Stamp Tax on Construction Land: CAAD Arbitration on Property Valuation and Compensatory Interest

ARBITRAL DECISION

I – REPORT

1. On 7 September 2015, A…- …, S.A., legal entity no…, with registered office in…, …-… Seixal, hereinafter referred to as the Claimant, filed, pursuant to Article 10 of Decree-Law No. 10/2011, of 20 January (hereinafter the RJAT), and Articles 99 et seq. of the Code of Tax Procedure and Process (CPPT) and nos. 1 and 2, subparagraph d) of Article 95 of the General Tax Law ("LGT"), a request for constitution of an arbitral tribunal, with a view to reviewing the legality of the acts of Stamp Tax assessments practiced by the Tax Authority (hereinafter the AT or the Respondent) which fell upon real property of which it is the owner.

2. Although the Claimant in its request indicated as the subject matter of the dispute the review of assessments relating to the years 2012 and 2013, it is certain that the review of assessments of the first instalments of 2013 is excluded, since the CAAD has already done so, by decision of 27 May 2015, rendered in the context of Case No. 829/2014-T, which recognized its claim as valid.

3. In the request for arbitral decision, the Claimant opted not to appoint an arbitrator, the same occurring with the Tax Authority (hereinafter the Respondent or the AT), whereupon, by order of 5 November 2015, of the President of the Deontological Council of the Administrative Arbitration Center, arbitrators were appointed: Justice Manuel Luís Macaísta (President); Dr. Nuno Pombo and Dr. Luís Ricardo Farinha Sequeira.

4. The Tribunal was constituted on 20 November 2015.

5. The Respondent submitted its response on 4 January 2016.

6. By order of 11 January 2016, the Tribunal considered dispensable the meeting referred to in Article 18 of the RJAT, by virtue of the fact that only questions of law were at issue, and fixed 28 February as the date for rendering the decision.

II – POSITIONS OF THE PARTIES

A) The Claimant contends the following:

1. It is the owner of the following "plots of land for construction" in the Union of Parishes of…, … and …:

· real property with the matriculation article …, described in the Land Register Conservatory of … (CRP …) under registration no…, which originated from article no…, for which a property value of € 2,032,711.50 was ascertained, determined in the year 2011;

· real property with the matriculation article …, described in the CRP … under registration no…, which originated from article no…, for which a property value of € 1,016,355.75 was ascertained, determined in the year 2011;

· real property with the matriculation article …, described in the CRP … under registration no…, which originated from article no…, for which a property value of € 1,016,355.75 was ascertained, likewise determined in the year 2011;

· real property with the matriculation article …, described in the CRP … under registration no…, which originated from article no…, for which a property value of € 1,016,355.75 was also ascertained, determined in the year 2011.

1. It was notified of the tax acts in which Stamp Tax ("IS") was assessed on the real properties identified, by application of Item 28.1 of the General Table of Stamp Tax ("TGIS") relating to the years 2012 and 2013, as shown in the following table:

2. The Claimant, although disagreeing, proceeded to pay all the assessments identified in the preceding paragraph, but filed a Revision request relating to the same, as well as a request for arbitral review in relation to the assessments of the first instalments of 2013.

3. The Claimant considers that Item 28.1 of the TGIS, in the wording given to it by Law No. 55-A/2012, of 29 October (in force at the time of the assessments) applies only to "urban real properties with residential occupation".

4. It alleges that, with respect to IS, Article 4 of the said Law introduced into the TGIS Item No. 28, with the following wording:

"28 - Ownership, usufruct or right of superficies of urban real properties whose tax property value registered in the tax roll, in accordance with the Real Property Tax Code (CIMI), is equal to or greater than € 1,000,000 on the tax property value used for IMI purposes:

28.1 - For real property with residential occupation - 1%;

28.2 - For real property, when the tax subjects who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, listed in the list approved by order of the Minister of Finance - 7.5%"

1. That in the case sub judice there is also at issue the application of Article 6 of the same Law, which, by reference to the year 2012, provided for the application of a rate of 0.5% to real properties with residential occupation. Being that, with reference to the year 2012, in accordance with no. 1 of Article 6 of Law No. 55-A/2012, of 29 October, the following rules should be observed:

"a) The taxable event occurs on 31 October 2012;

b) The tax subject is the one mentioned in no. 4 of Article 2 of the Stamp Tax Code on the date referred to in the preceding subparagraph;

c) The tax property value to be used in the assessment of the tax corresponds to that resulting from the rules set forth in the Real Property Tax Code by reference to the year 2011;

d) The assessment of the tax by the Tax Authority and Customs Service must be carried out by the end of November 2012;

e) The tax must be paid in a single instalment by the tax subjects by 20 December 2012;

f) The applicable rates are as follows:

i) Real properties with residential occupation assessed in accordance with the Real Property Tax Code: 0.5%";

1. It contests the understanding of the AT that the "plots of land for construction" which are the property of the Claimant have "residential occupation", making it necessary, consequently, to determine what the concept of "real property with residential occupation" is.

2. It contends that the concept of "residential occupation" cannot include "plots of land for construction", because that concept presupposes a functional approach to determining the occupation of the land. It should be assessed whether, from a functional point of view, a plot of land for construction could be, in itself, habitable. Now, in the case at hand, the Claimant states, the real properties are mere plots of land for construction. From the functional point of view – and of actual occupation – it is impossible to confer residential occupation to the real properties in question, given the impossibility, due to the lack of infrastructure or any conditions of habitability. That is, the concept of "residential occupation" presupposes the allocation/destination of real properties for residential purposes. Being that, a fortiori, plots of land for construction, by definition, are neither buildings nor constructions, and therefore cannot be considered as occupied for any other purpose.

3. In support of its thesis, the Claimant invokes decisions of the CAAD, namely those rendered in the context of Cases No. 202/2014-T, No. 288/2013-T, No. 49/2013-T, No. 48/2013-T, No. 42/2013-T, No. 53/2013-T, No. 75/2013-T, No. 144/2013-T and No. 158/2013-T.

4. It further states that the Supreme Administrative Court (STA) itself, in its capacity as the apex body of the Administrative and Tax Courts, has likewise repeatedly held the understanding that Item No. 28.1 of the TGIS does not apply to "plots of land for construction". In fact, the STA, with clarity, in a Decision rendered on 09/04/2014, in the context of Case No. 048/14, concludes that "The legislator having not defined the concept of "real properties (urban) with residential occupation", and it resulting from Article 6 of the Real Property Tax Code - subsidiarily applicable to the Stamp Tax provided for in the new Item No. 28 of the General Table - a clear distinction between "urban residential real properties" and "plots of land for construction", the latter cannot be considered, for purposes of the incidence of Stamp Tax (Item 28.1 of the TGIS, in the wording of Law No. 55-A/2012, of 29 October), as urban real properties with residential occupation". This is the repeated understanding of the STA concerning the (erroneous) application of Item No. 28.1 of the TGIS to "plots of land for construction" (see also the STA Decisions rendered in the context of Cases 0676/14, dated 09-07-2014 and Case 0271/14, dated 23-04-2014).

5. It should be noted, further states the Claimant, that Law No. 83-C/2013, of 31 December, introduced a new wording to Item No. 28.1 of the TGIS. In fact, from the year 2014 onwards, the rate of 1% applies to the tax property value of the "residential real property or plot of land for construction whose authorized or planned construction is for residential purposes, in accordance with the provisions of the Real Property Tax Code". Now, such wording indisputably does not apply to the facts now in question. This is because, according to the Claimant, the said amendment has no interpretative character. In line with the STA (Case No. 1870/13, dated 09/04/2014) we are forced to conclude that "This amendment – to which the legislator did not attribute interpretative character, nor does it appear to us that it did –, merely makes unequivocal for the future that plots of land for construction whose authorized or planned construction is for residential purposes are covered within the scope of Item 28.1 of the General Table of Stamp Tax (provided that their respective tax property value is equal to or greater than 1 million euros)".

6. Even if this were not so, the Claimant considers that the constitutionality of Item 28.1 of the TGIS should be reviewed. This is because it aims to tax, in the case of "plots of land for construction", a mere "expectation of wealth". Now, such understanding could never prevail, under penalty of violation of the principle of contributive capacity.

7. The Claimant cites Sérgio Vasques (in Tax Law, Almedina, 2011) in support of its thesis to conclude that taxing a mere "expectation of wealth", and not real wealth, as the AT intends with the application of Item No. 28.1 of the TGIS, clearly conflicts with the invoked principle of contributive capacity.

8. Nor can it be argued that the principle of contributive capacity is not applicable to taxes on assets, alleges the Claimant, which again cites the author and work identified in the preceding paragraph.

9. Being the principle of contributive capacity a corollary of the principle of tax equality, the Claimant cannot fail to question the reason why only real properties with residential occupation are subject to Item 28. As referred to in Decision No. 47/2010 of the Constitutional Court ("TC"), "(…) only those choices of regime made by the ordinary legislator can be censured, on the grounds of violation of the principle of equality, in those cases in which it is proven that they result in differences of treatment between persons that are not found in reasonable, perceptible or intelligible grounds".

10. It then questions whether there is a reason underlying the fact that Item 28.1 does not apply to real property with commercial occupation and with a tax property value (VPT) greater than €1,000,000.00, but, on the other hand, applies to real property with residential occupation with equal VPT?

11. And it answers that the truth is that there is no answer in accordance with constitutional precepts, because the legislator was, purely and simply, arbitrary in his legislative option. We are, therefore, facing a norm that violates Article 13 of the Constitution of the Portuguese Republic (CRP), because the (differentiated) tax treatment of taxpayers is not based on their real contributive capacity, but, on the contrary, is based on criteria that treat taxpayers in identical situations differently.

12. The Claimant justifies the request for indemnity interest by virtue of the requirements of Article 43 of the LGT being met, in that: it paid taxes higher than legally due, because the respective assessments were illegal and that payment resulted from error attributable to the services since at the time of the assessments the AT was in possession of all information capable of preventing the commission of that error.

B) The Respondent contends the following:

1. It is the understanding of the AT that the real properties in question have the legal nature of real property with residential occupation, and therefore the tax assessment acts that are the subject of the present request for arbitral decision should be maintained as they embody a correct interpretation of Item 28.1 of the TGIS, added by Law No. 55-A/2012, of 29 October.

2. Law No. 55-A/2012, of 29 October amended Article 1 of the Stamp Tax Code (CIS), and added Item 28.1 to the TGIS. With this legislative amendment, IS would henceforth also apply to the ownership, usufruct or right of superficies of urban real properties whose tax property value registered in the tax roll, in accordance with the Real Property Tax Code (CIMI) is equal to or greater than €1,000,000.00.

3. The Respondent states that, in the absence of any definition regarding the concepts of urban real property, plot of land for construction and residential occupation, in the context of IS, one must resort to the CIMI in search of a definition that permits ascertainment of any subjection to IS, in accordance with the provision of no. 2 of Article 67 of the CIS as amended by Law No. 55-A/2012, of 29 October. Pursuant to the said legal provision, to matters not regulated in the Code, relating to Item 28.1 of the TGIS, the provisions of the CIMI apply subsidiarily.

4. Now, in accordance with the provision of no. 1 of Article 6 of the CIMI, urban real properties are divided into residential real properties, commercial, industrial or service real properties, plots of land for construction and others. In turn, the classification of residential, commercial, industrial or service real properties is dependent on their respective licensing, or in the absence thereof, on their normal intended use for such purpose and not on their occupation (cf. no. 2 of Article 6 of the CIMI).

5. The notion of occupation of the urban real property is found in the section relating to the assessment of real property, which is well understood because the assessment of the real property (purpose) incorporates value to the real property, constituting a fact of distinction that is determinative (coefficient) for purposes of assessment. As results from the expression "…value of authorized buildings", contained in no. 2 of Article 45 of the CIMI, the legislator opted to determine the application of the methodology of assessment of real properties in general to the assessment of plots of land for construction, and therefore the occupation coefficient provided for in Article 41 of the CIMI applies to them.

6. Thus, concludes the AT, for purposes of determining the VPT of plots of land for construction, the application of the occupation coefficient in the context of assessment is clear, and therefore its consideration for purposes of application of Item 28.1 of the TGIS cannot be ignored, being relevant in this sense this order of considerations:

a. In the application of law to concrete cases it is important to determine the exact meaning and scope of the norm, so as to reveal the rule contained therein, a condition indispensable for it to be applied, in accordance with the provision of Article 9 of the Civil Code (CC), in light of Article 11 of the LGT.

b. No. 2 of Article 67 of the CIS mandates the application of the provisions of the CIMI subsidiarily.

c. The occupation of the real property (aptness or purpose) is a coefficient that contributes to the assessment of the real property, in the determination of the tax property value, applicable to plots of land for construction;

d. Item 28.1 TGIS itself refers to the expression "real properties with residential occupation", calling for a classification that overlaps the species provided for in no. 1 of Article 6 of the CIMI.

1. Contrary to what is argued by the Claimant, the AT understands that the concept of "real properties with residential occupation", for purposes of Item 28.1 of the TGIS, comprises both built real properties and plots of land for construction, beginning with the consideration of the literal element of the norm. It should be noted that the legislator does not refer to "real properties intended for residential use", having opted for the notion of "residential occupation", a different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in subparagraph a) of no. 1 of Article 6 of the CIMI.

2. It being the case that the only reference to "occupation" of urban real properties appears in the chapter relating to the determination of the VPT of urban real properties - cf. Articles 37 to 46 of the CIMI -, it resulting from Article 38 of the CIMI that the VPT of urban real properties for residential use is determined by the application of a formula that integrates various factors, one of which being the occupation coefficient.

3. With respect to plots of land for construction, the VPT corresponds, in accordance with the provision of no. 1 of Article 45 of the CIMI, to "the sum of the value of the building implantation area to be constructed, which is that situated within the perimeter of the building's fixing to the soil, measured on its outer part, added to the value of the land adjacent to the implantation." Clarifying no. 2 of this provision that the value of the implantation area varies between 15% and 45% of the value of authorized or planned buildings.

4. Thus, states the AT, it is clear that in the assessment of the plot of land for construction, necessarily account is taken of the area to be constructed that is authorized and the use to be made of that construction, that is, the characteristics of the urban real property that will be constructed thereon. Thus, the determination of the VPT of plots of land for construction presupposes the determination of the value of authorized or planned buildings, for which, in accordance with the provision of Article 38 of the CIMI, account must be taken of the occupation of those same buildings.

5. In consonance, it resulting clear that the application of the occupation coefficient for purposes of ascertainment of the VPT of plots of land for construction, it is symptomatic that its consideration for purposes of application of Item 28.1 of the TGIS (in the earlier wording) cannot be ignored. It can only be conceived that it could be otherwise, which by mere academic exercise is conceded, if the legislator, in the original wording of the said Item, had adopted the definition provided for in subparagraph a) of no. 1 of Article 6 of the CIMI ("residential urban real properties"), instead of referring to "urban real properties with residential occupation", a distinct and broader expression, revealing the intention to integrate, in the objective incidence norm, other realities, beyond that one.

6. Indeed, continues the Respondent, one need only see that the mere constitution of a right of potential construction immediately increases the value of the real property in question, hence the rule contained in Article 45 of the CIMI, which requires the separation of the two parts of the land. On one side, the part of the land where the building to be constructed will be implanted is considered, and on the other, the area of free land, ascertained the amount of the first part, the value determined is reduced to a percentage between 15% and 45% as provided for in no. 2 of the said norm, by virtue of the fact that construction has not yet been effected. As to the value of the land adjacent to the implantation area, this is ascertained in the same terms as the value of the free land area and the surplus land area for purposes of any urban real property.

7. The urban planning legislation, invoked by the Claimant, has no application, for purposes of determining the concept of urban real property with residential occupation, because the fiscal classification of urban real properties is not bound by their respective licensing. And even if Article 77 of the RJUE contains mandatory specifications, beginning with the building certificates for land subdivision operations or urban development works, and for construction works, the Municipal Master Plans also establish the strategy for municipal development, the municipal policy for land use and urban planning and other urban policies. It integrates and articulates the guidelines established by the territorial management instruments of national and regional scope and establishes the model for spatial organization of the municipal territory. In these terms, well before the actual construction of the real property, it is possible to ascertain and determine the occupation of the plot of land for construction.

8. Concerning the alleged unconstitutionality of Item 28.1 of the TGIS, the AT argues that the principle of equality is one of the structural principles of the Portuguese constitutional system, finding consecration in the generic provision of Article 13 of the CRP. In turn, the binding of administrative authorities to the principle of equality finds consecration in Article 266, no. 2 of the fundamental law.

9. However, states the AT, with respect to no. 3 of Article 104 of the CRP, the doctrine warns that the principle of equality, with respect to assets, must be interpreted with some parsimony, in the sense that it does not involve a particular and autonomous legal content of the principle of equality in the context of taxation on assets. The Respondent cites Américo Brás Carlos, Xavier de Basto and Casalta Nabais in support of its position.

10. The AT further alleges that the most recent decisions of the Constitutional Court, in the aspect of interest here, correctly point out that the principle of equality requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiated treatment, but only arbitrary, unreasonable discriminations, i.e., distinctions of treatment that do not have justification and sufficient material ground. In this sense the principle of equality is materialized and thus possesses various dimensions, such as (i) the prohibition of arbitrariness, (ii) the prohibition of discrimination and (iii) the obligation of differentiation. In the case sub judice the Claimant raises the violation of the principle of equality before tax law in the dimension of the prohibition of differentiation in equal situations. Regarding this dimension, the Constitutional Court pronounced itself in Decision No. 563/96, of 16 May, the Respondent further citing the Decision of the Constitutional Court No. 187/2013, of 5 April.

11. Item 28 is a norm in accordance with the Constitution of the Portuguese Republic, which applies to the ownership, usufruct or right of superficies of urban real properties with residential occupation, whose tax property value registered in the tax roll, in accordance with the CIMI, is equal to or greater than € 1,000,000.00, that is, it applies to the value of the real property. The legislator defined an economic premise, constitutionally valid, as a manifestation of contributive capacity (whose recipients have effectively a special contributive capacity in light of the criteria adopted) required for the payment of this tax.

12. One can see, the Respondent argues, that the reduction of inequalities presided over the presentation of Bill No. 96/XII (2nd); through it the legislator intended to distribute the sacrifices imposed by austerity among all, permitting the discrimination of assets, without such, as the Claimant intends, offending constitutional provisions, namely the principle of equality, either per se or in its aspect of contributive capacity, for the reason that from this do not result unjustified differences of treatment between taxpayers, since different situations are treated differently, contrary to that constitutional principle.

13. That is, the fact that the legislator establishes a value (€1,000,000.00) as the delimiting criterion for the incidence of the tax, below which the provision of the tax norm is not fulfilled, constitutes a legitimate choice by the legislator regarding the fixing of the material scope of the "high-value residential real properties" that it intended to tax more heavily, all the more so because any other value of similar magnitude would assume, in the same manner, an artificial character, which is inherent to any quantitative fixing of a level or limit.

14. Indeed, the different valuation and taxation of a real property with residential occupation as compared to a real property intended for commerce, industry or services, or even to rural real property, results from the different aptness of the real properties in question (residential/services/commerce/industry/agricultural activity), which supports the different treatment given by the legislator who, for economic and social reasons, decided, within his discretionary power, to exclude from the incidence of the tax real properties intended for purposes other than residential.

15. The Respondent continues, alleging that Item 28.1 TGIS arose in an exceptional context and of evident difficulties that the Country, in particular public accounts, faced in the course of compliance with the adjustment program to which the Portuguese Republic committed itself and which had as its guiding document the Memorandum of Understanding on Economic Policy Conditionalities, of 17 May 2011. We cannot, in any way, ignore that the year 2012 was marked as a particularly burdensome year in terms of budgetary containment measures, targeting those with earned income, which was unquestionably at the origin not only of the creation of Item 28.1 TGIS, but of the provision for an additional taxable event, as a form of equitable distribution of sacrifices.

16. A context that necessitated extraordinary measures for collection of additional tax revenue and, where the legislator, without it being necessary here to discuss the merits of the legislative measure and its scope, but only its manifest conformity with the Constitution, decided to call upon the collective effort segments of society that previously were outside the fiscal spectrum. One need only see to that end the Bill No. 96/XII (2nd), which was at the origin of the approval of these new fiscal measures, in particular the creation of this new tax on high-value urban real properties with residential occupation.

17. The Respondent then proceeds to transcribe the words of the Secretary of State for Tax Affairs in defense of the Law that introduced Item 18.1 of the TGIS, as well as excerpts from the Report that accompanied the Budget Proposal for the year 2013, to conclude that thus it results, from the statement of reasons transcribed, from the declarations of the Secretary of State for Tax Affairs and from the Report that accompanied the Budget Proposal for 2013, the unequivocal intention of the legislator to integrate into the collective effort to combat the budgetary deficit and compliance with the adjustment program, the sectors of Portuguese society that revealed wealth through the ownership of real property whose tax property value was equal to or greater than €1,000,000, thereby encompassing equitably a broad set of sectors of Portuguese society, i.e., groups habitually relieved of these obligations, that revealed wealth through the ownership of real property whose tax property value was equal to or greater than €1,000,000.00, given that "they cannot always be the same - employees and pensioners, bearing the tax burdens".

18. For the legislator, states the AT, Item 28.1 of the TGIS aimed to rebalance the distribution of sacrifices, so that these would not fall only upon "those who live from the income of their work" (which, obviously, it had in mind the measures implemented with respect to PIT regarding the change in the structure of rates and brackets of PIT, the 3.5% surcharge, and the additional solidarity rate).

19. From the foregoing, it is then clear that the tax legislator considered that the ownership, usufruct or right of superficies of residential real property or plot of land for construction whose authorized or planned construction was for residential purposes, of VPT equal to or greater than € 1,000,000.00, represented a manifestation of wealth and was susceptible, in itself, to reveal significant contributive capacity, making, for this reason, Item 28.1 of the TGIS apply to the possession of a certain type of real property, in contrast to earned income and pension income, already affected by other fiscal measures (and not only). Indeed, it is certain that contributive capacity beyond earned income and the use of goods is also expressed, in accordance with law, through the ownership of assets (cf. no. 1 of Article 4 of the LGT).

20. Taxation under the Stamp Tax is subject to the criterion of suitability, in the exact measure in which it aims at the taxation of wealth embodied in the ownership of real properties with residential occupation of high value and arises in a context of economic crisis that cannot be ignored.

21. The Respondent considers that in this manner the option for this mechanism of obtaining revenue is legitimized, in that such measure is applicable uniformly to all and any holders of real properties with residential occupation of value greater than €1,000,000.00, applying to the wealth embodied and manifested in the value of real properties.

22. It was intended, therefore, to configure a taxation that would apply, in a specific manner, to individual real property components of the taxpayer's assets that were deemed to be luxury (not on the overall assets considered as a whole), for it being understood that ownership of such high-value residential real property demonstrated increased contributive capacity susceptible to explaining the increased contribution of their respective holders to the collective effort of budgetary consolidation. Indeed, the factual-legal reality selected by the legislator to constitute the basis for the incidence of the tax is the real property in itself considered, with regard to its occupation and its tax property value, not the overall real property assets of the tax subjects.

23. In turn, the reference to the real property individually considered results axiomatically from the demarcation and legal content proper to this regulation that is the subject of Item 28.1 of the TGIS, from which it is immediately observed that it is an analytical taxation on certain and determined urban real properties whose taxable matter is given by the tax property value of each real property. This results from:

i. the reference of that Item 28.1 TGIS to "per real property with residential occupation'';

ii. it is further evidenced by the provision of no. 7 of Article 23 of the CIS, which establishes that the "tax due by the situations provided for in Item No. 28 of the General Table'' "is assessed annually, in relation to each urban real property, by the central services of the Tax Authority and Customs Service'';

iii. it is finally confirmed by the reference, determined by no. 2 of Article 67 of the CIS, to the provisions of the CIMI, known that "municipal real property tax (IMI) applies to the tax property value of rural and urban real property located in the Portuguese territory'' (cf. Articles 1 and 2 of the CIMI) and that "the tax is due by the owner of the real property'' (Article 8, no. 1 of the CIMI, without prejudice to the provision of no. 2 regarding usufructuary and superficiary).

1. Concerning the legislative option not to include in the incidence of Item 28.1 of the TGIS urban real properties intended for purposes other than residential, rectius, without residential occupation (as well as, for that matter, of not encompassing rural real properties), one begins by noting that at issue here is a differentiation with factual grounds widely recognized by the legislator. It is sufficient to recall that the CIMI, whose regulation is the subject of a general reference by no. 2 of Article 67 of the CIS.

2. Thus the CIS states in its Article 6, no. 1 as "species of urban real properties" the real properties

"a) Residential;

b) Commercial, industrial or service;

c) Plots of land for construction;

d) Others'',

differentiating, therefore, entirely, as autonomous categories, on one hand, residential buildings or constructions and, on the other hand, commercial, industrial or service buildings or constructions, as well as plots of land for construction and the indeterminate species of "others", a difference that is manifested in the different regulations that are the subject of nos. 1, 2, 3 and 5 of Article 40-A and Articles 41 and 45 of the CIMI. Whereby, contrary to what the Claimant intends, one cannot even admit that these situations should be subject to the same species of regulation, it being certain that they differ in substance, and therefore it is imperative to treat in an unequal manner that which is not equal, giving full compliance to the constitutional provision of equality.

1. Indeed, states the Respondent, the non-inclusion of commercial, industrial or service real properties is intuitive in light of the historical, political, social and economic circumstances that surrounded the creation of Item 28.1, for it being well known and public that the revival of economic activity and the increase in exports are the way out of the crisis, it is understood that legislative measures were not taken that would hinder economic activity, namely the increase of the tax burden that hinders it and affects competitiveness in international terms.

2. The Respondent concludes that it is indisputable that it does not constitute an absolutely unreasonable solution that, in the context of a particular cyclical situation of a serious economic and financial crisis, of budgetary imbalance and of degradation of public finances, a supplementary tax effort be made on the owners of luxury residential real properties, without equally encompassing the owners of real properties with non-residential occupations, which are destined for the development of economic activities.

3. As to the sub-dimension of the principle of equality, i.e., of proportionality (or proportional equality paraphrasing the Constitutional Court) states the AT that that body has already pronounced itself on various occasions, and therefore again calls upon, among various, Decision No. 183/2013, from which it transcribes an excerpt.

4. Concluding that it indisputably results that, if the occupation of the real property and its respective social function are different, it can – and should – the situation be treated in a different manner, as indeed, the principle of equality itself dictates.

5. In relation to full ownership, the AT states that for purposes of IMI as well as for purposes of subjection to Item 28 of the TGIS, full ownership of a real property with parts or divisions susceptible of independent use (so-called vertical ownership) and a real property under a condominium regime assume themselves as distinct realities, in that an autonomous fraction, by virtue of its autonomy in terms of the right of full ownership, integrates, for purposes of IMI and consequently for purposes of IS, the concept of real property provided for in Article 2, no. 1 of the CIMI (cf. no. 4 of the aforesaid Article 2 of the CIMI).

6. In this respect, states the AT, the fact that each floor or division of a real property susceptible of independent use is separately registered in the matriculation with its respective tax property value of each of them is only relevant for fiscal purposes in light of the concept of property tax roll contained in no. 3 of Article 12 of the CIMI and in the matter regulated in the same Code for the organization of tax rolls. Thus, with respect to real properties in full ownership with floors or divisions susceptible of independent use, their VPT is determined in the manner provided for in subparagraph b), of no. 2 of Article 7 of the CIMI, that is, the VPT of the real property is calculated by the concept of real property provided for in no. 4 of Article 2 of that Code. This is, therefore, an exception to the general rule, given that to each autonomous fraction of a building subject to the condominium regime there corresponds a right of ownership, existing as many ownership rights as there are autonomous fractions.

7. Now with respect to full ownership (vertical), acknowledging although that it is a matter alien to what it is for us to review, continues the Respondent, even if the real property has parts or divisions susceptible of independent use, the judicial-tax legal concept is that this type of real property constitutes a sole unit, since its ownership, without prejudice to co-ownership, belongs only to a single owner. In this respect it is important to note that the fact that each floor or division of a real property susceptible of independent use is separately registered in the matriculation with its respective tax property value of each of them is only relevant, for fiscal purposes, in light of the concept of property tax roll contained in no. 3 of Article 12 of the CIMI and in the matter regulated in the same Code for the organization of tax rolls. Thus, with respect to real properties in full ownership with floors or divisions susceptible of independent use, their VPT is determined in the manner provided for in subparagraph b), of no. 2 of Article 7 of the CIMI, that is, the VPT of the real property is calculated by adding together the various tax property values, relating to each part for purposes of IMI.

8. The Respondent further adds that, with respect to this type of real properties (in full ownership with floors or divisions susceptible of independent use), their VPT is determined in the manner provided for in subparagraph b), of no. 2 of Article 7 of the CIMI, that is, the VPT of the real property is calculated by adding together the various tax property values, relating to each part, used for purposes of IMI. This autonomization is justified because in the same real property the use for commerce or residential purposes may occur, with or without lease, which is determinative (it was already the case in the prior taxes in which the tax property value was determined by the rental value or rental value) of the rules of fiscal assessment within the scope of the CIMI, in light of the different occupation coefficients.

9. In Item 28.1 of the TGIS, the subjection is made, in accordance with the literal expression contained therein, and which we have already referred to, to the "real property", whereby, on one hand, it does not behoove the interpreter to distinguish where the legislator does not, and on the other, to recall that the regulation relating to tax incidence is subject to the principle of tax legality, in accordance with the provision of Article 8 of the LGT. One must always keep in mind the provision of Article 9 of the CC and Article 11 of the LGT, and without making a clean slate of the provision of Article 2 of the CIMI, depriving it of its useful meaning, one must presume that the legislator, on this matter, enshrined the most proper solutions and was able to express his intention in terms appropriate to distinguishing the regime of full ownership (so-called vertical), with floors or divisions susceptible of independent use, in which the whole counts "as a single real property", from the regime of condominium, in which each autonomous fraction is held as "a real property" for purposes of taxation, whether under IMI or under Stamp Tax.

10. Accordingly, and integrating the building in full ownership with parts or divisions susceptible of independent use (so-called vertical ownership) the judicial-tax legal concept of "real property", that is, a sole unit, the tax property value of the same is determined by the sum of the parts with residential occupation, and, it being equal to or greater than € 1,000,000.00, there is subjection to Stamp Tax of Item 28.1 of the TGIS.

11. Therefore, the AT understands that the provision of Item 28 of the TGIS does not embody any violation of the principle of equality of Article 13 of the CRP. Indeed, Item 28.1 of the TGIS applies to the ownership, usufruct or right of superficies of urban real properties with residential occupation, whose tax property value registered in the tax roll, in accordance with the CIMI, is equal to or greater than € 1,000,000.00, that is, it applies to the value of the real property.

12. The Respondent thereafter invokes the Decision of the Constitutional Court rendered on 11 November 2015, in the context of Case No. 542/14, which already refers to the amendments introduced by Law No. 83-C/20123 of 31 December, which decided: «(…) Not to judge unconstitutional the norm of Item 28 and 28.1 of the General Table of Stamp Tax, added by Article 4 of Law No. 55-A/20121, of 29 October, insofar as it imposes annual taxation on the ownership of urban real properties with residential occupation, whose tax property value is equal to or greater than € 1,000,000.00».

13. Indeed, concludes the AT, no violation of the principle of proportionality is perceived. In order to be able to affirm that the creation of Item 28 (understood clearly by the legislator as a measure for pursuit of the public interest, translated into compliance with the adjustment program and in the fight against the budgetary deficit), violates the principle of proportionality, there would have to be a manifest inadequacy between the legislation approved by Law No. 55-A/2012, of 29 October, the means employed in that pursuit and the revenue objectives that it was intended to achieve, that is, there would have to be the existence of a manifest error in the analysis made by the legislator who, within his discretionary power, would not have properly weighed, in concrete terms, the cost/benefit ratio of this legal measure.

14. It is therefore legitimized the option for this mechanism of obtaining revenue, which would only be censurable, in light of the principle of proportionality if it resulted manifestly indefensible. Which does not occur in that such measure is to be applied uniformly to all holders of real properties with residential occupation of value greater than €1,000,000.00.

15. Concerning the request for indemnity interest, the Respondent argues that, there not being error attributable to the services in the assessment of the tax, any indemnification should not be recognized to the Claimant, in accordance with the provision of Article 43 of the LGT. Indeed, it will always be said that considering the part of the assessment that was correctly assessed on the proportion of residential occupation, there is no error attributable to the services, in that the assessment is due in the exact terms of law.

16. It is required, states the Respondent, for the AT to incur in the obligation of payment of indemnity interest, that there be some illegality that denotes the undue character of the tax assessment in light of substantive norms, illegality that will necessarily have to be attributable to error of the services. Now, the assessment in question does not result from any error of the Services but derives directly from the application of law.

17. The normative pattern of reference of the action of the AT is law, and it is prohibited from being able to depart from the application of legal dispositions on the grounds of some unconstitutionality, which, by the way, in our view does not occur in the case at hand. Nor does it fall to it, in the exercise of its functions, to make judgments concerning the unconstitutionality or constitutionality of the norms invoked, deriving therefrom the necessary consequences in promoting or annulling tax acts whose execution is imposed on it by means of law. That is, the Administration is prohibited from, in a certain administrative act that it practices, disapplying a legal norm on the grounds of its unconstitutionality (cf. Decision of the CC No. 440/94 of 7 June in BMJ No. 438, 9. 90, Opinions of the Center for Tax Studies nos. 58/2006 of 2 June, and Opinion 31/02).

18. Thus, given the foregoing and reiterating, error cannot be attributed to the services of the AT that, by itself, determined the payment of a tax debt in amount greater than legally due – in that it was not within its discretion to decide differently from how it decided. Thus the application of Article 43 of the LGT is excluded, the request for payment of indemnity interest is denied, as there is no error in the action of the respondent entity, much less an error attributable to the services.

III – SCREENING

1. The Tribunal was regularly constituted and is competent ratione materiae, in conformity with Article 2 of the RJAT.

2. The Parties have legal personality and capacity, are proper parties and are regularly represented, in conformity with Articles 4 and 10, no. 2 of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March.

3. No nullities were invoked or identified in the proceedings.

4. The Claimant raised a preliminary issue, alleging the unconstitutionality of Item 28.1 of the TGIS.

IV – FINDINGS OF FACT

1. Proved Facts

The Tribunal considers the following facts proved:

1.1. The Claimant is the owner of the real properties above identified in II. A) 1;

1.2. On the real properties referred to in the preceding paragraph the AT assessed stamp tax, relating to the years 2012 and 2013, applying the norm provided for in Item 28.1 of the General Table of Stamp Tax, in a total of €76,226.10, in accordance with the table above transcribed in II. A) 2;

1.3. The Claimant proceeded to pay all the instalments that were assessed to it;

1.4. The Claimant requested the arbitral review of the assessments relating to the first instalments of 2013.

1. Unproved Facts

With relevance for the decision, the Tribunal considers that there are no facts that should be considered as unproved.

V – LEGAL ANALYSIS

1. Questions to be decided

In these proceedings, the central question under review by this collective arbitral tribunal consists in ascertaining whether the scope of incidence of Stamp Tax (IS) to which Item No. 28.1 of the General Table of Stamp Tax (TGIS) refers in the wording given by Law No. 55-A/2012, of 29 October, comprises or does not comprise the so-called "plots of land for construction".

That is, whether for such purpose, the plots of land integrating this species are susceptible of being considered, or not, "urban real properties with residential occupation" and, in case of affirmative reply, to ascertain the constitutional conformity of such normative provision in light of the principle of contributive capacity.

The questions that are posed to the Tribunal are thus only relating to the interpretation and application of law to the concrete case, given that as to facts, Claimant and Respondent showed no disagreement.

Taking into account the provision of subparagraph a) of no. 2 of Article 124 of the CPPT, applicable by virtue of subparagraph a) of no. 1 of Decree-Law 10/2011, of 20 January, the Legal Regime of Arbitration in Tax Matters (RJAT), the review will be initiated with the question of the incidence of Item 28.1 of the TGIS regarding "plots of land for construction", which, in case of success of the alleged non-application to such real property reality, will guarantee more stable and effective protection of the interests of the Claimant.

1. The applicability to urban real properties of the typology of plots of land for construction of the norm contained in Item 28.1 of the TGIS of the CIS, in the wording given by Law No. 55-A/2012, of 29 October

Law No. 55-A/2012, of 29 October, added Item 28.1 to the General Table of Stamp Tax (TGIS), with the following wording:

"28 – Ownership, usufruct or right of superficies of urban real properties whose tax property value registered in the tax roll, in accordance with the Real Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax property value used for purposes of IMI:

28.1 – Per real property with residential occupation – 1 % (…);"

In turn, Article 67, no. 2 of the Stamp Tax Code, added by the said Law, provides that "to matters not regulated in the present Code relating to Item 28 of the General Table the provisions of the CIMI shall apply subsidiarily."

The incidence normative refers to urban real properties with residential occupation, with the base concept of real property rooted in the provision of Article 2 of the CIMI, according to which:

"Article 2

Concept of real property

1 - For purposes of this Code, real property is every parcel of land, encompassing waters, plantings, buildings and constructions of any nature incorporated or situated thereon, with the character of permanence, provided that it is part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantings, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are situated, although located in a parcel of land that constitutes an integral part of a diverse assets or has no patrimonial nature.

2 - Buildings or constructions, although movable by nature, are held to have the character of permanence when devoted to non-transitory purposes.

3 - It is presumed that the character of permanence exists when buildings or constructions have been situated at the same location for a period exceeding one year.

4 - For purposes of this tax, each autonomous fraction, under the condominium regime, is held as constituting a real property.

In turn, Article 6 of the IMI Code lists the following species of urban real properties:

"Article 6

Species of urban real properties

1 - Urban real properties are divided into:

a) Residential;

b) Commercial, industrial or service;

c) Plots of land for construction;

d) Others.

2 - Residential, commercial, industrial or service are buildings or constructions licensed for such purposes or, in the absence of license, that have as normal destination each of these purposes.

3 - Plots of land for construction are considered those lands situated within or outside an urban agglomeration for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of a land subdivision operation or construction, and also those that have been thus declared in the title of acquisition, excepting lands where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with the municipal master plans for land use and urban planning, are devoted to spaces, infrastructure or public facilities. (Amended by Law No. 64-A/2008, of 31 December)

4 - Under the provision of subparagraph d) of no. 1 lands situated within an urban agglomeration that are not plots of land for construction nor are covered by the provision of no. 2 of Article 3 and also buildings and constructions licensed or, in the absence of license, that have as normal destination purposes other than those referred to in no. 2 and also those in the exception of no. 3."

It results from the concatenated reading of the legal provisions above cited that the real property in question falls within the concept of urban real property for purposes of CIMI and, consequently, for purposes of CIS, integrating itself in the sub-species "plot of land for construction".

Whereby, in this respect, the plots of land for construction in the ownership of the Claimant are subsumed in the provision contained in Item 28.1 of the TGIS, in the segment in which it delimits the incidence to all urban real properties.

But such an exercise of subsumption of the norm by the real property reality at issue requires to be densified, in that the legislator explicitly refers that only urban real properties with residential occupation (with VPT greater than € 1,000,000.00) are subject to such taxation under IS.

The question thus now passes by understanding whether plots of land for construction should be understood as integrated in the concept of residential occupation to which the legislator refers in the above cited norm.

A plot of land for construction - whatever the type and purpose of the building that will be, or could be, erected on it - does not of itself satisfy any condition to be licensed as such or so that it can be defined as having residential use as its normal destination.

The incidence norm of Stamp Tax now under analysis refers to urban real properties with "residential occupation", without any specific concept being established in the Stamp Tax Code for the purpose, nor does it result from the literal element of the expression that it refers to future potentiality.

On the contrary, it appears to us that from the expression "with residential occupation" there emerges a notion of real, effective and present functionality of the underlying real property reality.

Moreover, it is not possible to extract from the mention contained in Item 28.1 of the TGIS any legislative desideratum that permits interpreting it as referring to other real property realities that go beyond the nomenclature and distinction of urban real properties made by Article 6, no. 1, subparagraph a), of the CIMI.

Appealing to the principles of interpretation of norms, such as that contained in Article 11 of the Civil Code, it does not appear possible to infer and conclude that the legislator intended in Item 28.1 of the TGIS to refer to residential occupation in terms not coinciding with the typological distinction contained in Article 6 of the CIMI.

And being so, it cannot fail to be established that: residential occupation is had only by the urban real properties to which subparagraph a) of no. 1 of Article 6 of the CIMI refers, with the definition that is given by no. 2 of the said legal provision.

Being as they are, the plots of land for construction provided for in subparagraph c) and with the (distinct) definition that is collected from no. 3 and without that same definition yielding, as a characterizing element, any present and effective residential occupation, it is not envisaged, contrary to what the Respondent AT contends, how the "plots of land for construction" can be integrated in the incidence norm of Item 28.1 of the TGIS, which always presupposes that the urban real property to be taxed has residential occupation.

A characteristic that plots of land for construction, whether by virtue of the legal definition, or by their own material or substantive real property nature, do not have.

A similar question to the one at hand was already timely raised before the Supreme Administrative Court, which has come to understand the inapplicability of Item 28.1 of the TGIS in the wording given by Law No. 55-A/2012, of 29 October, to "plots of land for construction", having this superior tribunal come, in synthesis, to decide in the following terms:

"The legislator having not defined the concept of "real properties (urban) with residential occupation", and it resulting from Article 6 of the Real Property Tax Code - subsidiarily applicable to the Stamp Tax provided for in the new Item No. 28 of the General Table - a clear distinction between "urban residential real properties" and "plots of land for construction", the latter cannot be considered, for purposes of the incidence of Stamp Tax (Item 28.1 of the TGIS, in the wording of Law No. 55-A/2012, of 29 October), as urban real properties with residential occupation." – cfr. Decision of the Supreme Administrative Court, of 23 April 2014, in the context of Case No. 0272/14.

A jurisprudential understanding which we entirely concur with.

Finally and appealing to the very legislative succession that the wording of the still recent legal provision has already undergone since its inception, we cannot fail to confirm the conclusion that above we have been consolidating.

Without further ado, if the legislator had as an initial aim the inclusion of "plots of land for construction" in the incidence norm of Item 28.1 of the TGIS, it would be expected that it would do so in the manner and literal terms that only took place with the legislative amendment brought by Law 83-C/2013, of 31.12, according to which:

"28.1. Per residential real property or plot of land for construction whose authorized or planned construction is for residential purposes, in accordance with the provisions of the Real Property Tax Code."

In this context, the very succession of wording given to Item 28.1 of the TGIS makes clear the understanding now coming to explain, that is, that the concept of "residential occupation" is to be defined according to the rules established within the Real Property Tax Code and more specifically in what that same legal compendium provides regarding the matter of concept and definition of the diverse species of urban real properties – Article 6 of the CIMI.

Finally, it is necessary to note that in this case, the question of applicability to the Stamp Tax assessments under review in the present arbitral instance and in the wording brought by Law 83-C/2013, of 31 December, does not arise, and it should be understood that the legislative amendment brought by the Budget Law for 2014 is devoid of relevance, given that such law has no interpretative nature, as is gathered from that same statute in that the norm only came into force on 01 January 2014, being that the tax acts that are the subject of these proceedings relate to prior time periods.

In any case, by its precision and relevance to the case sub judice, there will not fail to be here partially cited what was decided by the Supreme Administrative Court, which, called upon to decide on an identical question to that raised by the Claimant in the present proceedings, in the context of Case No. 1870/13, of 9 April 2014, grounded its decision in the following terms:

"The question to be decided in the present appeal is whether the appealed judgment erred in judgment, by erroneous interpretation and application of Item No. 28 of the General Table of Stamp Tax (in the transitional regime that was defined for it for the year 2012 by Article 6 of Law No. 55-A/2012, of 29 October), in judging that plots of land for construction are not subsumable in the concept of "real properties (urban) with residential occupation", a concept that is used in the body and no. 1 of the new Item No. 28 of the General Table of Stamp Tax to define the objective incidence of the (new) tax on ownership created by Law No. 55-A/2012.

The concept of "real property (urban) with residential occupation" was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the Real Property Tax Code, to which no. 2 of Article 67 of the Stamp Tax Code (also introduced by that Law) refers subsidiary. And it is a concept that, probably owing to its imprecision – a fact all the more serious given that it is in function thereof that the objective incidence scope of the new taxation is defined -, had a short life, inasmuch as it was abandoned upon the entry into force of the 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 incidence scope through the use of concepts that are found legally defined in Article 6 of the Real Property Tax Code.

This amendment - to which the legislator did not attribute interpretative character, nor does it appear to us that it did –, merely makes unequivocal for the future that plots of land for construction whose authorized or planned construction is for residential purposes are covered within the scope of Item 28.1 of the General Table of Stamp Tax (provided that their respective tax property value is equal to or greater than 1 million euros), nothing clarifying, however, in relation to past situations (assessments of 2012 and 2013), such as that at issue in the present proceedings.

Now, as to these, it does not seem possible to adopt the interpretation of the appellant, inasmuch as it does not result unequivocally either from the letter or from the spirit of the law that the intention thereof has been, ab initio, to encompass within its objective incidence scope plots of land for construction for which authorization or planning for the construction of residential buildings has been granted, as now results unequivocally from Item 28.1 of the General Table of Stamp Tax.

From the letter of the law nothing unequivocal results, indeed, for it itself, upon using a concept that it did not define and which also was not found defined in the statute to which it referred subsidiary, unnecessarily lent itself to ambiguities, in a matter – of tax incidence - where certainty and legal security should also be chief concerns of the legislator.

And from its "spirit", ascertainable in the statement of reasons of the bill of law that is at the origin of Law No. 55-A/2012 (Bill No. 96/XII – 2nd, Official Journal of the Republic Assembly, Series A, No. 3, 21/09/2012, p. 44, available at www.parlamento.pt), nothing more results than the concern of garnering new tax revenue from sources of wealth "more spared" in the past from the tax authorities' reach than earned income, in particular investment income, capital gains and property, reasons which bring no relevant contribution to the clarification of the concept of "real properties (urban) with residential occupation", as it gives it as established, without any concern to clarify it. Such clarification will, however, have emerged - as informed in the Arbitral Decision rendered on 12 December 2013, in Case No. 144/2013-T, available in the CAAD database -, upon the presentation and discussion in the Republic Assembly of that bill of law, in the words of the Secretary of State for Tax Affairs, who is said to have referred expressly, as it is gathered from the Official Journal of the Republic Assembly (DAR I Series No. 9/XII – 2, of 11 October, p. 32) that: «The Government proposes the creation of a special tax on high-value urban residential real properties. It is the first time in Portugal that a special taxation has been created on high-value residential properties. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to homes with a value equal to or greater than 1 million euros" (underlines ours), from which it is gathered that the reality intended to be taxed is, after all, and notwithstanding the terminological imprecision of the law, "real properties (urban) residential", in common language "homes", and not other realities.

(…)

Thus, taking into account that a plot of land for construction – whatever the type and purpose of the building that will be, or could be, erected on it – does not of itself satisfy any condition to be licensed as such or so that it can be defined as having residential use as its normal destination, and the incidence norm of Stamp Tax referring to urban real properties with "residential occupation", without any specific concept being established for the purpose, it cannot be extracted from it that it contains a future potentiality, inherent in a distinct real property that perhaps will be built on the land.

It is concluded therefore, in conformity with what was decided in the appealed judgment that, it resulting from Article 6 of the Real Property Tax Code a clear distinction between urban real properties "residential" and "plots of land for construction", the latter cannot be considered as "real properties with residential occupation" for purposes of the provision of Item No. 28.1 of the General Table of Stamp Tax, in its original wording, as it was given by Law No. 55-A/2012, of 29 October." – underlined ours.

Accordingly, under penalty of violation of the principle of non-retroactive application of tax law in matters of tax incidence, the question relating to tax incidence will have to be assessed by the wording of Item 28.1 of the TGIS given by Law 55-A/2012, of 29.10, as it was in the case above.

In light of the foregoing, it is concluded by the legal non-applicability of the application by the Tax Authority and Customs Service (AT) of Item 28.1 of the TGIS in relation to urban real properties ("plots of land for construction") better identified in the table contained in point 2 of chapter II of the present decision, and such judgment of censure cannot fail to determine, in consequence, the annulment of those same tax acts – assessments of Stamp Tax.

1. The restitution of instalments paid with the tax acts and the right to indemnity interest

The Claimant further petitions for the condemnation of the AT to reimburse the tax paid in excess in the amount of € 76,226.10, as well as the respective indemnity interest.

The arbitral tax process was conceived as an alternative means to the judicial challenge process (cfr. the legislative authorization granted to the Government by Article 124, no. 2 (first part) of Law No. 3-B/2010, of 28 April – Budget Law for 2010). Thus, although Article 2, no. 1, subparagraph a), of the RJAT uses the expression "declaration of illegality" as delimitative of the competence of the arbitral tribunals that function in the Administrative Arbitration Center (CAAD), it should be understood that this competence encompasses the powers that, in a judicial challenge process, are attributed to the tax courts, such as that of reviewing error attributable to the services.

On the other hand, subparagraph b) of no. 1 of Article 24 of the RJAT determines that the arbitral decision on the merit of the claim for which no appeal or challenge is available binds the tax administration from the end of the period provided for the appeal or challenge, with the latter, in the precise terms of the success of the arbitral decision in favor of the tax subject and until the end of the period provided for the execution of sentences of the tax courts, "restoring the situation that would have existed if the tax act that is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for the purpose".

Likewise, Article 100 of the LGT, applicable to the arbitral tax process by virtue of the provision of subparagraph a) of no. 1 of Article 29 of the RJAT, establishes that "The tax administration is obliged, in case of total or partial success of complaints or administrative appeals, or judicial proceedings in favor of the tax subject, to the immediate and full restoration of the situation that would have existed if the illegality had not been committed, comprising the payment of indemnity interest, in the terms and conditions provided for in law.".

Providing no. 1 of Article 43 of the LGT, that "indemnity interest is due when it is determined, in a voluntary complaint or judicial challenge, that there was error attributable to the services from which it resulted payment of the tax debt in amount greater than legally due.".

Error attributable to the services may consist of error regarding the factual premises, which occurs whenever there is "a divergence between reality and the factual matter used as a premise in the practice of the act" or error regarding the legal premises, when "in the practice of the act there was erroneous interpretation or application of the legal norms, such as norms of objective and subjective incidence (…)" and "it is demonstrated when the voluntary complaint or judicial challenge of that same assessment proceeds and the error is not attributable to the taxpayer".

In the case at hand, declared the illegality of the acts of assessment of Stamp Tax, by it having been demonstrated the erroneous application of the norm of objective incidence contained in Item 28.1 of the TGIS, which justifies its annulment, the right of the Claimant to indemnity interest on the amounts unduly paid, from the date of the respective payment until the processing of credit notes, must be recognized, in accordance with what is provided in no. 5 of Article 61 of the CPPT, given that such illegality is exclusively attributable to the Tax Authority and Customs Service, as well as thus the right of the Claimant to the restitution of the Stamp Tax paid, in the amount of € 76,226.10.

1. Questions of predetermined cognition

In the judgment, the judge must pronounce upon all questions that he should review, abstaining from pronouncing upon questions that he should not know (end segment of no. 1 of Article 125 of the CPPT), being that the questions upon which the cognition powers of the tribunal fall are, in accordance with no. 2 of Article 608 of the Civil Procedure Code, applicable subsidiary to the arbitral tax process, by reference of Article 29, no. 1, subparagraph e), of the RJAT, "the questions that the parties have submitted to its review, excepting those whose decision is prejudiced by the solution given to others (…)".

In light of the solution of non-applicability of the tax incidence norm - Item 28.1 of the TGIS - to the case at hand, to the payment of indemnity interest in favor of the Claimant and to the restitution of the tax unduly paid by it, the knowledge of the other vices pointed out by the Claimant is prejudiced, namely those relating to the unconstitutionality of the said tax incidence norm.

VI – DECISION

On the basis of the facts and legal grounds above stated and in accordance with Article 2 of the RJAT, it is agreed, having found the present request for arbitral decision entirely justified:

a) To declare the illegality of the Stamp Tax assessments that are the subject of the present proceedings, by error in the legal premises, determining their annulment;

b) To condemn the Respondent AT to restitution of the amounts unduly paid by the Claimant by way of Stamp Tax relating to the assessments better identified in the table contained in point 2 of chapter II of this decision, as well as to the payment of indemnity interest, from the date of the undue payment until the date of the issuance of the respective credit note.

VII – AMOUNT IN DISPUTE

In accordance with the provision of Article 306, nos. 1 and 2, of the Civil Procedure Code, Article 97-A, no. 1, subparagraph a), of the CPPT and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the amount in dispute of the proceedings is set at € 76,226.10.

VIII – COSTS

Calculated in accordance with Article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 2,448.00, charged to the Tax Authority and Customs Service.

Register and notify.

Lisbon, 28 February 2016.

The Collective Arbitral Tribunal

Manuel Luís Macaísta Malheiros – President

Nuno Pombo

Luís Ricardo Farinha Sequeira