Summary
Full Decision
ARBITRAL DECISION
Claimant – A…, S.A.
Respondent - Tax and Customs Authority
The Arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Center for Administrative Arbitration (CAAD) to form the Arbitral Tribunal, constituted on 5 January 2017, with respect to the case identified above, decided as follows:
1. REPORT
1.1. A…, S.A., Legal Entity No. …, with registered office in …, …, in … (hereinafter referred to as "Claimant"), filed a request for arbitral decision and constitution of a sole Arbitral Tribunal, on 21 September 2016, pursuant to the provisions of article 4 and no. 2 of article 10 of Decree-Law no. 10/2011, of 20 January [Legal Regime for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter referred to as "Respondent").
1.2. The Claimant seeks that "(…) the request for declaration of illegality of the dismissal of the hierarchical appeal (…) which was filed against the dismissal of the objection to the Stamp Duty assessment for 2013 (…) in the amount of EUR 27,302.70, and of the assessment itself, pursuant to item 28.1 of the General Table of the Stamp Duty Code (…) with reference to the urban property, corresponding to a building plot registered in the property matrix of the Union of Civil Parishes of … and … (…) under matriculation entry … (…)" be upheld.
1.3. The request for constitution of the Arbitral Tribunal was accepted by the esteemed President of CAAD on 21 October 2016 and automatically notified to the Respondent on the same date.
1.4. The Claimant did not appoint an arbitrator, so, pursuant to the provisions of article 6, no. 2, letter a) of the RJAT, the undersigned was appointed as arbitrator on 21 December 2016 by the President of the Deontological Council of CAAD, with the appointment being accepted within the period and terms provided by law.
1.5. On the same date, both parties were duly notified of this appointment and expressed no intention to refuse the appointment of the arbitrator, in accordance with the provisions of article 11, no. 1, letters a) and b) of the RJAT, combined with articles 6 and 7 of the Code of Ethics.
1.6. Thus, in accordance with the provisions of letter c), no. 1, article 11 of the RJAT, the Arbitral Tribunal was constituted on 5 January 2017, with an arbitral order being issued on 6 January 2017, directing that the Respondent be notified to, in accordance with the provisions of article 17, no. 1 of the RJAT, file its Response within a maximum period of 30 days and, if it deemed appropriate, request the production of additional evidence.
1.7. Additionally, in that arbitral order, it was further stated that the Respondent should submit to the Arbitral Tribunal, within the period for filing its Response, a copy of the administrative file.
1.8. On 2 February 2017, the Respondent filed its Response, having defended itself by way of challenge and concluded that "the present request for arbitral decision should be found without merit, as unproven, with the tax assessments contested remaining in the legal order, thereby releasing the respondent entity from the claim."
1.9. In its Response, the Respondent also stated that "(…) there is no interest and usefulness in holding the meeting provided for in article 18 of the Legal Regime for Tax Arbitration" since it believes that "(…) the facts on which the decision must be based are not contentious", further expressing that "(…) it does not intend, should this understanding be confirmed, to make any submissions, since their making is not capable of influencing the decision in the case."
1.10. On the same date, the Respondent attached to the case file its administrative file.
1.11. In these terms, by order of this Arbitral Tribunal, dated 3 February 2017, taking into account the request for waiver of holding the arbitral hearing (to which article 18 of the RJAT refers) and waiver of presentation of submissions, filed by the Respondent in its Response (see preceding point), and with the objective of ensuring the principle of adversarial procedure and equality of the parties (in accordance with the provisions of article 16, letters a) and b) of the RJAT), the Claimant was notified to make submissions, within a period of 5 days, on the said requests for waiver of holding the said hearing and presentation of submissions.
1.12. The Claimant filed a petition on 6 February 2017, agreeing to waive the holding of the hearing provided for in article 18 of the RJAT, as well as agreeing to waive the presentation of submissions.
1.13. Thus, by arbitral order dated 6 February 2017, in accordance with the procedural principles set out in article 16 RJAT, of adversarial procedure [letter a)], equality of the parties [letter b)], the Tribunal's autonomy in conducting the proceedings and determining the rules to be observed [letter c)], of cooperation and good faith in procedure [letter f)] and the free conduct of proceedings provided for in articles 19 and 29, no. 2 of the RJAT, as well as taking into account the principle of limitation of useless acts, provided for in article 130 of the Code of Civil Procedure (CPC), applicable under the provisions of article 29, no. 1, letter e) of the RJAT, this Arbitral Tribunal decided as follows:
1.13.1. To dispense with the holding of the hearing referred to in article 18 of the RJAT;
1.13.2. To dispense with the presentation of submissions;
1.13.3. To set 10 March 2017 as the date for rendering the arbitral decision.
1.14. The Claimant was further warned that "by the date of rendering the arbitral decision, it should proceed to pay the subsequent arbitration fee, in accordance with the provisions of no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD."
2. CAUSE OF ACTION
2.1. With the claim filed, the Claimant "(…) seeks that the illegality of the dismissal of the hierarchical appeal (…) which was filed against the dismissal of the objection to the Stamp Duty assessment for 2013 (…), in the amount of EUR 27,302.70, and of the assessment itself (…) be declared and that they be consequently annulled, in accordance with article 2, no. 1, letter a), of the RJAT."
2.2. The Claimant begins by clarifying that the tax assessment in question concerns "(…) an urban property, corresponding to a building plot called … from the subdivision permit no. …/… corresponding to [current] matriculation entry … of the Union of Civil Parishes of … and … (…)" of which it is "(…) owner and lawful possessor (…)."
2.3. It further states that "the patrimonial value attributed to the property (…) was EUR 2,730,270€ (...)", and that the former "matriculation entry… (…) constitutes the unbuilt portion of the identified … from the subdivision permit no. …/…" which is intended "(…) for an Equestrian Center and its respective equipment, whether in its entirety or in relation to each of its matriculation entries."
2.4. Nevertheless, according to the Claimant, "the Tax Administration, based on the indicated patrimonial value of the former matriculation entry 8470, exceeding EUR 1,000,000, proceeded to assess stamp duty, in the amount of EUR 27,302.70, relating to the year 2013, fixing April 2014 as the month for payment of the installment of EUR 9,100.90."
2.5. However, the Claimant believes that "(…) such assessment is illegal, due to lack of legal basis" because, "(…) the former matriculation entry…, current …, has no residential use, as clearly results from the subdivision permit no. …/…, being, at most, building land intended/earmarked for services."
2.6. In these terms, the Claimant reiterates that "there is no legal basis for the assessment of stamp duty based on the patrimonial value attributed to the (…) current…" given that "the identified plot … is intended for an Equestrian Center, as results from the subdivision permit no. …/…, issued by the Municipality of…, which gave rise to it (…)."
2.7. In fact, the Claimant believes that the said plot "(…) by not being nor being earmarked for residential purposes by force of the valid and applicable licenses under which the property in question was created (…)" is "(…) outside the scope of item 28.1 of the General Table of the Stamp Duty Code" and "would always be (…) outside the scope of that provision to the extent that, not being built, it does not fall within the scope of the concept of property for purposes of Stamp Duty, by application of the concept of property provided for in the Property Tax Code."
2.8. Thus, for the Claimant, given the applicable legal provisions at the time, "as long as it remains as building land, it cannot be considered property for the purposes of item 28.1 of the General Table of the Stamp Duty Code" taking into account that "(…) as building land there is no building capable of being intended for any purpose, residential or otherwise."
2.9. Nevertheless, the Claimant further states that "(…) with the entry into force (…) of Law no. 83-C/2013 of 31 DEC (…), item 28.1 of the General Table of Stamp Duty, took on the (…) wording (…)" of "residential property or (…) building land whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Property Tax Code (…)", "which clearly requires the conclusion that, by virtue of the entry into force (…) of the State Budget Law for 2014, and the amendment to item 28.1 above, only as to the year 2014, whose assessment will occur in 2015, could stamp duty assessment (…) possibly be made." [2][3]
2.10. On the other hand, the Claimant also believes that the thesis of the Tax Administration does not hold, namely for purposes of dismissing the objections and hierarchical appeals of stamp duty assessments (…), that, having been assigned by the Tax Administration, in the reassessment of the property, residential use and there having been no objection, that is the purpose that applies for purposes of taxation", because the Claimant believes that "such thesis is not only devoid of any logical basis but devoid of legal basis", because the Claimant does not understand "where the Respondent based [itself] to assign residential use" to the identified property (land).
2.11. In these terms, the Claimant believes that it is demonstrated "(…) by documents, the absence of legal-planning use of the land plot for residential purposes, by force of the provisions of the Subdivision Permit no. …/… (…)", therefore "there was no reason for the Respondent not to immediately revoke the stamp duty assessment subject of the objection and the hierarchical appeal", "especially since the Property Tax Code itself refers, in the classification of properties, to the purpose that the existing or possible licenses define, so that a property which, from a legal-planning and fiscal standpoint, cannot have that use, that purpose, cannot be classified for residential use and be subject to taxation in that context." [4]
2.12. The Claimant further clarifies that on 8 May 2014, "(…) it filed its GRACIOUS OBJECTION (…), requesting the immediate revocation of the stamp duty assessment" and, "to guarantee all amounts required in stamp duty with respect to the year 2013 (…) it created a mortgage (…), and requested the Tax Administration to decree the suspension of enforcement proceedings" (capitals from the Claimant).
2.13. In chronological terms, the Claimant further states that on 28 August 2014, "(…) it was obliged to file a hierarchical appeal of the decision dismissing its objection (…), since that, notwithstanding the arguments and evidence presented by the Claimant, it was wrongly and illegally understood by the Tax Administration to be dismissing the Claimant's Objection (…)", and by order of 31 May 2016, "(…) the Respondent illegally dismissed the Hierarchical Appeal filed against the act of dismissal of the Objection."
2.14. Thus, the Claimant, with the request for arbitral decision, petitions that "the request for declaration of illegality of the dismissal of the hierarchical appeal (…) and of the assessment itself, pursuant to item 28.1 of the General Table of the Stamp Duty Code (…) with reference to the urban property, corresponding to a building plot (…)" identified in the file be found well-founded.
3. RESPONSE OF THE RESPONDENT
3.1. The Respondent responded arguing the lack of merit of the request for arbitral decision, since it believes that "what is at issue here are assessments that result from the direct application of the legal norm, and which translate into objective elements, without any subjective or discretionary appreciation."
3.2. The Respondent argues that "by consulting the certificate regarding the urban property and the property register that forms the basis of this assessment, it is verified that the building plots are earmarked for residential use, to which is added the fact that a subdivision permit no. …/… was granted" and adds that "urban properties that are building plots and to which residential use has been assigned in the course of their respective assessments, with such use appearing in the respective registers, are subject to Stamp Duty."
3.3. According to the Respondent, "the fact that in the tax rule (…) the property with residential use was specified in preference to the residential property, appeals to the use coefficient (…), which is applied equally to all urban properties."
3.4. Thus, the Respondent believes that "Law no. 55-A/2012 of 29 October (…) amended article 1 of the Stamp Duty Code (…)", having added "(…) to the General Table of this tax, item 28", "with stamp duty now also applying to the ownership, usufruct or right of surface of urban properties whose tax patrimonial value appearing in the respective register in accordance with the Property Tax Code equals or exceeds €1,000,000.00."
3.5. In these terms, according to the Respondent, "as there is no definition in Stamp Duty of what is meant by urban property, building plot and residential use, it is necessary to resort subsidiarily to the Property Tax Code to obtain a definition that allows assessment of possible Stamp Duty liability, in accordance with the provisions of article 67, no. 2 of the Stamp Duty Code as amended by Law no. 55-A/2012, of 29/10", concluding the Respondent that "(…) in the assessment of building plots the legislator intended that the methodology of assessment of urban properties in general be applied, thus all coefficients must be considered, above identified, namely the use coefficient provided for in art. 41 of the Property Tax Code, with further resulting such legal requirement from no. 2 of art. 45 of the Property Tax Code, by referring to the value of authorized or planned buildings on the same building plot", therefore the Respondent believes it is clear "(…) for purposes of determining the tax patrimonial value of building plots (…) the application of the use coefficient in assessment." [5]
3.6. Now, according to the Respondent, "in the property registers of the properties, the type of property is building plot", therefore it believes that "we cannot doubt that we are facing a building plot, more specifically, before a plot of land for urban construction, with the areas of building implantation and construction clearly defined and identified (…)", being that "for fiscal purposes the properties are building plots, in that capacity they were acquired and thus are (…) classified, and therefore are undoubtedly plots of land for construction, more precisely urban properties with residential vocation."
3.7. And the Respondent reiterates that, despite it being "(…) evident the residential use of the building", "note that the legislator does not refer to property intended for residential use, having opted for the notion of residential use, a different and broader expression, whose meaning is to be found in the need to integrate other realities beyond those identified in article 6, no. 1, letter a) of the Property Tax Code."
3.8. Indeed, according to the Respondent, "the tax law considers as an integral element for purposes of assessment of building plots the value of the site area, which varies between 15% and 45% of the value of authorized or planned buildings based on the urbanization and construction project", being that "article 77 of the Urban Regulation contains mandatory specifications, in particular for subdivision or urbanization operation permits and for construction works."
3.9. Thus, "well before the actual construction of the property, it is possible to ascertain and determine the use of the building plot", being that "that was no other than the legislator's intention, if we consider that in the application of law to concrete cases it is important to determine the exact meaning and scope of the norm, so that it reveals the rule contained therein, an indispensable condition for its application, unless it is to be considered in respect of the principle of social equity in austerity that in the concept of urban properties are included building plots with residential use."
3.10. And the Respondent proceeds by stating that "proof of this is Law 55-A/2012 of 29 October (effective from 30 October 2012), which amended art. 1 of the Stamp Duty Code and added to the General Table of Stamp Duty, item 28, coming to extend its scope to the ownership, usufruct or right of surface of urban properties whose tax patrimonial value appearing in the register, in accordance with the Property Tax Code, equals or exceeds 1,000,000€", "that is, the legislator limited itself to defining, without room for doubt, the logical element underlying the statement of reasons that formed the basis of Draft Law no. 96/XII (…)."
3.11. Now, according to the Respondent, "furthermore, well-founded reasons also with constitutional basis justified the creation of the contested norm, namely the respect for the principles of proportionality and contributive capacity." [6]
3.12. In these terms, "taxation in Stamp Duty complies with the criterion of appropriateness, in the exact measure in which it aims at taxation of wealth embodied in the ownership of properties of high value, arising in a context of economic crisis that cannot be ignored at all", being that "in fact, the measure implemented seeks to find maximum efficacy, as to the objective to be achieved, with the minimum of injury to other interests considered relevant", therefore, according to the Respondent, "(…) the choice of this mechanism for obtaining revenue is legitimate, which would only be subject to criticism, in the face of the principle of proportionality, if it resulted in manifestly indefensible."
3.13. Thus, the Respondent believes that "(…) the tax acts in question did not violate any legal principle and should thus be maintained" and, consequently, "the present request for arbitral decision (…) should be found without merit, thereby releasing the respondent entity from the claim."
4. PRELIMINARY EXAMINATION
4.1. The request for arbitral decision is timely since it was filed within the period provided for in letter a) of no. 1 of article 10 of the RJAT. [7]
4.2. The parties have legal personality and capacity, are legitimately parties to the request for arbitral decision and are duly represented, in accordance with the provisions of articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March.
4.3. The joining of claims made here by the Claimant is legal and valid, in accordance with the provisions of article 3, no. 1 of the RJAT, since the well-foundedness of the claims depends essentially on the appreciation of the same factual circumstances and the interpretation and application of the same principles or rules of law.
4.4. The Tribunal is competent to hear the request for arbitral decision filed by the Claimant.
4.5. No exceptions have been raised that need to be heard.
4.6. There are no nullities, so it is necessary now to address the merits of the claim.
5. FACTS
Of Proven Facts
5.1. The following facts are considered proven:
5.1.1. The Claimant is the owner of the building plot called "…" from the "Subdivision Permit no. …/…", issued on 8 November 1988, by the Municipal Chamber of …, a plot corresponding to the current matriculation entry … of the Union of Civil Parishes of … and … (former matriculation entry … of the Civil Parish of…), as per copies of documents attached to the file by the Claimant, included in Annex III.
5.1.2. The tax patrimonial value of the property, as of 31 December 2013, was EUR 2,730,270.00, as per copies of documents attached to the file by the Claimant, included in Annex III.
5.1.3. The aforementioned "…" is a plot with an area of 202,868 m2 and is intended for an Equestrian Center, as per copy of the "Subdivision Permit no. …/…", attached to the file by the Claimant (included in Annex III).
5.1.4. The Claimant was notified of the Stamp Duty Assessment no. 2013…, dated 18 March 2014, relating to the year 2013, in the total amount of EUR 27,302.70, concerning the building plot identified in the preceding point, whose payment collection notice for the first installment (no. 2014 …) amounted to EUR 9,100.90 and had as the deadline for such payment "April/2014", as per copy of the respective collection notice, attached to the file by the Claimant (included in Annex III).
5.1.5. The Claimant filed on 9 May 2014 a gracious objection (no. …2014…) relating to the Stamp Duty Assessment identified in the preceding point, as per respective copy, attached to the file by the Claimant (included in Annex III).
5.1.6. The Claimant was notified on 29 May 2014 of Memorandum no. …, dated 23 May 2014, concerning the draft dismissal of the gracious objection identified in the preceding point and to, if it wished, exercise its right of reply, in writing, within a period of 15 days, as per administrative file attached to the file by the Respondent.
5.1.7. The Claimant filed on 25 July 2014 its right of reply concerning the draft dismissal of the gracious objection filed with respect to the Stamp Duty of the year 2013 relating to the building plot identified, as per administrative file attached to the file by the Respondent.
5.1.8. The Claimant was notified of Memorandum no. …, of 11 August 2014 concerning the order dismissing the gracious objection identified above, as per administrative file attached to the file by the Respondent.
5.1.9. The Claimant filed on 28 August 2014 a hierarchical appeal (no. …2014…) of the decision dismissing the gracious objection identified in the preceding point, as per respective copy, attached to the file by the Claimant (included in Annex II).
5.1.10. The Claimant was notified on 23 June 2016 of Memorandum no. …, dated 17 June 2016, concerning the decision dismissing the hierarchical appeal filed against the decision dismissing the gracious objection identified above, as per respective copy, attached to the file by the Claimant (included in Annex I).
5.1.11. The Claimant was notified of the collection notices relating to the second (no. 2014…) and third installment (no. 2014…) of the Stamp Duty Assessment identified in point 5.1.4 above, the amounts of which for payment amounted to EUR 9,100.90 each, and had as the deadline for payment, respectively, "July/2014" and "November/2014", as per copy of the respective collection notices, attached to the file by the Claimant (Annex III-A).
5.1.12. The Claimant, to guarantee the Stamp Duty assessed in the year 2013, created a mortgage on the property of which it is the owner (fact alleged in point 49 of the claim and not contested by the Respondent).
5.2. No other facts were proven that could affect the decision on the merits of the claim.
Of Unproven Facts
5.3. No facts were found to be unproven with relevance to the arbitral decision.
6. LEGAL GROUNDS
6.1. In this case, the essential aspect to be decided is to ascertain what the scope of item 28.1 of the General Table of Stamp Duty is (as amended by Law no. 55-A/2012 of 29 October) and, for such purpose, it will be important to provide answers to the following questions:
6.1.1. At the date to which the tax assessment in question relates, did building plots fall within (or not) the category of "property with residential use"?
6.1.2. To that extent, in the interpretation of that norm, at the date to which the said assessment relates, should building plots with tax patrimonial value equal to or exceeding EUR 1,000,000 be included or not?
so as to determine whether the Stamp Duty assessment relating to the year 2013, subject of the request for arbitral decision, as well as the decision dismissing the hierarchical appeal filed against the decision dismissing the gracious objection filed against that assessment, is tainted with or not illegality due to an error in legal presuppositions, which would justify its annulment.
6.2. To support the claim filed, the Claimant alleges that despite the property in question ("…") being intended for "(…) an Equestrian Center and its respective equipment (…)", the Respondent "(…) based on the (…) patrimonial value of the (…) matriculation entry (…), exceeding 1,000,000 €, proceeded to assess Stamp Duty (…), relating to the year 2013 (…)", being that "(…) such assessment is illegal, due to lack of legal basis" (emphasis ours).
6.3. In this context, the Claimant reiterates "(…) the (…) current…, does not have residential use (…), being, at most, building land intended/earmarked for services", "therefore there is no legal basis for the assessment of stamp duty based on the patrimonial value attributed (…)", further stating that "(…) such property in particular (…) constitutes the unbuilt portion of…", being "(…) the portion of the plot intended for construction but not yet built" (emphasis ours).
6.4. The Claimant further adds that for "(…) in addition to the property, by not being nor being earmarked for residential purposes by force of the valid applicable licenses under which the property in question was created (…)" to be "(…) outside the scope of item 28.1 of the General Table of the Stamp Duty Code", "it would always also be outside the scope of that provision to the extent that, not being built, it does not fall within the scope of the concept of property for purposes of Stamp Duty (…)" (emphasis ours).
6.5. On the other hand, the Claimant also argues that with the entry into force of the Law approving the State Budget for 2014, the new wording of item 28.1 "requires the conclusion that (…) only as to the year 2014, whose assessment will occur in 2015, stamp duty assessment in these cases could possibly be made", therefore concluding that it does not hold "the thesis of the Tax Administration (…) that, having been assigned (…), in the reassessment of the property, residential use and there having been no objection, that is the purpose that applies for purposes of taxation" (emphasis ours).
6.6. The Respondent held a position contrary to that of the Claimant, arguing that "what is (…) at issue are assessments that result from the direct application of the legal norm, and which translate into objective elements, without any subjective or discretionary appreciation."
6.7. In this context, the Respondent reiterates that "we cannot doubt that we are facing a building plot, more specifically, before a plot of land for urban construction, with the areas of building implantation and construction clearly defined and identified (…)."
6.8. Thus, the Respondent concludes that "(…) the tax acts in question did not violate any legal principle and should (…) be maintained", further arguing that "the present request for arbitral decision (…) should be found without merit, thereby releasing the respondent entity from the claim" (emphasis ours).
6.9. In order to answer the questions outlined above in point 6.1, it is necessary to analyze, in general terms, the applicable legal norms and, specifically, determine what the correct interpretation is in light of the Law and the Constitution (since it is a matter of assessing a tax incidence presupposition, carefully protected by the principle of tax legality, resulting from the provisions of article 103, no. 2 of the Constitution), with the ultimate objective of assessing whether the Stamp Duty assessment in question "(…) is illegal, due to lack of legal basis" and, consequently, whether the decision dismissing the hierarchical appeal filed against the decision dismissing the gracious objection filed against that assessment was also illegal.
On the Scope of Item 28.1 of the General Table of Stamp Duty (As Amended by Law no. 55-A/2012 of 29 October)
6.10. Law no. 55-A/2012 made several amendments to the Stamp Duty Code and added item 28 to the General Table of Stamp Duty, with the following wording (bold ours):
"28. Ownership, usufruct or right of surface of urban properties whose tax patrimonial value appearing in the register, in accordance with the Property Tax Code, equals or exceeds EUR 1,000,000.00 – on the tax patrimonial value for purposes of Property Tax:
28.1 – For property with residential use – 1%.
28.2 – (…)."
6.11. Although the text of Law no. 55-A/2012 (effective from 30 October 2012) did not define the concepts contained in said item 28, namely the concept of "property with residential use", if we observe the provisions of article 67, no. 2 of the Stamp Duty Code (also amended by said Law), it appears that "matters not regulated in this Code, relating to item 28 of the General Table, are governed subsidiarily by the Property Tax Code" (emphasis ours).
6.12. Now, from reading the Property Tax Code, it is easy to see that the concept of "property with residential use" refers naturally to the concept of "urban property", defined in accordance with articles 2 and 4 of that Code.
6.13. Indeed, according to the provisions of article 2, no. 1 of the Property Tax Code, "(…) property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or built thereon, with a character of permanence, provided that it is part of the estate of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances mentioned above, endowed with economic autonomy in relation to the land on which they are located, although situated in a fraction of territory that constitutes an integral part of a different estate or does not have a property nature" (emphasis ours).
6.14. Additionally, in accordance with the provisions of nos. 2 and 3 of the same article, "buildings or constructions, even if movable by nature, are deemed to have a character of permanence when used for non-transitory purposes", with the character of permanence being "presumed when the buildings or constructions are located in the same place for a period exceeding one year."
6.15. On the other hand, in accordance with the provisions of article 4 of the Property Tax Code, "urban properties are all those that should not be classified as rural (…)."
6.16. In this context, among the various types of "urban properties" referred to in article 6 of the Property Tax Code, "building plots" are expressly mentioned [no. 1, letter c)], with no. 3 of the same article adding that "building plots are considered to be plots of land located within or outside an urban agglomeration, for which a license or authorization has been granted, prior communication admitted or favorable prior information issued for subdivision or construction operation, and also those that have been declared as such in the acquisition title, excepting plots of land on which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning and management plans, are designated for spaces, infrastructure or public equipment" (emphasis ours).
6.17. As can be seen from the provisions of the Property Tax Code transcribed above, it is not possible to extract what the legislator intended to say when referring in the text of the law to "property with residential use", since that concept is not used in the classification of properties, nor is this concept found with this terminology in any other legal instrument.
6.18. On the other hand, since Law no. 55-A/2012 of 29/10 has no preamble, it is therefore not possible to extract from it the legislator's intent.
6.19. Thus, in the absence of exact terminological correspondence of the concept of "property with residential use" with any other concept used in other legal instruments, several interpretive hypotheses can be ventured, with the text of the law being the starting point for the interpretation of that expression, since it is on its basis that the legislator's thought must be reconstructed, as follows from the provisions of no. 1 of article 9 of the Civil Code, made applicable by the provisions of article 11, no. 1 of the General Tax Law.
On the Interpretation of the Concept of "Urban Property with Residential Use"
6.20. Indeed, in accordance with the provisions of article 9 of the Civil Code, "interpretation should not be limited to the letter of the law but should reconstruct, from the text, the legislator's thought, taking above all into account the unity of the legal system, the circumstances under which the law was enacted and the specific conditions of the time at which it is applied", and "the legislator's thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter" (emphasis ours).
6.21. In these terms, it can be stated that tax laws are interpreted as any others, it being necessary to determine their true meaning in accordance with the techniques and interpretive elements generally accepted by legal doctrine (cf. article 9 of the Civil Code and article 11 of the General Tax Law). [8]
6.22. Thus, the concept closest to the literal wording of the expression "property with residential use" is manifestly that of "residential properties", referred to in article 6, no. 1 of the Property Tax Code (and defined in no. 2 of the same article), encompassing buildings or constructions licensed for residential purposes or, in the absence of a license, that have as their normal purpose residential purposes.
6.23. "That is, for purposes of the Property Tax Code, both properties licensed for residential use, even if not currently being used for that use and, in the case of absence of a license, that have as their normal purpose that purpose, are residential" (emphasis ours). [9]
6.24. For this reason, if one adopts the interpretation that "property with residential use" means "residential property", the assessment whose declaration of illegality is sought is in fact illegal, since there is no building or construction in the said plot of land.
6.25. In truth, the lack of coincidence of the terms of the expression used in item 28.1 of the General Table of Stamp Duty with that derived from the provisions of no. 2 of article 6 of the Property Tax Code, suggests that the legislator did not intend to use the same concept.
6.26. On the other hand, in interpretive activity it is also necessary to take into account that the tax incidence rules must be interpreted in their exact terms, without resorting to analogy, making prevail the certainty and security in their application. [10]
6.27. Thus, finally, it will be important to inquire further as to the ratio legis underlying the rule of item 28.1 of the General Table of Stamp Duty and, in obedience to the provisions of article 9 of the Civil Code,[11] what are the circumstances under which the norm was enacted and what are the specific conditions of the time at which it is applied.
6.28. Indeed, in this context, the legislator intended to introduce a principle of taxation on wealth evidenced in the ownership, usufruct or right of surface of luxury urban properties with residential use, having considered, as a determining element of contributive capacity, urban properties with residential use of high value (luxury), that is, of value equal to or exceeding EUR 1,000,000.00, on which a special rate of Stamp Duty would (and did) apply.
6.29. In truth, in the preamble of the Draft Law that introduced amendments to item 28 of the General Table of Stamp Duty, the following reasons were presented:
6.29.1. "The pursuit of the public interest, in light of the Country's economic-financial situation, requires a strengthening of budgetary consolidation which will require, in addition to permanent activism in reducing public spending, the introduction of fiscal measures inserted in a broader set of measures to combat the budgetary deficit" (emphasis ours).
6.29.2. "These measures are fundamental for strengthening the principle of social equity in austerity, guaranteeing an effective sharing of the sacrifices necessary to comply with the adjustment program (…) with the Government strongly committed to ensuring that the sharing of these sacrifices is done by all and not just by those who live off the income of their work" (emphasis ours).
6.29.3. "In accordance with this objective, this law extends the taxation of capital income and property, encompassing equitably a broad set of sectors of Portuguese society" (emphasis ours).
6.29.4. "A tax rate in Stamp Duty is created applying to urban properties with residential use whose tax patrimonial value equals or exceeds one million Euros" (emphasis ours).
6.30. Thus, from this statement of reasons it appears that the taxation in question aims at "an effective sharing of the sacrifices", applying this taxation to property (as opposed to employment income, already affected by other measures). [12]
6.31. This statement of reasons being too broad, few contributions came to clarify the interpretation of the concept of "urban property with residential use."
6.32. And we believe that the same conclusion can also be drawn from the analysis of the discussion of Draft Law no. 96/XII in the Parliament,[13] which was the origin of the proposed amendments, with no invocation appearing of a different interpretive ratio than that presented here. [14]
6.33. Indeed, the justification for the measure called "special tax on the highest-value residential urban properties" is therefore based on the invocation of the principles of social equity and fiscal justice (calling upon the holders of properties of high value intended for residential use to contribute in a more burdensome way), by applying the new special tax to "homes valued at equal to or more than 1 million Euros" (emphasis ours).
6.34. Now, if such logic seems to make sense when applied to a "residence" (be it a house, an autonomous unit, a portion of property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, an above-average contributive capacity (and, in that measure, susceptible of determining a special contribution to guarantee the fair distribution of the fiscal effort), it would make no sense at all if applied to a "building plot."
6.35. In these terms, the Respondent cannot distinguish where the legislator itself did not, on penalty of violating the coherence of the tax system and the principles of tax legality (article 103, no. 2 of the Constitution), of justice, equality and tax proportionality (included therein).
6.36. On the other hand, taking into account the above already analyzed, it should be further noted that the concept of "urban property with residential use" was not defined by the legislator, neither in the text of Law no. 55-A/2012 (which introduced it), nor in the Property Tax Code, to which no. 2 of article 67 of the Stamp Duty Code (also introduced by that Law) refers on a subsidiary basis.
6.37. In truth, it is a concept which, probably due to its lack of precision (a fact all the more serious given that it is by reference to it that the objective scope of the new taxation is determined) had a quite short life, as it was abandoned when the State Budget Law for 2014[15] came into force (on 1 January 2014), which gave new wording to that item 28.1 of the General Table of Stamp Duty and which now determines its objective scope of application through the use of concepts that are legally defined in article 6 of the Property Tax Code. [16]
6.38. This amendment, "to which the legislator did not attribute an interpretive character, only makes it unequivocal, going forward, that building plots whose construction, authorized or planned, is for residential purposes fall within the scope of item 28.1 of the General Table of Stamp Duty (provided their respective tax patrimonial value equals or exceeds 1 million Euros), explaining nothing, however, as regards past situations", such as the Stamp Duty assessment in question in this case (emphasis ours). [17]
6.39. Now, as to the assessment subject of the request for arbitral decision, it does not result, neither from the letter nor from the spirit of the law, that its intention was, ab initio, to encompass within its objective scope building plots for which authorization or planning of the construction of residential buildings had been made, as now results from the text of item 28 of the General Table of Stamp Duty (after the wording introduced by the State Budget Law for 2014[18]).
6.40. In this context, from the letter of the law nothing unequivocal results since it itself, by using a concept that it did not define (and that was also not defined in the legal instrument to which it referred on a subsidiary basis) unnecessarily lent itself to ambiguities, in a matter of tax incidence (a matter in which certainty and legal security should also be primary concerns of the legislator).
6.41. And from its "spirit", discernible in the statement of reasons[19] of the Draft Law that is the origin of Law no. 55-A/2012, nothing more results than the concern of raising new tax revenue, from sources of wealth "spared", in the past, by the tax legislator compared to employment income, in particular capital income, securities gains and property, reasons which bring no relevant contribution to clarifying the concept of "urban properties with residential use", as they take it for granted, without any concern to clarify it.
6.42. Thus, it can be assessed that the reality that was intended to be taxed was actually, in common language (and notwithstanding the terminological imprecision of the law with the expression "the residential urban properties"), that of "homes", and not any other realities (as already mentioned in point 6.28 above).
6.43. It should be added that "residential use" always appears in the Property Tax Code as relating to "buildings" or "constructions", since only these can be inhabited, which is not the case with building plots which do not have, in themselves, conditions for such, being not susceptible of being used for residential purposes except if and when thereon is built the construction authorized and planned for them.
6.44. Thus, given that a building plot (whatever the type and purpose of the building that will, or could be, erected thereon) does not, by itself, satisfy any condition for, as such, to be licensed or for residential use to be defined as its normal purpose, and the tax incidence rule for Stamp Duty refers to urban properties with "residential use" (without any specific concept being established for such purpose), the same cannot be extracted therefrom that it contains a future potentiality, inherent to a different property that may possibly be built on that plot.
6.45. In these terms, it can be concluded that, as article 6 of the Property Tax Code makes a clear distinction between "residential" urban properties and "building plots," the latter cannot be considered as "urban properties with residential use," for purposes of item 28.1 of the General Table of Stamp Duty, in its original wording (as given to it by Law no. 55-A/2012 of 29 October) (emphasis ours). [20]
6.46. In summary, being negative the answers to be given to the questions outlined above in points 6.1.1 and 6.1.2, it can be concluded that "building plots" could not be subject to Stamp Duty to which item 28.1 of the General Table of Stamp Duty refers (as provided by Law no. 55-A/2012) since building plots were not subsumed within the category of "property with residential use," being therefore illegal:
6.46.1. The Stamp Duty assessment subject of the request for arbitral decision filed by the Claimant, as well as,
6.46.2. The decision dismissing the hierarchical appeal filed against the decision dismissing the gracious objection filed against that Stamp Duty assessment for the year 2013. [21]
On Responsibility for Payment of Arbitration Costs
6.47. In accordance with the provisions of article 22, no. 4 of the RJAT, "the arbitral decision issued by the arbitral tribunal includes the fixing of the amount and distribution among the parties of the costs directly resulting from the arbitration proceedings."
6.48. Thus, in accordance with the provisions of article 527, no. 1 of the Code of Civil Procedure (pursuant to article 29, no. 1, letter e) of the RJAT), it should be established that the party that caused the costs shall be condemned to pay them or, if there is no successful party, whoever benefited from the proceedings.
6.49. In this context, no. 2 of said article specifies the expression "caused the costs," according to the principle of unsuccessful party, understanding that the unsuccessful party causes the costs of the proceedings, in the proportion in which it was unsuccessful.
6.50. In the case under analysis, taking into account the above exposition, the principle of proportionality imposes that full responsibility for the costs be attributed to the Respondent, in accordance with the provisions of article 12, no. 2 of the RJAT and article 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings.
7. DECISION
7.1. Taking into account the analysis carried out in the preceding Chapter, this Arbitral Tribunal decided:
7.1.1. To find the request for arbitral decision filed by the Claimant well-founded, condemning the Respondent to annul the Stamp Duty assessment identified, as it is understood to be illegal, also ordering the annulment of the decision dismissing the hierarchical appeal filed with respect to the assessment now ordered annulled, with the consequences flowing therefrom;
7.1.2. To condemn the Respondent to pay the full costs of these proceedings.
Value of the Proceedings: Taking into account the provisions of articles 306, no. 2 of the Code of Civil Procedure, article 97-A, no. 1 of the Tax Procedure Code and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, as well as the above exposition in Chapter 4 of this decision, the value of the proceedings is fixed at EUR 27,302.70.
Costs of the Proceedings: Pursuant to the provisions of Table I of the Regulation of Costs in Tax Arbitration Proceedings, the costs of the Arbitration Proceedings are fixed at EUR 1,530.00, to be borne by the Respondent, in accordance with article 22, no. 4 of the RJAT.
Let it be notified.
Lisbon, 10 March 2017
The Arbitrator,
Sílvia Oliveira
[1] The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990, except with respect to transcriptions made.
[2] In this sense, the Claimant lists several Arbitral Decisions (no. 42/2013-T, of 18 October 2013, no. 48/2013-T, of 9 October 2013, no. 49/2013-T, of 18 September 2013, no. 50/2013-T, of 29 October 2013, no. 53/2013-T, of 2 October 2013, no. 75/2013–T, of 1 November 2013, no. 132/2013-T, of 16 December 2013, no. 144/2013-T, of 12 December 2013 and no. 158/2013-T, of 10 February 2014).
[3] In this regard, the Claimant also mentions Decision no. 281/2014 of the Constitutional Court of 25 March 2014.
[4] In this matter, the Claimant cites Arbitral Decision no. 116/2016-T, of 14 July 2016, "because the arguments set forth in the reasoning of said Arbitral Decision are essentially coincident with the position that the Claimant holds on the matter (…)".
[5] In this regard, the Respondent cites Judgment no. 04950/11, of 14/12/2012, of the Administrative Court of Appeal, in which it states that "the regime for assessment of the tax patrimonial value of building plots is enshrined in art. 45 of the Property Tax Code. The assessment model is the same as that for constructed buildings, although it is based on the building to be constructed, taking as its basis the respective project, so that the value of the building plot corresponds, fundamentally, to a legal expectation, embodied in a right to build thereon a property with certain characteristics and with a certain value. It will be this expectation of production of wealth materialized in a property to be constructed that increases the value of the estate and the wealth of the owner of the building plot, once the property in question comes to be considered as a building plot. For this reason, the greater the value of the property to be built, the greater the value of the building plot underlying it (cf. art. 6, no. 3 of the Property Tax Code)".
[6] In this regard, the Respondent states that "the constitutional principle of equality provided for in article 13 of the Constitution requires that what is necessarily equal be treated equally and what is essentially different be treated as different, not preventing differential treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that have no justification and sufficient material basis."
[7] In this regard, taking into account that the request for arbitral decision includes the request for review of the act dismissing the hierarchical appeal (notified to the Claimant on 23 June 2016, as per documents attached by it to the file and documents in the administrative file, attached by the Respondent), filed against the decision dismissing the gracious objection filed against the Stamp Duty assessment in question, as a way of being able to declare, in final instance, the illegality of the Stamp Duty assessment subject of this case, the decision of the hierarchical appeal that contains the assessment of the legality of a tax act is covered by the provision of letter e) of no. 1 of article 102 of the Tax Procedure Code, pursuant to which the period of three months applies, counted from the respective notification, for filing the judicial challenge.
On the other hand, taking also into account the provision in article 10, no. 1, letter a) of the RJAT [which establishes that the request for constitution of an arbitral tribunal must be filed "within a period of 90 days, counted from the facts provided for in nos. 1 and 2 of article 102 of the Tax Procedure Code, as to acts susceptible to autonomous challenge and, also, from the notification of the decision (….) of the hierarchical appeal"], as well as the date of filing of the request for arbitral decision (21 September 2016), the request is timely.
[8] In this sense, see Judgment of the Administrative Court of Appeal, Case 07648/14, of 10 July.
[9] See Arbitral Decision no. 48/2013-T, of 9 October.
[10] Cf. Judgment of the Administrative Court of Appeal, Case 5320/12, of 2 October, Judgment of the Administrative Court of Appeal, Case 7073/13, of 12 December and Judgment of the Administrative Court of Appeal 2912/09, of 27 March 2014.
[11] According to this article, the interpretation of the legal norm should not be limited to the letter of the law but should reconstruct the legislator's thought, from the texts and other elements of interpretation, taking into account the unity of the legal system.
[12] Argumentation that contributed to it being understood, in the Judgment of the Constitutional Court no. 586/2016 (of 25 November) as safeguarding the principles of equality, contributive capacity and proportionality (raised on the occasion of the alleged unconstitutionality of item 28 of the General Table of Stamp Duty, in the wording introduced by Law no. 55-A/2012 of 29 October and amended by Law no. 83-C/2013 of 31 December), with said Judgment deciding on the constitutionality of the norm.
[13] Available for consultation in the Records of Parliament, Series I, no. 9/XII/2, of 11 October 2012.
[14] As already referred to in various Arbitral Decisions issued by CAAD (namely in Case no. 48/2013-T, of 9 October).
[15] Introduced by Law no. 83-C/2013, of 31 December.
[16] See in this sense Judgment of the Administrative Court of Appeal 048/14, of 9 April and Judgment of the Administrative Court of Appeal 0272/14, of 23 April.
[17] See in this sense Judgment of the Administrative Court of Appeal 048/14, of 9 April and Judgment of the Administrative Court of Appeal 0272/14, of 23 April.
[18] In this regard, it should be noted that taking into account the provisions of article 103, no. 3 of the Constitution (prohibition of authentic retroactivity of tax law), it is not possible to admit the application of the new wording of item 28.1 of the General Table of Stamp Duty (effective from 1 January 2014) to a Stamp Duty assessment that concerns the year 2013, as we would be faced with the application of a new law to a prior tax fact (since this fact occurred on 31 December 2013, being therefore prior to the entry into force of the new wording of the law).
Also in this matter, and in support of the interpretation of the constitutional norm, it is also important to mention the provisions of article 12, no. 1 of the General Tax Law, pursuant to which "tax provisions apply to facts occurring after their entry into force, and no retroactive taxes can be created."
In judicial matters, the Constitutional Court, in its case law on tax matters, namely in Judgment no. 128/2009, of 12 March, considered that it follows from article 103, no. 3 of the Constitution that "any tax provision (…) will be constitutionally censured when it assumes a retroactive nature, the expression retroactivity being used, here, in its proper or authentic sense", that is, "it prohibits the application of a new, disadvantageous tax law to a tax fact occurring within the validity period of the repealed tax law (the old law) and more favorable."
[19] In the presentation and discussion in Parliament of Draft Law no. 96/XII – 2nd (which gave rise to Law no. 55-A/2012 of 29 October), the Secretary of State for Tax Affairs reportedly stated expressly that "the Government proposes the creation of a special tax on the highest-value residential urban properties (…) being the first time in Portugal that a special taxation is created on properties of high value intended for residential use. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013 and will apply to homes valued at equal to or more than 1 million Euros" [See Records of Parliament (Records I Series no. 9/XII, of 11 October, p. 32)].
[20] See Judgment of the Administrative Court of Appeal 048/14, of 9 April, Judgment of the Administrative Court of Appeal 0272/14, of 23 April, Judgment of the Administrative Court of Appeal 0505/14, of 29 October and Judgment of the Administrative Court of Appeal 0740/14, of 10 September.
[21] To the extent that it maintained, in the legal order, the Stamp Duty assessment now declared illegal.
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