Stamp Tax on Building Land Over €1M: CAAD Rules Verba 28.1 Does Not Apply to Construction Plots

ARBITRAL DECISION

The arbitrators Dr. José Pedro Carvalho (chairman arbitrator), Prof. Doctor Maria do Rosário Anjos and Dr. Mariana Vargas, appointed by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Court, constituted on 6 October 2014, agree as follows:

REPORT

A – PARTICIPAÇÕES IMOBILIÁRIAS, S.A, with the NIPC … and headquarters at Avenue …, in Lisbon (hereinafter Claimant) hereby, under the combined provisions of Articles 2, Section 1, letter a) and 10, Section 1, letter a), of the Legal Regime for Arbitration in Tax Matters (RJAT), submits an application for arbitral decision, in which the Tax and Customs Authority (hereinafter AT or Respondent) is named as respondent, with a view to the declaration of illegality and consequent annulment of the Stamp Duty assessments for the year 2013, relating to urban properties registered under the articles … of the parish of …, municipality of Lisbon, and … of the Union of Parishes of Setúbal (…, … and …), in the total amount of € 113,358.34, which appear in documents no. 1 and 2, attached to the application for arbitral decision.

The Claimant cumulatively requests the condemnation of the Respondent to restitution of the amounts wrongfully paid, relating to those assessments, plus indemnity interest at the legal rate, from the date of the wrongful payments until the date of their actual restitution.

The arguments put forward by the Claimant are, briefly, as follows:

a) The assessments notified were issued on the basis of item 28.1 added to the General Stamp Duty Table ("TGIS") by Law No. 55-A/2012, of 29 October;

b) The properties on which Stamp Duty was assessed are "land for construction";

c) The notified Stamp Duty is illegal, because, under item 28.1 of the TGIS, it should only apply to properties with actual/effective residential use and not "residential use" that is merely virtual, potential and with no correspondence to the functional reality of the property;

d) Law No. 55-A/2012, of 29 October, made several amendments to the Stamp Duty Code, adding to the TGIS item 28 which subjects to Stamp Duty:

"28 – [A] Ownership, usufruct or surface right of urban properties whose tax value reported in the register, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the tax value used for purposes of property tax:

28-1 – For property with residential use – 1%;

28.2 – For property, when the taxpayers who are not natural persons are residents of a country, territory or region subject to a clearly more favourable tax regime, as listed in an order approved by the Minister of Finance – 7.5%";

e) It is against the extensive and unsupported interpretation by the AT of the letter of the law – subjection of lands for construction with tax value exceeding 1 million euros to the aforementioned item 28.1 of the TGIS –, which may be considered illegal, that the Claimant objects;

f) The Stamp Duty Code does not define the concept of "property with residential use", so, by express reference in Article 67, Section 2, of this Code, added by Law No. 55-A/2012, of 29 October (…) this concept must necessarily be interpreted in accordance with the provisions of the Property Tax Code;

g) The categories of urban properties listed in Article 6, Section 1, of the Property Tax Code are: a) Residential; b) Commercial, industrial or service; c) Land for construction; d) Others, with land for construction being those that fall within the definition of Section 3 of the same Article 6 of the Property Tax Code;

h) The absence of express definition of the concept of "property with residential use" cannot be valued as if it were a "new" concept, given the express reference in Article 67, Section 2, of the Stamp Duty Code to the Property Tax Code, if not to the specific concept, then to the concept which, by interpretation, is most closely related, that is, in the Claimant's understanding, to the concept of residential urban property;

i) In this exact sense, see the recent decisions handed down by the Supreme Administrative Court in proceedings no. 48/14 and 1870/13, both of 09.04.2014, as well as in proceedings no. 0272/2014, of 23.04.2014 and 055/14, of 14.05.2014, in whose summaries one can read the conclusion of the Court, which in peremptory fashion decided that: "Having the legislator not defined the concept of 'urban properties with residential use', and it resulting from Article 6 of the Property Tax Code – subsidiarily applicable to Stamp Duty provided for in the new item 28 of the General Table – a clear distinction between 'residential urban properties' and 'land for construction', these cannot be considered, for purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law No. 55-A/2012, of 20 October), as properties with residential use";

j) The AT ignores Section 2 of Article 6 of the Property Tax Code, according to which "Residential, commercial, industrial or service properties are buildings or constructions licensed for such purposes", that is, when there already exists concretely a building, or at least a construction;

k) Hence the need for the legislator to provide for and distinguish the category of urban property "land for construction", which, despite potentially being licensed, has no building or construction implanted;

l) Thus, any "residential use" of lands for construction can only be understood in "virtual" or potential terms, that is, in accordance with the use that might result from the building which, concretely, might be carried out on that property, whether or not licensed;

m) In this regard, it is relevant to note the decision of the CAAD in proceedings no. 49/2013-T, in which it was concluded that: "(…) the fact that for a given land for construction building of a property intended for residential use, or any other purpose, is authorised, even though it should be considered in its evaluation, does not determine any change in the classification of the land which, for tax purposes, continues to be considered as such";

n) In this sense, it is also relevant to note the reasoning of the Supreme Administrative Court decisions previously mentioned, in particular the segment of that Esteemed Court's judgment in proceedings no. 048/14, which decided that: "(…) 'residential use' always appears in the Property Tax Code referred to 'buildings' or 'constructions', since only these can be inhabited, which is not the case with lands for construction, which do not have, in themselves, conditions for this, and are not susceptible of being used for residential purposes except if and when the construction authorised and provided for them is built thereon (but in that case they will no longer be 'land for construction' but another category of urban properties – 'residential', 'commercial, industrial or service' or 'others' – Article 6 of the CIMI";

o) Thus, by referring to "properties with residential use", the legislator intended to subject to this tax only built properties, that is, with physical and current building existence (built or under construction), not merely virtual, with residential use;

p) And it must be concluded that, in the year 2013, land for construction was not, under any perspective, subject to Item 28 of the TGIS, which is corroborated by the fact that the State Budget for 2014 provided, with an innovative, not interpretive, character, that Item 28.1 of the TGIS applies to "residential property or land for construction whose building, authorised or provided for, is for residential purposes, under the terms provided in the Property Tax Code";

q) The legislator's intention to subject to Item 28.1 of the TGIS only residential urban properties should derive from the combination of the literal element of the norm with its teleological element or the reason for being of the norm; Under the terms of Bill No. 96/XII/2A, which preceded Law No. 55-A/2012, of 29 October, a rate was created under Stamp Duty on urban properties with residential use whose tax value is equal to or greater than one million euros, justified by the need to strengthen social equity in austerity and the sharing of burdens;

r) This tax aims to tax "luxury" residential real estate property, not applying to the activity generating income. In the sense set out, see the decision of the CAAD in proceedings no. 53/3013-T, in the terms of which: "(…) the limitation of Stamp Duty taxation to 'properties with residential use' makes it clear that it was not intended to include within the scope of the tax properties with use for services, industry or commerce, that is, properties used for economic activity, which is understandable in a context in which, as is well known, the economy is in a recessionary spiral, publicly proclaimed at the highest level (…) Therefore, it must be concluded that the interpretive elements available, including the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied', point clearly in the direction that it was not intended to include within the scope of item 28.1 situations of properties that are not yet devoted to residential use, in particular land for construction held by companies";

s) If there were any doubt about the legislator's intention to subject to Stamp Duty only residential urban properties, the Report of the State Budget for 2013, of October 2012 (contemporary with Law No. 55-A/2012, of 29 October (…) expressly states that: "As regards taxation on property, as from 1 January 2013, high-value residential properties (equal to or exceeding 1 million euros) become subject to an increased rate of 1%, under Stamp Duty";

t) (…) it must therefore be concluded that the Stamp Duty assessments notified to the Claimant are illegal, as they are based on an illegal extensive interpretation by the AT;

u) Application is made for the assessment of the illegality of the Stamp Duty assessments in question and their respective annulment, as well as restitution of the improperly paid tax and the payment of indemnity interest due on the amount of tax paid, until the effective reimbursement thereof;

v) In this regard, Section 1 of Article 43 of the General Tax Law (LGT) provides that "(…) indemnity interest is due when it is determined, in administrative appeal or judicial objection, that there has been an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due (…)";

w) (…) the Supreme Administrative Court judgment, of 16.06.2010, in the terms of which: "The indemnity interest provided for in Section 1 of Article 43 of the LGT corresponds to the implementation of a right to indemnification which is grounded in Article 22 of the Constitution of the Portuguese Republic, and should be interpreted as a non-exhaustive set of situations in which it is to be presumed the existence of injury to taxpayers with the consequent responsibility of the Administration for its occurrence";

x) Whence results a legal obligation for the AT to proceed with the restitution of the amounts wrongfully paid, as well as with the compensation of all the losses that were caused by the time in which the Claimant was deprived of the use of the capital wrongfully paid – see the jurisprudence contained in the Supreme Administrative Court judgment, of 30/11/2004, or also the Southern Regional Administrative Court judgment, of 31.01.2012, in the terms of which: "The right to indemnity interest provided for in Section 1 of Art. 43 of the LGT (…) depends on it being demonstrated in the case that this act is affected by error – concerning the premises of fact and of law – attributable to the services, from which there has resulted payment of a tax debt in an amount greater than legally due (…)";

Ends the Claimant, following the foregoing, by formulating the following claims:

1. That this application for arbitral decision be "judged as well-founded with proof, with the consequent declaration of illegality of the Stamp Duty assessments notified (…) in the total amount of € 113,358.34, for all legal purposes";

2. "With the restitution of the tax paid, plus indemnity interest at the legal rate in force, from the date of its wrongful payment, until its effective delivery" to the Claimant.

The Tax and Customs Authority submitted a reply, in which it states that it does not believe the Claimant has any merit, contesting all of its arguments and arguing that the assessment acts that are the subject of this application for arbitral decision should be maintained, as they constitute a correct interpretation of Item 28 of the TGIS, with the following grounds:

a) The AT considers that the properties taxed have the legal nature of "property with residential use", given the amendments introduced to the Stamp Duty Code by Law No. 55-A/2012, of 29 October, from which this tax also began to apply to ownership, usufruct or surface right of urban properties whose tax value reported in the register, under the terms of the Property Tax Code is equal to or greater than € 1,000,000.00;

b) In the absence of any legal definition of the concepts of urban property, land for construction and residential use under Stamp Duty, recourse must be had to the provisions of the Property Tax Code, in accordance with the provision in Article 67, Section 2, of the Stamp Duty Code, in the wording given to it by Law No. 55-A/2012, of 29 October, according to which matters not regulated in this Code, relating to Item 28 of the TGIS, shall be subsidiarily governed by the provisions of the Property Tax Code;

c) Section 1 of Article 6 of the Property Tax Code provides for the categories of existing urban properties, including in this concept land for construction, that is, "lands located within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for subdivision or construction operation, and also those that have been so declared in the title of acquisition, excepting lands in which the competent entities prohibit any of those operations…";

d) The notion of use of the urban property is based on the part relating to the valuation of immovable property, since the valuation (purpose) incorporates value to the immovable, constituting a determining fact of distinction (coefficient) for purposes of valuation;

e) As results from the decision handed down in judgment No. 04950/11, of 14/02/2012, of the Southern Regional Administrative Court: "The regime for valuation of lands for construction is established in Art. 45 of the CIMI. The valuation model is the same as that of built buildings, although proceeding from the building to be constructed, taking as a basis the respective project, the value of the land for construction corresponds, fundamentally, to a legal expectation, embodied in a right to be able to construct thereon a property with certain characteristics and with a certain value. It is this expectation of production of wealth materialized in an immovable to be constructed that increases the value of the assets and the wealth of the owner of the land for construction. For that reason, the greater the value of the property to be built, the greater is the value of the land for construction that underlies it (see Art. 6, Section 3 of the CIMI).

f) "In conclusion, in the valuation of lands for construction the legislator intended that the methodology of valuation of urban properties in general be applied, and thus all coefficients must be taken into account, above identified, in particular the use coefficient provided for in Art. 41 of the CIMI, all the more so as such legal requirement results from Section 2 of Art. 45 of the CIMI, by referring to the value of the buildings authorized or provided for on the same land for construction";

g) Thus, for purposes of determining the tax value of lands for construction it is clear that the use coefficient applies in the valuation and application of item 28 of the TGIS, taking into account that:

a. In the application of law to concrete cases the exact sense and scope of the norm must be determined, so that it reveals the rule contained therein (Article 9, of the Civil Code, by virtue of Article 11 of the LGT);

b. Art. 67, Section 2 of the Stamp Duty Code mandates subsidiary application of the provisions of the CIMI;

c. The use of the immovable (aptitude or purpose) is a coefficient that contributes to the valuation and determination of the tax value of lands for construction;

d. Item 28 of the TGIS refers to the expression "properties with residential use", calling for a classification that overlaps the categories provided for in Section 1 of Art. 6 of the CIMI;

h) The AT understands that the concept of "properties with residential use", for purposes of item 28 of the TGIS, comprises both built properties and lands for construction, starting with regard to the literal element of the norm, as the legislator does not refer to "properties intended for residential use", having opted for the notion of "residential use", a broader expression, whose sense must be found in the need to integrate other realities beyond those identified in Art. 6, Section 1 letter a) of the CIMI;

i) The mere constitution of a right of potential construction immediately increases the value of the immovable in question, hence the rule contained in Art. 45 of the CIMI which mandates separation of its parts from the land – that where the building to be constructed is to be implanted and the area of free land. Having determined the amount of the first part, the determined value is reduced to a percentage between 15% and 45% as provided in Section 2 of that provision, because the construction has not yet been carried out;

j) The value of the land adjacent to the implantation area is determined in the same terms in which the value of the excess land area is determined for purposes of any urban immovable;

k) It is noted that the legal regime for urbanization and building has as its premise buildings already constructed, [but] the license permit for the performance of urbanization operations must contain, among other elements, the number of plots and the indication of the location area, purpose, implantation area, construction area, number of floors of number of housing units of each of the plots, with specification of housing units intended for controlled-cost residential units, when provided for, under the terms of letter a) of Art. 77 of the Urbanization and Building Legal Regime (RJUE);

l) The same Art. 77 of the RJUE contains mandatory specifications for licenses for urbanization operations or urbanization works, and for construction works, as well as Municipal Master Plans establish the strategy for municipal development, the municipal policy for land use and urban planning and other urban policies (…) of spatial organization of municipal territory;

m) In these terms, long before the actual building of the property, it is possible to ascertain and determine the use of the land for construction;

n) As to the alleged unconstitutionality raised, the same should fail, because, as established in Article 13 of the Constitution of the Portuguese Republic, it is known that "it requires that equal treatment be given to what is necessarily equal and different treatment to what is essentially different, not preventing differentiated treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that do not have sufficient justification and factual basis";

o) The AT understands that the provision of item 28 of the TGIS does not constitute any violation of the principle of equality in Article 13 of the Constitution of the Portuguese Republic, [as] it applies to ownership, usufruct or surface right of urban properties with residential use, whose tax value reported in the register, under the terms of the CIMI, is equal to or greater than € 1,000,000.00. It is a general and abstract norm, applicable uniformly to all cases in which the premises of fact and of law are met;

p) Taxation under Stamp Duty complies with the principle of adequacy, applying uniformly to all holders of immovables with residential use of value exceeding € 1,000,000.00, applying to the wealth embodied and manifested in the value of immovables, with no unconstitutionality due to violation of the principle of proportionality or of contributory capacity;

q) The assessments in question constitute a correct interpretation and application of law to facts, not suffering from the defect of violation of law, whether of the Constitution of the Portuguese Republic or of the Stamp Duty Code, and should, consequently, be judged as devoid of merit and the Respondent absolved from the claim;

r) Notwithstanding the Claimant, in point 10 and 12 of the arbitral application, undertaking to attach copies of the notifications and proofs of payments of the tax installments missing from July 2014, relating to the identified immovables, the fact is that, as of the present date it should already be in possession of said documentation, which it has not attached until now;

s) It should, therefore, be notified to present it, as well as to justify the delay in its presentation, so as to avoid payment of the corresponding fine, under the terms of Article 423, Section 2 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29, Section 1, letter e) of the RJAT;

t) As regards the 3rd installment of Stamp Duty to be borne by the Claimant – to occur by the end of the month of November of the present calendar year – it is manifest that the same has not yet become due nor been paid;

u) Thus, given that part of the amount of tax is outstanding, the Respondent cannot be condemned to restitute the portion of an amount that has not entered the state coffers;

v) A reason which impedes – notwithstanding the value of the case being fixed by reference to the total amount of the two tax assessments in question – the condemnation of the Respondent to restitution of tax in the amount of € 113,358.34, and such condemnation should be reduced to the amount effectively paid (and proven in the case) by the Claimant which, in accordance with the elements attached to the case, as of the present date, amounts to € 37,786.12;

w) Accordingly, with the learned assistance of Your Excellency, the application for declaration of illegality and consequent annulment of the assessments in dispute should be judged as devoid of merit, absolving the Respondent from the claim;

x) If not so understood, the Claimant should be notified to attach to these proceedings the notifications and proofs of payment of tax relating to the 2nd installment (July 2014), and should justify the delay in the presentation referred to;

y) It is further requested that, if the two assessments now in dispute are annulled, the Respondent be condemned only to the restitution of the amount effectively borne (and proven in the case) by the Claimant.

The Collective Arbitral Court was duly constituted on 6 October 2014 and is materially competent to assess and decide the dispute which is the subject of these proceedings.

The parties have legal capacity and standing, are legitimate and are duly represented (Articles 4 and 10, Section 2, of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March).

The case is not affected by any nullities and no exceptions were raised.

The parties waived the holding of the meeting referred to in Article 18 of the RJAT, as well as the production of pleadings, whether oral or written.

STATEMENT OF FACTS

Facts found to be proven:

The Claimant is the owner of urban properties registered in the property register under article … of the parish of …, of the municipality of Lisbon and under article … of the Union of Parishes of Setúbal (…, … and …);

The aforementioned properties, in accordance with the property records issued by the Finance Services of their respective location areas (Finance Services of Lisbon 7 and Setúbal 2, respectively), are described as "land for construction";

The Stamp Duty assessments were issued by the AT, under Item 28.1 of the TGIS, at the rate of 1%, on the tax value of € 8,476,866.58, in the amount of € 84,768.67 (article … of the parish of …, of the municipality of Lisbon) and on the tax value of € 2,858,967.30, in the amount of € 28,589.67 (article … of the Union of Parishes of Setúbal (…, … and …);

The Claimant was notified to make the following payments of Stamp Duty, with reference to the urban properties previously identified:

Collection document no. 2014 …, in the amount of € 28,256.23 – 1st Installment – April 2014;

Collection document no. 2014 …, in the amount of € 9,529.89 – 1st Installment – April 2014;

Collection document no. 2014 …, in the amount of € 28,256.22 – 2nd Installment – July 2014;

Collection document no. 2014 …, in the amount of € 9,529.89 – 2nd Installment – July 2014;

Collection document no. 2014 …, in the amount of € 28,256.22 – 3rd Installment – November 2014;

Collection document no. 2014 …, in the amount of € 9,529.89 – 3rd Installment – November 2014;

All installments were paid within the deadline, on 30 April 2014, 30 July 2014 and 14 November 2014, respectively.

To the application for arbitral decision, with submission to the CAAD on 1 August 2014, were attached copies of the notifications and proofs of payment of the 1st installment of the assessments in dispute;

By electronic mail of 1 September 2014, the Claimant attached to the proceedings copies of the notifications and proofs of payment of the 2nd installment of the same assessments;

Copies of the notifications and proofs of payment of the 3rd installment of the assessments in dispute were sent to the CAAD on 20 November 2014.

Basis for the proven statement of facts

The Court's conviction concerning the statement of facts found as proven resulted from the analysis of the documentary evidence attached to the application for arbitral decision (copies of the property records of the immovables identified therein, of the notifications and proofs of payment of the first installment of each of the assessments in dispute), as well as that subsequently attached (copies of the notifications and proofs of payment of the second and third installments of each of those assessments).

Facts not proven

There are no facts relevant to the decision of the case that should be considered not proven.

STATEMENT OF LAW – GROUNDS

On the concept of urban property with residential use

As follows from the dispute argument, the main question to be decided in these proceedings is whether land for construction, with a tax value exceeding € 1,000,000.00, can be considered as an urban property with residential use, fitting within the provision of the rule of incidence of Item 28.1 of the General Stamp Duty Table (TGIS), added by Article 4 of Law No. 55-A/2012, of 29 October.

In its initial wording, applicable to the situation under analysis, item 28 of the TGIS provided that the following situations were subject to Stamp Duty:

"28 — Ownership, usufruct or surface right of urban properties whose tax value reported in the register, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 — on the tax value used for purposes of property tax:

28.1 — For property with residential use — 1%;

28.2 — For property, when the taxpayers who are not natural persons are residents of a country, territory or region subject to a clearly more favourable tax regime, as listed in an order approved by the Minister of Finance — 7.5%."

Thus, the cumulative requirements for application of the norm contained in Item 28.1 of the TGIS are that the immovable to be taxed be an urban property "with residential use" and that its tax value, for purposes of property tax, exceed € 1,000,000.00.

With respect to the tax value of the immovables on which the Stamp Duty assessments that are the subject of this application for arbitral decision were levied, there is no doubt that each was assigned a tax value exceeding the limit established by the incidence rule, nor is this fact contested.

It remains, therefore, to determine whether the immovables to which the application refers, classified as land for construction, fall within the concept of "property with residential use", as the Respondent AT argues, an expression which, according to the latter, "comprises both built properties and land for construction, starting with regard to the literal element of the norm (…)" – (Article 21 of the Reply).

It has long been peaceful doctrine that tax norms are interpreted like any other legal norms, a solution that is now expressly contained in Section 1 of Article 11 of the General Tax Law (LGT), by establishing that "1 - In determining the sense of tax norms and in qualifying the facts to which they apply the general rules and principles of interpretation and application of laws are observed".

Among the elements of interpretation, the one from which the applicator of the norm must start is precisely the grammatical element, that is, the text of the law, it being however to be noted that, in determining the sense and value of the norm, the interpreter cannot fail to consider the logical element or, in accordance with Section 1 of Article 9 of the Civil Code, fail to "reconstruct (…) the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

The rule of incidence contained in item 28.1 of the TGIS uses the expression "property with residential use", the concept of which is not defined in the Code in which it is inserted, nor in any other legislation of a tax nature.

Being a polysemic expression, which may have more than one meaning, and in order to determine its exact sense and scope, in respect for the unity of the system, the interpreter should resort to the so-called "parallel places", that is, there should be consideration of "legal provisions that regulate parallel normative problems or related institutes"[1].

Such "parallel places" will necessarily be found, in the case at hand, in the norms of the Property Tax Code, for whose subsidiary application Article 67, Section 2 of the Stamp Duty Code refers, in block, added by the same Law No. 55-A/2012, of 29 October, by establishing that "2 - Matters not regulated in this Code relating to item no. 28 of the General Table shall be governed subsidiarily by the provisions of the CIMI."

It will not, thus, be acceptable the statement of the Respondent, according to which "Item 28 of the TGIS refers to the expression 'properties with residential use', calling for a classification that overlaps the categories provided for in Section 1 of Art. 6 of the CIMI", beginning with the opposition thereto of the principles of legality and typicality of tax law.

However, notwithstanding the express reference to the Property Tax Code, which the legislator wished to consecrate in Section 2 of Article 67 of the Stamp Duty Code, by reference to matters relating to Item 28 of the TGIS, the latter also does not give us the concept of "properties with residential use".

In fact, its Article 6, inserted in Chapter I, under the heading "Incidence", does not use that expression in enumerating, in Section 1, the categories of urban properties, which may be classified as: a) Residential; b) Commercial, industrial or service; c) Land for construction; d) Others, with Sections 2, 3 and 4 of the same article delimiting what should be understood by each of those designations.

Thus, "Residential, commercial, industrial or service properties are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes" (Section 2) and land for construction "lands located within or outside an urban agglomeration, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for subdivision or construction operation, and also those that have been so declared in the title of acquisition, except lands in which the competent entities prohibit any of those operations, in particular those located in green areas, protected areas or which, in accordance with municipal land use plans, are assigned to spaces, public infrastructure or public facilities" (Section 3).

Comparing the content of Sections 2 and 3 of Article 6 of the Property Tax Code, it seems evident that the legislator wished to distinguish very clearly between residential properties and land for construction, and furthermore, the category of urban properties that best corresponds to the concept of "property with residential use" is that of residential properties, as buildings or constructions licensed for residential use or which, in the absence of a license, have residential use as their normal purpose (residential purposes).

However, the AT argues that "The notion of use of the urban property is based on the part relating to the valuation of immovable property, since the valuation (purpose) incorporates value to the immovable, constituting a determining fact of distinction (coefficient) for purposes of valuation" (Articles 17 and following of the Reply), relying on the judgment of the Southern Regional Administrative Court, handed down on 14/02/2012, in proceedings no. 04950/1, which it partly transcribes.

Now, the word "use" only appears in Articles 38 and following of the Property Tax Code, inserted systematically in Chapter VI – Of the tax value of urban properties; Section II – Of valuation operations.

Specifically, Article 41 of that Code, under the heading "Use coefficient", determines that this "depends on the type of use of built properties" (emphasis in original).

It may thus be safely concluded that, in accordance with Article 41 of the Property Tax Code, the "use coefficient" always refers to buildings or constructions, as it "depends on the type of use of built properties"; whence it also seems to result safely the conclusion that the word "use" has the meaning of "utilization".

However, as advanced above, those Articles 38 and following of the Property Tax Code are systematically positioned in the Chapter relating to the determination of tax value.

As the tax value constitutes the taxable matter on which the rate of the tax will apply, it can hardly be accepted that from the rules relating to the valuation of urban properties any rule of incidence can be extracted, as a phase which, in the theory and practice of taxes, logically precedes that of the determination of the taxable matter.

And, even if such "use coefficient" may be used in the valuation of lands for construction, because it may relate to future buildings, authorized or licensed for a certain type of use, as was admitted by the above-mentioned judgment of the Southern Regional Administrative Court (to the contrary, see the Supreme Administrative Court judgment, of 18/11/2009, proceedings 0765/09), this will certainly not determine that lands for construction can come to be regarded as "properties with residential use", given the exhaustive classification of urban properties, established by the cited Article 6 of the Property Tax Code, as an objective rule of incidence, which traces a clear distinction between residential properties and land for construction.

Indeed, in accordance with the reiterated jurisprudence of the Supreme Administrative Court (from the judgment of 9 April 2014, in proceedings no. 1870/13, to the most recent judgment of 14 January 2015, in proceedings no. 0541/14, all available at http://www.dgsi.pt/ which, with due respect, are transcribed), "It would be strange, moreover, if the determination of the scope of the rule of incidence of tax item no. 28 of the General Stamp Duty Table were to be found, ultimately, in the rules for determining the tax value of the Property Tax Code, and if the terminological imprecision of the legislator in drafting that rule were, after all, elucidated and finally clarified by way of an indirect and equivocal reference to the use coefficient established by the legislator in relation to built properties (Article 41 of the Property Tax Code)".

For its part, as has been referenced by the jurisprudence both of the Supreme Administrative Court and of the CAAD, to which the Claimant refers (see the Arbitral Decision handed down by the CAAD on 12/12/2013, in proceedings no. 144/2013-T, available at https://caad.org.pt/ and the references made to it in the Supreme Administrative Court judgments before mentioned), "When presenting and discussing, in Parliament, Bill No. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated: 'The Government proposes the creation of a special rate on residential urban properties of higher value. It is the first time in Portugal that a special tax has been created on high-value properties intended for residential purposes. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at 1 million euros or more.'"

In accordance with what has been set forth, if the letter of the law – of Item 28.1 of the TGIS – (grammatical element) does not present itself sufficiently clear to, without difficulty, specify the concept of "property with residential use", the logical element ("the systematic element and the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied"), to which Section 1 of Article 9 of the Civil Code points, permits the conclusion, anticipating the decision, as has been concluded by the Supreme Administrative Court in the above-mentioned judgments, that, "(…) as it results from Article 6 of the Property Tax Code a clear distinction between urban 'residential' properties and 'land for construction', these cannot be considered as 'properties with residential use' for purposes of item no. 28.1 of the General Stamp Duty Table, in its original wording, which was given to it by Law No. 55-A/2012, of 29 October", which justifies the annulment of the disputed assessments, due to error in the premises on which their issuance was based.

Restitution of amounts paid and indemnity interest

In response to the request for restitution of the amounts already paid when this application for arbitral decision was submitted, as well as those that would be paid relating to the 2nd and 3rd installments of the Stamp Duty assessments which are its object, in the total amount of € 113,358.24, the AT considered that the Claimant should be notified to attach and justify the delay in the presentation of copies of the notifications for payment of the 2nd installment of those assessments, "so as to avoid payment of the corresponding fine, under the terms of Article 423, Section 2 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29, Section 1, letter e) of the RJAT".

Not so with respect to the 3rd installment which, as of the date of the Respondent's reply, had not yet become due, nor been paid.

Although it is true that, under Article 10, Section 2, letter d) of the RJAT, the application for arbitral decision must be supported by "The elements of proof of the stated facts and the indication of the means of proof to be produced", and the Claimant only attached copies of the notifications and proofs of payment of the 1st installment of the disputed assessments, as of the date of the AT's reply the lack of attachment of those elements relating to the 2nd installment had already been made good by their submission to the proceedings under a request transmitted by electronic mail of 1 September 2014, therefore, at a date prior to the constitution of the Collective Arbitral Court, the same being, from that latter date, available for consultation by the AT.

Notwithstanding this, as well as the fact that it is, admittedly, premature to attach copies of the notifications and proofs of payment of the 3rd installment of those assessments, whose voluntary payment deadline would elapse in November 2014, the Respondent requested the reduction of the claim to the restitution of the amounts effectively paid and proven in the proceedings, in the amount of € 37,786.12, equivalent to the sum of the collection notes of the 1st installment of the same assessments.

As appears from the evidence above, the Claimant timely attached the notifications and proofs of payment of the 3rd installment of the disputed assessments. It further requested the waiver of application of the fine referred to in Section 2 of Article 423 of the Code of Civil Procedure, on the grounds that the default was remedied before being invoked and that the payment is official knowledge by the AT.

By arbitral judgment of 13 January 2015, notified to the parties and not contested by the AT, the attachment of the documents remitted to the proceedings by the Claimant on 20 November 2014 (copies of the notifications and proofs of payment of the 2nd installment, previously attached by e-mail of 1 September, as well as copies of the notifications and proofs of payment of the 3rd installment) was admitted, "Without fine, moreover, because it is not legally provided for in arbitration jurisdiction".

Thus, all the requirements are met for, if the disputed assessments are annulled, all the amounts wrongfully paid by the Claimant and relating to them are restored to the Claimant, as such restitution is essential to the restoration of the "situation that would exist if the tax act which is the subject of the arbitral decision had not been practiced", as is required by letter b) of Section 1 of Article 24 of the RJAT.

With respect to the request for payment of indemnity interest, it is clear that the tax arbitration procedure was conceived as an alternative means to the judicial objection procedure (see the legislative authorization granted to the Government by Article 124, Section 2 (first part) of Law No. 3-B/2010, of 28 April (State Budget Law for 2010).

Thus, although Article 2, Section 1, letter a) of the RJAT uses the expression "declaration of illegality" as delimitative of the competence of the arbitral courts operating in the CAAD, it should be understood that this competence includes the powers that in judicial objection procedure are attributed to tax courts, such as that of assessing the error attributable to the services. All the more so since, among the grounds of judicial objection, are counted, precisely, "Erroneous qualification and quantification of income, profits, asset values and other tax facts" (see Article 99, letter a) of the Code of Tax Procedure and Process (CPPT)), irrespective of its authorship.

On the other hand, the already cited letter b) of Section 1 of Article 24 of the RJAT determines that the arbitral decision on the merits of the claim from which no appeal or objection is available binds the tax administration from the end of the deadline provided for appeal or objection, and the latter must, in the precise terms of the success of the arbitral decision in favor of the taxpayer and up to the end of the deadline provided for the voluntary execution of judgments of the tax courts, "restore the situation that would exist if the tax act which is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for that purpose".

Similarly, Article 100 of the LGT, applicable to the tax arbitration procedure by force of the provision in letter a) of Section 1 of Article 29 of the RJAT, establishes that "The tax administration is obligated, in case of total or partial success of administrative complaints or appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, comprising the payment of indemnity interest, under the terms and conditions provided for in law.".

Article 43, Section 1 of the LGT providing that "Indemnity interest is due when it is determined, in administrative appeal or judicial objection, that there has been an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due.".

Error attributable to the services may consist of error on the premises of fact, which occurs whenever there is "a divergence between reality and the statement of facts used as a premise in the practice of the act"[2] or in error on the premises of law, when "in the practice of the act there has been erroneous interpretation or application of legal norms, such as the norms of objective and subjective incidence (…)"[3] and "is demonstrated when administrative appeal or judicial objection proceedings are carried out for that same assessment and the error is not attributable to the taxpayer"[4].

In the case at hand, it appears manifest that, once the illegality of the Stamp Duty assessment acts is declared, by having been demonstrated the erroneous application of the norm of objective incidence contained in item 28.1 of the TGIS, which justifies its annulment, there must be recognized the right of the Claimant to indemnity interest on the amounts wrongfully paid, from the date of payment of each of the installments of the tax, as is established in Section 5 of Article 61 of the CPPT, as such illegality is exclusively attributable to the Tax Administration, which practiced those tax acts without the necessary legal support.

Questions of moot character

In the judgment, the judge must pronounce on all questions that it should assess, refraining from pronouncing on questions concerning which it should not know (final segment of Section 1 of Article 125 of the CPPT), and the questions on which the cognizance powers of the court fall are, in accordance with Section 2 of Article 608 of the Code of Civil Procedure, applicable subsidiarily to the tax arbitration procedure, by reference in Article 29, Section 1, letter e) of the RJAT, "the questions which the parties have submitted to its assessment, except those whose decision is made moot by the solution given to others (…)".

In light of the solution given to the questions relating to the concept of "property with residential use", the restitution of the amounts paid and the payment of indemnity interest in favor of the taxpayer, the knowledge of the remaining questions placed by the parties is rendered moot, in particular that of the alleged unconstitutionality of the rule of incidence contained in Item 28.1 of the TGIS, as the same is not capable of the interpretation which, in the case, was made by the AT.

DECISION

On the basis of the grounds set forth above and, under the terms of Article 2 of the RJAT, this Collective Arbitral Court agrees on:

1. To judge as well-founded the application for declaration of illegality of the Stamp Duty assessments in dispute, due to error in the premises of law, determining their annulment;

2. To condemn the Tax and Customs Authority to restitute to the Claimant the amounts wrongfully paid by the latter, in the total amount of € 113,358.34;

3. To condemn the Tax and Customs Authority to the payment of indemnity interest to the Claimant, from the date of each of the wrongful payments until their full restitution.

VALUE OF THE CASE: In accordance with the provision in Article 306, Sections 1 and 2 of the Code of Civil Procedure, Article 97-A, Section 1, letter a) of the Code of Tax Procedure and Process and Article 3, Section 2 of the Regulation of Costs in Tax Arbitration Proceedings the case is fixed at the value of € 113,358.34 (one hundred thirteen thousand, three hundred fifty-eight euros and thirty-four cents).

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 € 3,060.00, charged to the Tax and Customs Authority.

Lisbon, 16 February 2015.

The Arbitrators,

(José Pedro Carvalho)

(Maria do Rosário Anjos)

(Mariana Vargas)

Text prepared on computer, under the terms of Section 5 of Article 131 of the Code of Civil Procedure, applicable by reference in letter e) of Section 1 of Article 29 of Decree-Law No. 10/2011, of 20 January.

The wording of this decision is governed by the orthographic agreement of 1990.

[1] MACHADO, J. Baptista, "Introduction to Law and to Legitimizing Discourse", Almedina, Coimbra, 1995, p. 183.

[2] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – Annotated and Commented", Volume I, Áreas Editora, 5th Edition, 2006, p. 714.

[3] Ibid.

[4] CAMPOS, Diogo Leite de, RODRIGUES, Benjamim Silva, SOUSA, Jorge Lopes de, "General Tax Law – Annotated and Commented", Encontro da Escrita, 4th Edition, p. 342.