Summary
Full Decision
ARBITRAL DECISION
1. REPORT
1.1 A…, S.A., company registration number and registration …, with registered office at Rua …, … to …, in Porto, came on 14.10.2016, pursuant to articles 2.º, no. 1, sub-paragraph a), 5.º, 6.º, no. 1 and 10.º of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and articles 99.º and 102.º, no. 1, sub-paragraphs e) and f) of the CPPT, to request the constitution of the arbitral tribunal.
1.2 The respondent in these proceedings is the TAX AUTHORITY AND CUSTOMS AUTHORITY.
1.3 The Ethics Council of the Administrative Arbitration Center (CAAD) appointed the undersigned to constitute the Single Arbitral Tribunal, having notified the parties accordingly, and the Tribunal was constituted on 26.12.2016.
1.4 The request for arbitral determination has as its immediate object the decision rendered on the administrative appeal filed by the claimant and seeks a declaration of illegality of the stamp duty assessment acts concerning the year 2014, item 28.1 of the TGIS, amended by Law no. 55-A/2012, of 29 October, in the total amount of € 29,808.38, relating to the immovable property registered in the urban property register under article ...º of the parish of …, municipality and district of Porto, owned by the Claimant.
The Claimant expresses its disagreement with the stamp duty assessment act in question and with the decision rendered in the administrative appeal proceedings, fundamentally on the grounds that the property on which the tax is levied is not a residential property, but rather a plot of land for construction, incapable of habitation, and for which there is no provision or authorization for construction of only residential buildings - or autonomous fractions of buildings - intended for habitation, and therefore does not fall within the scope of item no. 28.1 of the TGIS as worded by article 194.º of Law 83-C/2013, of 31.12.
The Claimant alleges, in summary, that the ownership of this immovable property is, given its commercial activity, a productive investment and not a property with residential vocation of high economic significance and, therefore, does not reveal the tax capacity that that item of the Table considers.
It further contends that, under a different interpretation from that which it proposes, the rule would be unconstitutional, by violation of the constitutional principles of tax equality and tax capacity, and therefore the application of the rule should be refused and the assessment act in question is illegal, petitioning for its respective annulment and refund of the amounts paid, plus legal interest indemnity at the statutory rate, from the date of payment of each of the installments until effective and full refund.
1.5 The TAX AUTHORITY AND CUSTOMS AUTHORITY replied on 02.02.2017, defending itself by opposition, and attached the administrative file to the proceedings.
1.6 It argued for the maintenance in the legal order of the challenged act, on the grounds that "urban properties that are plots of land for construction and to which residential designation has been attributed in the context of their respective assessments, such designation appearing in their respective property registers, are subject to Stamp Duty".
It further objects to the request for payment of interest formulated by the Claimant, on the grounds that the prerequisites of article 43.º of the LGT are not met, as it does not consider this to have been "error of the services".
It concludes by arguing for the legality of the assessment and the lack of merit of the request for arbitral determination.
1.7 The Tribunal rendered, on 04.01.2017, an order inviting the Claimant to come before the proceedings to indicate which facts regarding which it intended the listed witness to be examined, as well as the respective reason for knowledge, so that a decision could be made on the necessity of producing this evidence.
1.8 The Claimant replied on 25.01.2017.
1.9 On 02 February 2017, the Tribunal rendered an order to the effect that, notwithstanding the clarifications provided by the Claimant's authorized representative, it would reject the examination of the testimonial evidence listed by it and would dispense with the holding of the meeting referred to in article 18.º of the RJAT, since none of the purposes legally entrusted to it are met, as well as the allegations.
1.10 The parties, being notified, did not object.
2. CASE MANAGEMENT
The Tribunal was regularly constituted and is competent.
The parties have legal personality and capacity, are shown to be parties with standing and are regularly represented.
The proceedings do not suffer from any defects that would invalidate them.
4. FACTS
With relevance for the decision on the merits, the Tribunal considers the following facts as proved:
1. The Claimant is the owner of the urban property located at …, …, …, …, registered in the urban property register under article ...º of the parish of …, municipality of Porto;
2. The property is described in the register as "plot of land for construction";
3. In the assessment of the property, the "location coefficient type: residential" was applied;
4. The property had, at the date of assessment, a tax-assessed property value of 2,980,838.01€;
5. On 20.03.2015 the Tax Authority proceeded to assess the Stamp Duty of item 28.1 of the TGIS with reference to the property described in point 2 and the year 2014, in the total amount of 29,808.38€, and issued the collection notes relating to the three installments;
6. The claimant filed an administrative appeal against that assessment act on 30.03.2016;
7. The appeal was rejected by order of 12.07.2016, notified to the claimant by official letter of 13.07.2016.
Facts Not Proved
With relevance to the assessment of the merits of the case, it was not proved that any construction had been authorized, designed or provided for on the immovable property in question, in particular, intended for habitation, a fact whose proof was incumbent upon the Respondent, as it constitutes an essential fact for the integration into the rule of the real scope of the tax and is therefore constitutive of the right to assess it.
No other facts relevant to the assessment of the merits of the case were alleged by the parties that were not proved.
Grounds of the Decision on the Facts
The conviction regarding the facts was based on the allegations of the Claimant and the Respondent not contradicted by the opposing party, supported by the documentary evidence submitted both by the Claimant and by the Respondent, and on the administrative file, whose authenticity and correspondence to reality were also not questioned.
4. LAW - ISSUES TO BE DECIDED
In the view of the Tribunal, the following are the issues on which it must decide:
A) For the purpose of applying the aforementioned item, is the property in question, a plot of land for construction, without authorized or provided construction, covered by the rule of incidence?
B) Is item 28.1 of the TGIS, as worded by Law no. 83-C/2013, of 13 December, unconstitutional by violation of the constitutional principles of tax equality and tax capacity, and should, in that case, the application thereof be refused, which would remove legal support for the assessment act which, being illegal, must be annulled?
C) In the event that the assessment is annulled, as illegal, is the claimant entitled to the interest indemnity provided for in article 43.º of the LGT?
It is necessary to decide:
A) Whether the property is covered by the rule of incidence:
The subjection to Stamp Duty of properties with residential designation resulted from the addition of Item no. 28 to the TGIS, effected by article 4.º of Law 55-A/2012, of 29 October, which typified the following tax facts:
"28 – Ownership, usufruct or right of superficies of urban properties whose tax-assessed property value shown in the register, in accordance with the Municipal Real Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the tax-assessed property value used for the purpose of IMI:
28.1 – For property with residential designation – 1%
28.2 – For property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a tax regime clearly more favourable, listed in the list approved by order of the Minister of Finance – 7.5%".
The Law also added to the Stamp Duty Code no. 7 to article 23.º, relating to the assessment of Stamp Duty: "where the tax is due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax Authority and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI", and article 67.º, no. 2 which provides that "to matters not regulated in this Code relating to item 28 of the General Table, the CIMI shall apply, subsidiarily".
Law no. 83-C/2013, of 31 December, came to amend the wording of the rule, which became as follows: "28.1 For residential property or for a plot of land for construction whose construction, authorized or provided for, is for habitation, in accordance with the provisions of the Municipal Real Property Tax Code".
In articles 2.º to 6.º of the Municipal Real Property Tax Code, the categories of properties are enumerated as follows:
"Article 2.º - Concept of property
1 – For the purposes of this Code, property is any parcel of land, including water, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with the character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as water, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are located, albeit situated in a parcel of land that constitutes an integral part of a different patrimony or does not have a patrimonial nature.
2 – Buildings or constructions, even if movable by nature, are considered to have the character of permanence when devoted to non-transitory purposes.
3 – The character of permanence is presumed when buildings or constructions have been situated in the same location for a period exceeding one year.
4 – For the purposes of this tax, each autonomous fraction, under the horizontal property scheme, is considered as constituting a property."
"Article 3.º - Rustic properties
1 – Rustic properties are parcels of land situated outside an urban agglomeration which are not to be classified as plots of land for construction, in accordance with no. 3 of article 6.º, provided that:
a) they are devoted to or, in the absence of concrete devotion, have as their normal destination an activity generating agricultural income, such as those considered for the purposes of the personal income tax (IRS);
b) Not having the devotion indicated in the preceding sub-paragraph, they are not built on or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.
2 – Rustic properties also include parcels of land situated within an urban agglomeration, provided that, by virtue of legally approved provision, they cannot have any activity generating income or can only have an activity generating agricultural income and are in fact devoted to this activity.
3 – Rustic properties also include:
a) Buildings and constructions directly devoted to the generation of agricultural income, when situated in the parcels referred to in the preceding numbers;
b) Waters and plantations in the situations referred to in no. 1 of article 2.º.
4 – For the purposes of this Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public streets, with their perimeter delimited by points spaced 50 m from the axis of the streets, in the transversal direction, and 20 m from the last building, in the direction of the streets.
"Article 4.º - Urban properties
Urban properties are all those which are not to be classified as rustic, without prejudice to the provision of the following article."
"Article 5.º - Mixed properties
1 – Whenever a property has rustic and urban parts, it is classified, in its entirety, according to the principal part.
2 – If neither of the parts can be classified as principal, the property is considered as mixed."
"Article 6.º - Categories of urban properties
1 – Urban properties are divided into:
a) Residential;
b) Commercial, industrial or service;
c) Plots of land for construction;
d) Other.
2 – Residential, commercial, industrial or service are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes.
3 – Plots of land for construction are deemed to be parcels of land situated within or outside an urban agglomeration for which a license or authorization has been granted, admitted prior communication or issued favorable prior information of a subdivision or construction operation, and also those that have been declared as such in the title document, except for parcels for which the competent entities prohibit any of such operations, in particular those located in green areas, protected areas or which, in accordance with municipal land use plans, are devoted to spaces, infrastructures or public facilities.
4 – The provisions of sub-paragraph d) of no. 1 include parcels of land 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.º and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in no. 2 and also those in the exception of no. 3."
It is within this legal framework that the legal qualification of the property on which the tax in question was levied must be assessed.
There is no doubt that the property is a "plot of land for construction". This is a qualification that was not put in issue by either party and which results from the content of the respective property card and from the comparison of the aforementioned articles 2.º, 4.º and 6.º of the CIMI applicable by express reference of the rule of incidence applied.
That rule is item 28.1 of the TGIS which, we recall, provides as follows: "28.1 For residential property or for a plot of land for construction whose construction, authorized or provided for, is for habitation, in accordance with the provisions of the Municipal Real Property Tax Code".
It is thus necessary, in order to satisfy the rule of incidence, that the property be residential or, if not, be a plot of land for construction and that construction intended for habitation has been authorized or is provided for.
It should be said that, in that case, the wording adopted by the legislature was unfortunate and does not make clear whether the construction must be exclusively for habitation and, if not, whether the tax base corresponds to the tax-assessed value of the property, or only to the part intended for habitation (the determination of which does not appear feasible).
The Tribunal does not ignore the context in which the rule was produced, but even in a context of urgency, the legislature is not excused from observing the Constitutional provisions, in particular, the principle of legality in the sense of clearly typifying the tax facts that are subject to tax.
No. 2 of article 5.º of the CIMI clarifies what it understands by "residential" properties for the purposes of sub-paragraph a) of no. 1, classifying as such constructions licensed for habitation or which, in the absence of a license, have that normal use, it is not referring to plots of land for construction, but to buildings already constructed which will be residential when that is the use licensed by the municipal authorities or when, in the absence of a license, that is its normal use.
The criterion of "normal use" in the absence of a license cannot, therefore, be extrapolated for the purpose of guessing the buildings that may be constructed on plots of land for construction, a category of property provided for in sub-paragraph d) of no. 1 of the same article, as the Respondent seems to intend.
It is certain that in the assessment of the plot of land, the Tax Authority used the location coefficient of the residential type, and the taxpayer could, in fact, have reacted against the application of this coefficient, though it has not been demonstrated that it did so.
That is not, however, the criterion adopted by the legislature either in the CIMI or in the Stamp Duty Code to qualify the property as residential or with residential designation.
The legislature did not assign to the use of that coefficient any relevance in the qualification of the property, only in its assessment. It should be said, en passant, and without consequences for the decision of the case, that there appears to be an error by the Tax Authority in the use of such coefficient.
Item 28.1 of the TGIS appears to us - at least in that part - perfectly clear: properties subject to tax include, in addition to residential properties (those of sub-paragraph a) of no. 1 and no. 2 of article 5.º of the CIMI), plots of land for construction (i.e., the category of property provided for in sub-paragraph d) of no. 1 of the same article of the CIMI), provided that construction intended for habitation has been authorized or is provided for (it remaining only to be defined whether it is total or partial and, in the latter case, what is the value considered for the purposes of subjection to taxation).
However, it was not demonstrated that the plot of land for construction in question had authorization, design or provision for construction intended for habitation, so as to be subject to Stamp Duty under Item no. 28.1 of the TGIS.
Proof that was incumbent upon the Respondent and should, moreover, have been included in the grounds of the assessment act, which was not submitted to the proceedings. It may be said, moreover, that no grounds for the assessment are discernible in the administrative file. The defect arising therefrom was not, however, raised.
It therefore appears evident to us that the property, a plot of land for construction for which it was not proved to have authorization or provision for construction intended for habitation, does not satisfy the rule of incidence of the tax that served as the basis for the assessment.
Accordingly, without need for further considerations and on this ground, the assessment act is considered voidable, as illegal, as item 28.1 of the TGIS is not applicable to the property on which it was levied.
B) Of the unconstitutionality of the rule of incidence, by violation of the principles of equality and tax capacity
In view of what has been set forth above, the consideration of the other defects pointed out by the Claimant is prejudiced, as unnecessary, in particular, the invoked unconstitutionality of the rule.
C) Of the right to interest indemnity
Finally, let us address what concerns the request formulated by the Claimant for refund of the amounts which are here judged to have been wrongfully assessed and paid and the invoked right of the Claimant to interest indemnity on the amounts paid in consequence of the assessments in question.
In accordance with the provision of sub-paragraph b) of article 24.º of the RJAT, the arbitral decision on the merits of the claim, against which no appeal or challenge lies, binds the Tax Administration from the expiry of the period provided for appeal or challenge, and this must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the expiry of the period provided for the voluntary execution of sentences of tax courts, "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that effect in accordance with the provision of article 100.º of the LGT [applicable by virtue of the provision of sub-paragraph a) of no. 1 of article 29.º of the RJAT] which establishes that "the tax administration is obliged, in the event of total or partial success of an administrative appeal, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation that is the subject of the dispute, including the payment of interest indemnity, where applicable, from the expiry of the period for execution of the decision".
Although article 2.º, no. 1, sub-paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of arbitral tribunals functioning in the CAAD, making no reference to condemning decisions, it should be understood that this comprises the powers which, in judicial challenge proceedings, are attributed to tax courts, being this the interpretation which is in accord with the sense of the legislative authorization on which the Government based itself for approving the RJAT, in which it is proclaimed, as a first guideline, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".
However, it is undisputed that the judicial challenge process, despite being essentially a process for the annulment of tax acts, admits the condemnation of the Tax Administration to payment of interest indemnity, as results from the provision of article 43.º, no. 1, of the LGT and of article 61.º, no. 4 of the CPPT.
Thus, no. 5 of article 24.º of the RJAT, when stating that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be understood as allowing the recognition of the right to interest indemnity in arbitration proceedings.
It is thus incumbent to assess the request for refund of the amount wrongfully paid, plus interest indemnity.
In the case at hand, it is manifest that, as a result of the illegality of the assessment act, there is place for refund of the tax paid, by virtue of the aforementioned articles 24.º, no. 1, sub-paragraph b), of the RJAT and 100.º of the LGT, as this is essential to "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed".
As for the interest, the substantive regime of the right to interest indemnity is regulated in article 43.º of the LGT, which establishes, to the extent relevant here, that "Interest indemnity is due when it is determined, in administrative appeal or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due. 2 – There is also deemed to be error attributable to the services in cases where, even though the assessment was made on the basis of the taxpayer's declaration, the latter has followed, in completing it, generic guidelines of the tax administration, duly published."
Now, in the case at hand, the illegality of the assessment is wholly attributable to the Tax Authority, here the Respondent, in view of what was above deemed proved.
On the other hand, the maintenance of the illegal situation, i.e., the decision rejecting the administrative appeal is also attributable to the Tax Administration, here the Respondent, which rejected it on its own initiative.
Since the assessment in question resulted in tax payable in three installments, the date of payment of each of those installments should be considered for counting purposes.
Consequently, the Claimant is entitled to interest indemnity on the amounts paid by it, in accordance with article 43.º, no. 1, of the LGT and article 61.º of the CPPT, at the statutory suppletory rate, in accordance with articles 43.º, nos 1, and 35.º, no. 10 of the LGT, of article 24.º, no. 1, of the RJAT, of article 61.º, nos 3 and 4, of the CPPT, of article 559.º of the Civil Code and Order no. 291/2003, of 8 April (or any other order that amends the statutory rate), from those dates until full payment.
5. DECISION
In these terms and with the grounds set forth above, it is decided:
To deem the Claimant's request entirely well-founded and, in consequence, to annul the assessment act in question, and the Respondent must, as a result of the annulment, refund to the Claimant the amounts that it has paid under this head, plus the respective interest indemnity, in accordance with article 43.º, no. 1, of the LGT, from the date of payment until effective and full refund.
* * *
The value of the case is fixed at 29,808.38€ (twenty-nine thousand, eight hundred and eight euros and thirty-eight cents) in accordance with the provisions of articles 3.º, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97.º-A, no. 1, sub-paragraph a) of the CPPT and 306.º of the CPC.
The amount of costs is fixed at 1,530.00€ (one thousand five hundred and thirty euros) under article 22.º, no. 4 of the RJAT and Table I attached to the RCPAT, charged to the Respondent, in accordance with the provisions of articles 12.º, no. 2 of the RJAT and 4.º, no. 4 of the RCPAT and 527.º of the CPC.
Let it be notified.
Lisbon, 14 February 2017
The Arbitrator,
(Eva Dias Costa)
Text prepared by computer, in accordance with article 131.º, no. 5 of the Civil Procedure Code, applicable by reference of article 29.º, no. 1, sub-paragraph e) of the RJAT.
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