ibidem. CAAD Decision mentioned in note (2);
(5) See CAAD Judgment, Case number 451/2017, of 14 February 2018, which we follow almost verbatim;
(6) Jorge Lopes de Sousa, Code of Tax Procedure and Process, Annotated and Commented, Volume II, page 208, Áreas Publishing, 2011;
(7) The current wording of article 100 of the General Tax Law is as follows:
"The tax administration is obliged, in case of total or partial success of petitions for reconsideration or administrative appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full reconstruction of the situation that would exist if the illegality had not been committed, including the payment of indemnity interest, under the terms and conditions provided for by law. (Wording given by Law no. 64-B/2011, of 30 December).", which in no way alters the reasoning set out;
(8) From the tax administrative proceedings which were attached to the dossier, from pages 30 et seq., collection notes/demonstration of offset are found, suggesting the idea that the tax was paid by offset;
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