Summary
Full Decision
Arbitration Decision
Claimant: A…, Tax ID…, domiciled in …, …, …-… …
Respondent: Tax and Customs Authority
I. Report
On 15.09.2015, the taxpayer A…, Tax ID…, domiciled in …, …, …-… …, filed a request for the constitution of a collective arbitration tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to only as LFTA), in which the Tax and Customs Authority (TA) is the Respondent.
The request for constitution of the arbitration tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Tax and Customs Authority on 01.10.2015.
On 12.10.2015, the designation of jurists Dr. B… and C…, in representation of the Respondent, was made.
Pursuant to the provisions of subsection a) of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the arbitration tribunal the undersigned, who communicated acceptance of the assignment within the applicable period, and notified the parties of this designation on 16.11.2015.
Thus, in accordance with the provision of subsection c) of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the tribunal was constituted on 01.12.2015.
The grounds are:
The claimant is the owner of a quota corresponding to 50% of an urban property, composed of land for construction, registered under article … in the urban property register of the parish of …, municipality of Porto - doc. 1.
In March 2015, the claimant received notification of a Stamp Tax assessment no. 2015…, for the year 2014, which is attached and is hereby deemed fully reproduced.
Which applies to the amount of 1,246,959.90 €, corresponding to the tax value of the aforementioned property, a rate of 1.00 % - doc. 2.
As a result of this assessment, the claimant has the obligation to deliver to the State the amount of 6,234.80 €, of which they have already paid 4,156.52 € - docs. 2 to 5. Now,
The justification for the assessment is limited to the reference to item 28.1 of the General Stamp Tax Table (GSTT),
Which, however, became applicable to the property of the immovable in question only with manifest unconstitutionality...
The Claimant argues that the norm on which the disputed assessments are based – established in item 28.1 of the GSTT – is unconstitutional for violation of the principle of equality provided for in article 13 and, specifically in matters of taxation of property, in article 104, paragraph 3, of the Constitution, while the Respondent sustains the constitutionality of said norm, and, consequently, the validity of the disputed assessments.
II. Preliminary Matters
The Arbitration Tribunal was regularly constituted.
The parties have legal personality and capacity, are properly represented (articles 4 and 10, paragraph 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March) and are duly represented.
No nullities, exceptions, or preliminary questions exist that would prevent the immediate consideration of the merits of the case.
The tribunal extended the period for rendering the decision by 10 days until 13 June.
III. Grounds
III.1 Statement of Facts
The following are considered
a) Proven Facts
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The claimant is the owner of a quota corresponding to 50% of an urban property, composed of land for construction, registered under article … in the urban property register of the parish of …, municipality of Porto - doc. 1.
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In March 2015, the claimant received notification of a Stamp Tax assessment no. 2015…, for the year 2014, which is attached and is hereby deemed fully reproduced.
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Which applies to the amount of 1,246,959.90 €, corresponding to the tax value of the aforementioned property, a rate of 1.00 % - doc. 2.
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As a result of this assessment, the claimant has the obligation to deliver to the State the amount of 6,234.80 €, of which they have already paid 4,156.52 € - docs. 2 to 5.
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On 3 December 2015, the claimant submitted to the proceedings proof of payment of the third installment of the Stamp Tax whose assessment is disputed, in the amount of € 2,078.26.
b) Unproven Facts
There are no facts relevant to the decision of the case that have not been proven.
c) Justification of the Determination of Facts
The facts were proven on the basis of documents attached to the request for arbitral pronouncement, with no controversy as to the factual matters.
III.2 Law
The question raised in the present proceedings boils down to whether the norm contained in item 28.1 of the GSTT is materially unconstitutional for violation of the principle of equality, particularly tax equality in the aspect of contributory capacity.
In this sense, the Claimant argues, in summary, the following:
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On the one hand, not all owners of immovables with a tax value equal to or greater than € 1,000,000 are subject to this tax burden, but only those who own urban properties intended for housing or land for construction whose authorized or planned construction is for housing, excluding all those who own other urban or rural properties.
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Similarly, the Claimant considers the principle of equality violated because owners of urban properties intended for housing or land for construction whose authorized or planned construction is for housing, with a tax value greater than € 1,000,000, bear the burden of tax on the full tax value of such immovables while owners of the same type of urban properties with a tax value below € 1,000,000 are not subject to any taxation.
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The criterion of contributory capacity presupposes equal taxation for those with the same contributory capacity and different taxation for those whose contributory capacity is different, based on that same difference. As a corollary of the principle of (tax) equality, it follows that taxation should be according to the contributory capacity of each.
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Now in the case of land intended for the construction of multiple housing units, the property constitutes mere raw material in a production process aimed at the production of new goods – it is clearly a factor of production.
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Thus, even if one can conceive that the ownership of the immovable in question constitutes an indication of a certain contributory capacity of the claimant,
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It is not the contributory capacity that Law no. 55-A/2012 – even if incurring in unconstitutionality – aimed to reach through the addition of item no. 28.1 to the GSTT, because...
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This would be equivalent to taxing productive investment, rather than taxing luxury goods.
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The Claimant considers that this is compounded by the fact that item 28.1 of the GSTT violates the constitutional prohibition of double legal taxation (which is also, in this case, double economic taxation) that is derived from the principle of contributory capacity,
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Because, in taxing simultaneously – in the person of the same taxpayer – the ownership of real property rights in the context of Property Tax and in the context of Stamp Tax, the legislator distorts the coherence between the taxes and the coherence of the tax system as a whole,
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If the legislator of Law no. 83-C/2013, expanding the target defined by Law no. 55-A/2012, came to also target the contributory capacity revealed by the ownership of land for construction,
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They cannot, without violating the principle of equality to the point of arbitrariness, tax those intended for the construction of residential buildings and spare those intended for the construction of commercial and services buildings.
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In contrast, the TA understands that:
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With regard to item 28.1 of the GSTT, it is an inescapable fact that its new wording, amended by Law 83-C/2013, of 31 December (State Budget Law 2014), expressly extended its scope to "land for construction," which had not occurred with Law no. 55-A/2012, of 29/10, and it is certain that this new wording, presumably for reasons of legal certainty and security, was not given interpretative nature, which prevents its application to tax facts occurring on a date prior to its entry into force – which is not the case here,
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The legislator, in recognizing the need to express themselves with greater precision, precisely demonstrated that it had always been their intent to tax in the context of stamp tax – item 28.1 – land for construction as urban properties intended for housing with a Tax Value equal to or greater than € 1,000,000.00.
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And, therefore, the TA was always correct in appealing for an interpretation that would take into account the spirit of the norm, seeking to systematize it within the broader context of the codification of taxes on property, namely in the Property Tax code.
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The TA always advocated the understanding that, although not expressly provided for in law, land for construction, as urban properties, in accordance with paragraph 1 of article 2 of the Property Tax Code and with paragraph 1 of article 6 of the same legal text, to which paragraph 2 of article 67 of the Tax Code refers, were equally subject to taxation in the context of stamp tax – item 28.1 of the General Table. seeking to systematize this taxation in the Property Tax Code and in the rules for evaluating urban properties and promoting an interpretation of the expression "housing use," in light of the interpretative criteria contained in article 9 of the Civil Code, which would allow determining with precision the moment when this "use" occurred, the TA always held that this moment corresponded to the issuance of the building permit.
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The legislator, through article 192 of the Draft Law for the State Budget for 2014, amended item 28 of the General Stamp Tax Table, with the aim of precisely extending its objective scope.
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The assessment in question was already made in light of this new legal framework. That is, the expression "land for construction" which was not contained in the wording of Law 55-A/2012, of 29 October, came to be expressly contained in Law 83-C/2013, of 31 December, and from this amendment no interpretative difficulties arise regarding their subjection to taxation, considering the provision of article 9 of the Civil Code, which allows eliminating those meanings that do not have any support, or at least some correspondence or resonance in the words of the law.
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It cannot therefore "be considered by the interpreter the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed."
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Furthermore, "in determining the meaning and scope of the law, the interpreter will presume that the legislator adopted the most correct solutions and knew how to express their thought in appropriate terms" (paragraphs 2 and 3 of the same provision of the Civil Code.
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As for the issue of the alleged lack of coherence in the tax system resulting from the simultaneous taxation – in the person of the same taxpayer – of real property rights in the context of Property Tax and in the context of Stamp Tax, and the consequent unconstitutionality for violation of the principles of equality and contributory capacity, the Claimant's allegations should also fail.
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Because the overlap of incidence rules in question can indeed constitute a situation of double taxation, involving situations in which the legislator intended that the same tax fact be subject to the incidence of more than one tax (see Tax Code and Procedure Code annotated by Jorge Lopes de Sousa, vol. II, page 396).
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The TA finally understands that the principles of equality and contributory capacity are fully safeguarded.
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It is a general and abstract norm, applicable indistinctly to all cases where the same factual and legal assumptions are verified.
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Which applies indistinctly to all holders of immovables with housing use with a value greater than € 1,000,000.00, which therefore applies to the wealth embodied and manifested in the value of the immovables.
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Now the principle of equality, interpreted in material terms, is not violated; on the contrary, it is implemented in all cases where the legal order gives materially equal treatment to those who, as stated in article 161 of the Administrative Procedure Code, find themselves "in the same legal situation."
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Moreover, the measure implemented seeks to achieve maximum effectiveness regarding the objective to be achieved, the collection of revenue, with minimum injury to other interests considered relevant, which would only be censurable if manifestly indefensible in light of the principle of proportionality.
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Furthermore, a corollary of the principle of equality is the contributory capacity enshrined in article 104 of the Constitution which expresses the idea that all citizens are bound by the duty to pay taxes assessed by the same criterion, this contributory capacity, which is assessed by the legislator taking into account indicators that examine their economic strength.
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Thus, the TA understands that the provision of item 28 of the GSTT does not constitute any violation of the principle of contributory capacity (article 104 of the Constitution) precisely because, as the legislator justified, "These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices to fulfill the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live from the income of their work."
Grounds of the Arbitration Decision:
Article 13 of the Constitution of the Republic establishes the principle of equality as follows:
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All citizens have the same social dignity and are equal before the law.
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No one may be privileged, benefited, harmed, deprived of any right, or exempted from any duty on the basis of ancestry, sex, race, language, territory of origin, religion, political or ideological beliefs, education, economic situation, social condition, or sexual orientation.
Article 103 of the Constitution, on the tax system, provides as follows:
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The tax system aims to satisfy the financial needs of the State and other public entities and ensure a fair distribution of income and wealth.
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Taxes are created by law, which determines the incidence, the rate, tax benefits, and taxpayer guarantees.
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No one may be obliged to pay taxes that have not been created in accordance with the Constitution, that have retroactive effect, or whose assessment and collection are not carried out in accordance with the law.
Finally, and still with relevance for the present analysis, paragraph 2 of article 104 of the Constitution provides that:
- The taxation of property should contribute to equality among citizens.
The Claimant sustains the illegality of the disputed assessment acts on the basis of violation of the principle of equality, particularly fiscal equality. The principle of fiscal equality unfolds in two aspects: generality and uniformity of taxes. In the aspect of generality of taxes, the principle of fiscal equality determines that the duty to pay taxes is universal, while in the aspect of uniformity it implies the adoption of the same criterion of taxation for all taxpayers.
In the words of Casalta Nabais, "the principle of fiscal equality requires that what is (essentially) equal be taxed equally, and what is (essentially) unequal be taxed unequally to the extent of that inequality."[1] One of the criteria for assessing what is equal and what is unequal is the criterion of contributory capacity, which requires that taxpayers with the same contributory capacity pay the same tax (horizontal equality) and that taxpayers with different contributory capacity pay taxes differently - qualitatively and/or quantitatively – (vertical equality). The principle of equality thus prohibits arbitrariness; that is, it should only be considered violated if the treatment deemed unequal is arbitrary or, in less incisive terms, if the unequal treatment is neither justified nor reasonable.
It has been the repeated understanding of the Constitutional Court that should be censured, on the ground of violation of the principle of equality, choices of regime made by the ordinary legislator in those cases in which it is proved that they result in differences of treatment between persons that do not find justification in reasonable or intelligible grounds, taking into account the constitutional purposes which, with the measure of difference, are pursued" (see Constitutional Court Judgment no. 47/2010).
Item 28 was added to the GSTT by Law no. 55-A/2012, of 29 October.
In the wording given to it by Law no. 83-C/2013, of 31 December, this item has the following wording:
28 - Ownership, usufruct, or surface right of urban properties whose tax value as recorded in the property register, in accordance with the Property Tax Code (PTC), is equal to or greater than € 1,000,000 - on the tax value used for Property Tax purposes:
28.1 – For a residential property or land for construction whose authorized or planned construction is for housing, in accordance with the provisions of the Property Tax Code - 1%.
The Claimant's argument was addressed in Constitutional Court Judgment no. 590/2015, of 11-11-2015, handed down in case no. 542/14, in terms that, insofar as relevant here, are endorsed.
In the sense of the constitutionality of the norm contained in item 28.1, in its current wording, arbitration tribunals constituted at CAAD have also ruled – see cases 495/2015-T and 515/2015-T.
- Against the current exposed above, there has now, very recently, emerged the decision in case no. 507/2015-T — handed down by an Arbitration Tribunal — in which the arbitrators sustain the unconstitutionality of Item 28.1 of the Table [2]
The present Arbitration Tribunal, not undervaluing the cited Judgment of CAAD, understands that no serious reasons are apparent, in this case, for not applying the same doctrine advocated by the Constitutional Court in various Judgments cited in this and other CAAD decisions on the same subject, even considering that these decisions concern urban properties for housing, in line, moreover, with what has already occurred with arbitration decisions previously cited above.
As regards the fact that there are two taxes based on the same tax fact, the Constitutional Court understands, and here this is agreed with, that «from the insertion of the taxation under analysis within the scope of Stamp Tax, and not other types of taxes, there does not result, in itself, infraction of any constitutionality parameter. Even if it were to be concluded that a factor of incoherence, or even imbalance, was introduced into the system of taxation of real property, as the appellant claims, the mere lack of systematicity of the questioned norm is not suitable to determine constitutional censure (see, although in other fields of regulation, Judgments no. 353/2010 and 324/2013)» (...) «Other avenues within the reach of the legislator can certainly be conceived, perhaps through resort to other tax species, but it is no less true that the option taken finds inscription in the broad margin of conformation of the tax legislator, being incapable of founding independent constitutional censure».
As for the prohibition of arbitrariness, the Constitutional Court understood that «Neither is there found in the norm of incidence in question an arbitrary tax measure, because it is devoid of rational foundation. As has been seen, the legislative amendment had as its purpose to broaden the taxation of property, making it fall more intensely on property which, by its value substantially higher than that of the generality of urban properties with housing use, reveals greater indicators of wealth and, as such, is capable of grounding the imposition of increased contribution for the sanitation of public accounts on its holders, in realization of the aforementioned "principle of social equity in austerity"».
As for the issue of double taxation, the understanding of the Constitutional Court, which is reiterated here, is as follows: «(...) situations of double taxation, translated into the application of two taxes to the same tax fact, are frequent in cases where the public entities that benefit from them are different, as occurs in the case in question, since Property Tax is municipal revenue and Stamp Tax is state revenue. A parallel situation occurs with the municipal surcharge which currently applies, like Corporate Income Tax, to the taxable income of this tax (article 18, paragraph 1, of Law no. 73/2013, of 3 September).»
As regards the argument that passive subjects with identical contributory capacity are not covered by the incidence of item no. 28 merely because the immovables of which they are owners have a tax value below € 1,000,000.00, for example € 999,999.00, reference is made in the cited Constitutional Court judgment to the following: «It should be noted that the existence of distinct applicative results before very approximate values – by excess or by deficit – of a quantitative expression stipulated normatively as a limit – positive or negative – of any legal effect is inherent to its fixation by the legislator. Whether in the definition of tax incidence, or in the enactment of exemptions or tax benefits based on value criteria, it is always possible to find examples of taxpayers with differentiated treatment based on a variation of very reduced quantitative expression. Because it must necessarily be thus, the differentiation involved in the second hypothesis posed does not appear to be devoid of rational foundation, in accordance with the scope, structure and nature of the norm in analysis: aimed at increasing taxation of properties with housing use of high value, the tax measure could not fail to determine, by imperative of the principle of fiscal legality, the concrete tax value from which a special rate of Stamp Tax would begin to apply to such properties, which also excludes, on this point, the occurrence of arbitrariness on the part of the legislator.»
It is true that, in the factual situation underlying the analysis of the Constitutional Court there was not found, as in the present, land for construction. However, no serious reasons are apparent, in this case, for not applying the same doctrine, in line, moreover, with what has already occurred with arbitration decisions previously cited above.
In these terms, the tribunal considers, in the concrete case, that the unconstitutionality of the norm contained in item 28.1 of the GSTT for violation of the principle of equality has not been verified.
IV. Decision
In these terms, the members of this Arbitration Tribunal agree to judge as unfounded:
The request for declaration of illegality and annulment of the disputed stamp tax assessments;
V. Value of the Case
In accordance with the provision of article 306, paragraph 2, of the Code of Civil Procedure, 97-A, paragraph 1, subsection a), of the Code of Tax Procedure and Procedure, and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is given the value of € 6,234.80 (six thousand, two hundred thirty-four euros and eighty cents).
VI. Costs
Pursuant to article 22, paragraph 4, of the LFTA, the amount of costs is set at € 612.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.
Lisbon, 14 June 2016
The Arbitrator
Ana Teixeira de Sousa
(Text prepared by computer, in accordance with article 131, paragraph 5 of the Code of Civil Procedure (CCP), applicable by cross-reference of article 29, paragraph 1, subsection e) of the Legal Framework for Tax Arbitration.)
[1] José Casalta Nabais, in The Fundamental Duty to Pay Taxes, Theses Almedina, 2009, p. 435.
[2] According to this CAAD judgment, the underlying idea is that distinguishing cases in which the planned or authorized constructions have or do not have a value greater than € 1 million is the question that relates to land for construction, which is to say that these demonstrate a potentiality and not an actuality of value. That is, it is recognized that the situation of land for construction is different from that of constructed buildings and that, therefore, the norm should create conditions for different treatment of what is unequal.
Thus it is concluded that the norm in question is unconstitutional for offense of the principle of equality, generically enunciated in article 13 of the Constitution, for applying to land for construction with a tax value equal to or greater than € 1,000,000.00 for which the authorized or planned construction does not include any fraction capable of independent use with a value equal to or greater than that amount.
Additionally, the Arbitration Tribunal understood that it is unconstitutional to apply item 28.1 of the General Stamp Tax Table, in the part relating to land for construction, to companies engaged in the activity of buying land for construction and resale, since it is unequivocal that companies engaged in the commercialization of land for construction are subject to a significant additional burden compared to the generality of companies, based on a hypothetical index of contributory capacity that does not necessarily have correspondence with reality, since the imposition of taxation has no relationship with the actual income from the activity developed by the companies and burdens them even if they have negative results.