Stamp Tax on Construction Land (Verba 28.1 TGIS): Housing Exclusivity & Constitutionality

ARBITRAL DECISION

I. REPORT

1. On 27 October 2016, the commercial companies A…, S. A., NIPC…, with registered office at Rua…, …, …, Porto, B…, S. A., NIPC…, with registered office at Rua…, …, …, Porto, C…, S. A., NIPC…, with registered office at Rua…, …, Maia, D…, S. A., NIPC…, with registered office at Rua …, …, Maia, E…, S. A., NIPC …, with registered office at Rua…, …, Porto and F…, S. A., NIPC…, with registered office at …, Apartado…, … (hereinafter, Claimants), filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2, no. 1, subparagraph a), and 10, nos. 1, subparagraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the assessment of Stamp Tax [Item 28.1 of the General Table of Stamp Tax (hereinafter, TGIS)] relating to the year 2014 and the urban property (land for construction) registered under Article … in the urban land register of the parish of …, municipality and district of Porto, owned by the Claimants – subject of collection notes no. 2015…, relating to the first instalment, no. 2015…, relating to the second instalment, and no. 2015…, relating to the third instalment, each in the amount of € 4,359.00 –, with the total collection value of € 13,077.00, following the tacit rejection of the administrative review petition filed with a view to annulling that tax act.

The Claimants attached 10 (ten) documents and did not request the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. In essence and in brief summary, the Claimants alleged the following (which we mention mostly by transcription):

• The Claimants understand that the assessment of Stamp Tax of 20.03.2015, in the amount of € 13,077.00, relating to the fiscal year 2014, based on Item 28.1 of the TGIS and the formation of the presumption of tacit rejection of the administrative review petition of 29.03.2016, which supported that assessment, are jointly affected by the following defects: illegality resulting from erroneous interpretation of Item 28.1, insofar as it applies only to land for construction with exclusive dedication to housing, which is not the case of the land in question; and illegality resulting from error regarding the legal prerequisites by application of a norm that is materially unconstitutional, based on the violation of the principles of contributory capacity and equality;

• Although disagreeing with the controversial Stamp Tax assessment, "G…, S. A." – the commercial company that was the owner of the land for construction in question and from which the Claimants are successors, as they were the beneficiaries of the spin-off thereof – proceeded to pay the respective instalments;

• On 29/03/2016, an administrative review petition was filed with the Finance Service of …, to which the AT never responded, having failed to comply with the four-month legal deadline for the completion of the tax procedure, whereby, on 29/07/2016, the respective presumption of tacit rejection was formed;

• Considering the wording of Item 28.1 of the TGIS, it is verified that the rule of incidence, for land for construction, restricts the taxable event to land for construction whose authorized or planned construction is (exclusively) for housing;

• The ownership of property rights over land for construction, even if valued at more than € 1,000,000.00, in which no construction had been erected, cannot be considered a manifestation of wealth subsumible under Item 28.1 of the TGIS, because, prior to the exercise of the right to construct thereon, what exists is merely an expectation of being able to erect a construction;

• In the specific case, the aforementioned property was already subject to construction, in which buildings were erected for commercial use, services and housing, whereby it is unequivocal that, at the time of the facts underlying the contested assessment, the land for construction already provided for a use that was not exclusively residential;

• The subjection to the rate of 1%, provided for in Item 28.1 of the TGIS, is dependent on the cumulative fulfillment of the following requirements: the TPC contained in the land register, under the terms of the CIMI, being equal to or greater than € 1,000,000.00; being land for construction; and the authorized and planned construction thereon being exclusively for housing, under the terms of the CIMI;

• With respect to the first requirement, the Claimants do not contest the TPC of the property, which amounts to € 1,307,700.00, whereby this requirement is met;

• Regarding the second requirement, the Claimants do not refute the qualification of the property as land for construction;

• With respect to the third requirement, the property in question is not intended solely for housing, having mixed use: services, commerce and collective housing, whereby such requirement contained in the rule of incidence of the tax is not satisfied;

• In these terms, there is a defect of violation of law and, consequently, it should be considered that the taxation in question is undue, and the Stamp Tax assessment act in question should be annulled due to the illegality of which it suffers;

• When properties are held by real estate companies, such as the Claimants, one is not faced with increased capacity, but rather with mere raw material, a natural productive factor, whereby, in these cases, Item 28.1 of the TGIS penalizes these companies as against companies engaged in other sectors of activity and which do not need, for the purpose of their corporate object, to hold land for construction with dedication planned or approved for housing;

• Such discrimination clearly violates the principle of equality enshrined in Article 13 of the CRP, which has as its corollary, in the tax sphere, the principle of contributory capacity;

• Consequently, the assessment in question, as well as the tax acts that support it, suffers from the defect of violation of law, by embodying error regarding the legal prerequisites by application of a materially unconstitutional norm, and should be annulled;

• Even if not understood in this way, it is important to note that it also constitutes an unjustified discrimination to tax land for construction with residential dedication that, although with a TPC exceeding € 1,000,000.00, does not have as its destination the construction of buildings with a TPC exceeding € 1,000,000.00.

The Claimants conclude their initial pleadings by requesting the following:

"In these terms, and in all other applicable law, Your Excellency should order the constitution of an Arbitral Tribunal which will have as its object to analyze the legality of the Stamp Tax assessment of 20.03.2015, in the amount of EUR 13,077.00 (thirteen thousand and seventy-seven euros), relating to the fiscal year 2014, as well as the formation of the presumption of tacit rejection of the Administrative Review Petition, which was processed at the Finance Service of…, which supported that assessment, and should equally determine the reimbursement of the amounts paid unduly, plus the respective legal interest."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the AT on 11 November 2016.

2. The Claimants did not proceed with the appointment of an arbitrator, whereby, in accordance with the provisions of Article 6, no. 1, and subparagraph a) of Article 11, no. 1 of the RJAT, the President of the Ethical Board of CAAD appointed the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable deadline.

3. On 28 December 2016, the parties were duly notified of such appointment and did not manifest intention to refuse the appointment of the arbitrator, in accordance with the combined terms of Article 11, no. 1, subparagraphs b) and c), of the RJAT and Articles 6 and 7 of the Code of Ethics of CAAD.

4. Thus, in accordance with the provision of subparagraph c) of Article 11, no. 1 of the RJAT, the singular Arbitral Tribunal was constituted on 12 January 2017.

5. On 15 February 2017, the Respondent, duly notified for such purpose, filed its Reply in which it specifically contested the arguments raised by the Claimants and concluded by the lack of merit of the present action, with its consequent dismissal of the claim.

The Respondent did not attach documents, nor requested the production of any other evidence.

At the same occasion, the Respondent attached to the case file the respective administrative file (hereinafter, abbreviated as PA).

6.1. In essence and also briefly, it is important to extract the most relevant arguments on which the Respondent based its Reply (which we mention mostly by transcription):

• The contested assessment fully respects the letter and spirit of the law, having taken into account the rule of Item 28.1 of the TGIS, as amended by Law no. 83-C/2013, of 31 December, as well as the statement mod. 1 delivered on 04/08/2014;

• The property in question was evaluated according to the new CIMI rules, and as a result it was confirmed that it was land for construction, intended for housing, with TPC greater than € 1,000,000.00, and the Claimants, having been notified of the evaluation, did not file any request for a 2nd evaluation challenging the results of the procedure carried out, whereby, on 21.08.2014, the TPC was definitively entered in the land register consolidating itself in their tax-legal sphere;

• The determination of the TPC of land for construction presupposes the determination of the value of the buildings authorized or planned, for which one must, in accordance with the terms of Article 38 of the CIMI, take into account the dedication of such buildings;

• In the case at hand, it results from the valuation rules that the TPC was determined based on the area of construction intended for each of them, and where it is a matter of land for construction whose construction, authorized or planned, has various dedications, the respective total TPC is therefore the result of the sum of the values attributed to the different areas, without prejudice to the rounding rule established in Article 38, no. 2, of the CIMI;

• For this reason, in accordance with the documents brought to the case file, at the date to which the contested assessment refers, the construction authorized on the land is intended for housing, with the total TPC of € 1,307,000.00 attributed in the evaluation carried out, resulting from the sum of the value attributed to the areas of the various dedications;

• Although the Claimants state that in the Development License Certificate no. …/91, as amended by the Amendment to the License Certificate no. …/08, buildings intended for housing but also for commerce are foreseen, it is manifest, whether considering each of the plots subject to licensing per se, or considering the entirety of the gross area of all plots, that the predominant area is dedicated to residential zone;

• Contrary to what the Claimants seek, the licensing certificate for the plots in question evidences that all buildings to be constructed will be predominantly intended for housing, whereby the property is covered by the concept of land for construction provided for in Item 28.1 of the TGIS;

• Accordingly, the assessment in dispute constitutes a correct interpretation and application of Item 28.1 of the TGIS, as amended by Law no. 83-C/2013, which expressly prescribes as the objective element of incidence land for construction whose construction, authorized or planned, is for housing with a TPC equal to or greater than € 1,000,000.00;

• It is not seen, nor have the Claimants managed to demonstrate, how and in what measure the contested assessment violated the constitutional principle of equality enshrined in Article 13 of the CRP, in the aspect of contributory capacity;

• The rule of Item 28.1 of the TGIS does not violate the principle of contributory capacity nor does it contain arbitrary and unjustified legislative definitions of taxes, having the legislator chosen in a rational and objective manner a certain factual premise as the basis of incidence: the fixing of a TPC of € 1,000,000.00 based on increasing and decreasing elements contained in the tables of Article 43 of the CIMI;

• In conclusion, considering the ratio of Item 28.1 of the TGIS, the nature and structure of the tax, as well as the manifestation of wealth or income that the legislator intended to capture, the contested assessment does not incur the alleged illegality due to error in the factual and legal premises, nor does it constitute a violation of the principle of equality set out in Article 13 of the CRP, in all its aspects.

The Respondent concludes its pleadings as follows:

"In these terms and in all other law that Your Excellency shall wisely supply, the present arbitral claim should be judged to lack merit, with all legal consequences."

1. On 15 February 2017, a ruling was issued dispensing with the holding of the meeting referred to in Article 18 of the RJAT, as well as the submission of any further arguments.

II. PRELIMINARY MATTERS

The Arbitral Tribunal was regularly constituted and is competent.

The case does not suffer from any nullities.

The parties have legal personality and capacity, are duly represented, and are legitimate.

The joinder of plaintiffs is admitted since the merit of the claims filed depends essentially on the assessment of the same factual circumstances and the interpretation and application of the same legal principles or rules (see Article 3, no. 1, of the RJAT).

There are no exceptions or other preliminary matters that prevent the examination of the merits and of which it is necessary to take cognizance.

III. SUBSTANTIATION

III.1. FACTUAL MATTERS

§1. ESTABLISHED FACTS

The following facts are considered established:

a) In the year 2014, the commercial company "G…, S. A.", NIPC…, with registered office at Rua…, …, …, …(hereinafter, G…, S. A.), was the owner of the urban property, consisting of land for construction, with an area of 2,054.75 m², located at Rua …, parish of…, municipality and district of Porto, registered in the respective land register under Article …, with the tax patrimonial value of € 1,307,700.00, having applied the "housing" location coefficient in the respective valuation. [cf. document no. 2 attached to the Initial Pleadings and fls. 120 of the PA attached to the case file]

b) At the time of the valuation of the aforementioned urban property, for IMI purposes, carried out on 21/08/2014, a building intended for housing, services and commerce was under construction there. [cf. fls. 124 of the PA attached to the case file]

c) The aforementioned building was subsequently completed on a date not specifically determined, but later than 31/12/2014, and from 15/07/2015 the aforementioned urban property registered under the matricial article… was deactivated, giving rise to an urban property, under the horizontal property regime, registered under Article … in the urban land register of said parish of… . [cf. fls. 119 and 121 of the PA attached to the case file]

d) The aforementioned urban property, under the horizontal property regime, consists, among others, of the autonomous fractions designated by the letter "A", corresponding to the Ground Floor 1, intended for commerce, and by the letter "I", corresponding to the 1st Floor 1, intended for services, registered in the urban land register, respectively, under Article … and Article … of said parish of … . [cf. documents nos. 3 and 4 attached to the Initial Pleadings]

e) On 20 March 2015, the AT carried out the assessment of Stamp Tax, in the total amount of € 13,077.00, relating to the year 2014 and concerning the urban property mentioned in the established fact a). [cf. fls. 113, 115 and 117 of the PA attached to the case file]

f) As a result of this Stamp Tax assessment, G…, S. A. was notified of the collection notes that are discriminated below [cf. Documents 5, 6 and 7 attached to the Initial Pleadings]:

g) The aforementioned Stamp Tax assessment resulted from the application of Item 28.1 of the TGIS to the referenced urban property. [cf. Documents 5, 6 and 7 attached to the Initial Pleadings]

h) On 29 April 2015, G…, S. A. proceeded with the timely and full payment of the amount corresponding to the 1st instalment of the aforementioned Stamp Tax assessment, in the amount of € 4,359.00. [cf. Document 8 attached to the Initial Pleadings and fls. 112 of the PA attached to the case file]

i) On 30 July 2015, G…, S. A. proceeded with the timely and full payment of the amount corresponding to the 2nd instalment of the aforementioned Stamp Tax assessment, in the amount of € 4,359.00. [cf. Document 9 attached to the Initial Pleadings and fls. 114 of the PA attached to the case file]

j) On 27 November 2015, G…, S. A. proceeded with the timely and full payment of the amount corresponding to the 3rd instalment of the aforementioned Stamp Tax assessment, in the amount of € 4,359.00. [cf. Document 10 attached to the Initial Pleadings and fls. 116 of the PA attached to the case file]

k) G…, S. A. had as its object the activity of purchase and sale of properties and resale of those acquired for that purpose.

l) On 18 December 2015, by means of a public deed – which is hereby given as entirely reproduced –, the spin-off of G…, S. A. was carried out, in the form of spin-off-dissolution, by means of the division of all its assets into six parts and immediate merger with parts of the assets of the commercial company, equally spun off, "H…, S. A." and with the Claimants, with the consequent legal extinction of G…, S. A.. [cf. Document 1 attached to the Initial Pleadings]

m) By effect of that spin-off-dissolution-merger, the autonomous fractions forming part of the urban property, under the horizontal property regime, identified in established fact c) were transmitted in favor of the Claimants, at their respective net book value, along with the other immovable assets contained in the supplementary document (1) to the aforementioned public deed – which is hereby given as entirely reproduced –. [cf. Document 1 attached to the Initial Pleadings]

n) On 29 March 2016, an administrative review petition was filed – whose initial request is hereby given as entirely reproduced – which had as its object, among other Stamp Tax assessments, the assessment mentioned in established fact e). [cf. fls. 3 to 11 of the RG file attached to the case file]

o) Said administrative review petition was filed under no. …2016…, at the Finance Service of… . [cf. fls. 1 of the RG file attached to the case file]

p) That administrative review petition was not subject to any express decision-making act. [cf. RG file attached to the case file]

q) On 27 October 2016, the Claimants filed the request for constitution of an arbitral tribunal which gave rise to the present case. [cf. CAAD case management information system]

§2. UNPROVEN FACTS

Relevant to the assessment and decision of the case, there are no facts that have not been proven.

§3. REASONING ON FACTUAL MATTERS

With respect to the factual matters proven, the Tribunal's conviction was based on the facts alleged by the Parties, whose correspondence to reality was not disputed, on the documents and the respective administrative file attached to the case file.

III.2. LEGAL MATTERS

The Claimants argue the existence of various defects – without there being established a relationship of subsidiarity between them – on which they base the claim for declaration of illegality of the contested Stamp Tax assessment and the tacit rejection of the aforementioned administrative review petition.

Specifically, the Claimants invoke the violation of the rule of incidence contained in Item 28.1 of the TGIS and its unconstitutionality due to violation of the principles of contributory capacity and equality.

In this framework, an examination will begin with the assessment of the defect of violation of the rule of incidence contained in Item 28.1 of the TGIS, for it will only be important to proceed with the assessment of the indicated defect of unconstitutionality if and insofar as the interpretation and implementation of the normative solution resulting from the aforementioned Item of the TGIS involves the subsumption to the respective legal provision of the situation sub judice.

§1. ON THE INTERPRETATION AND DELIMITATION OF THE SCOPE OF OBJECTIVE INCIDENCE OF ITEM 28.1 OF THE TGIS

At the heart of the disagreement that opposes the parties in this case is the rule of tax incidence contained in Item 28.1 of the TGIS, whereby it is naturally necessary to begin by interpreting this rule, in order to ascertain its scope and, thereby, delimit what is its field of application.

Law no. 55-A/2012, of 29 October, introduced various amendments to the Stamp Tax Code and added Item 28 to the TGIS, with the following wording (cf. Article 4):

"28 — Ownership, usufruct or right of surface of urban properties whose tax patrimonial value contained in the land register, under the terms of the Real Estate Tax Code (CIMI), is equal to or greater than € 1,000,000 — on the tax patrimonial value used for IMI purposes:

28.1 — For property with residential dedication— 1 %;

28.2 — For property, when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial order of the Minister of Finance — 7.5 %."

Subsequently, Law no. 83-C/2013, of 31 December (2014 Budget Law), amended the wording of Item 28.1 of the TGIS (cf. Article 194), which then had the following tenor (wording applicable ratione temporis to the situation sub judice):

"28.1 — For residential property or for land for construction whose construction, authorized or planned, is for housing, under the terms provided in the Real Estate Tax Code— 1 %"

The interpretation of the rule of incidence contained in Item 28.1 of the TGIS cannot fail to be carried out on the basis of the hermeneutic guidelines that emanate from Article 11 of the LGT and Article 9 of the Civil Code, norms which establish the following:

Article 11 [LGT]

Interpretation

1. In determining the meaning 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.

2. Whenever in tax norms terms proper to other branches of law are used, these must be interpreted in the same sense as they have there, unless otherwise directly results from the law.

3. If doubt persists about the meaning of the rules of incidence to be applied, regard must be had to the economic substance of the tax facts.

4. Gaps resulting from tax norms covered by the legal reserve of the Assembly of the Republic are not susceptible to analogical integration.

Article 9 [Civil Code]

Interpretation of the law

1. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances under which the law was elaborated, and the specific conditions of the time in which it is applied.

2. However, the interpreter cannot consider legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator established the most correct solutions and knew how to express his thought in adequate terms.

Regarding this interpretive task, with due respect, we hereby adopt the following considerations set out in the arbitral decision handed down in case no. 53/2013-T of CAAD[1]:

"The relevance of the text of the law is especially emphasized in the matter of interpretation of rules of incidence of Stamp Tax, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely different natures (on income, on expenditure, on patrimony, on acts, etc.), which leaves little appreciable margin for application of the primary interpretive criterion, which is the unity of the legal system, which requires its overall coherence.

The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this Item no. 28.1, hastily included on the margins of the General State Budget, by a tax legislator without perceptible overall tax orientation, who is successively implementing norms of increased tax burden as the budget execution setbacks, the impositions of international institutional creditors (represented by the 'troika') and the supervision of the Constitutional Court.

In truth, although in the "Statement of Reasons" of Bill no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the Government's commendable concern to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to fulfill the adjustment program" and to its commitment "to ensure that the distribution of these sacrifices will be made by all and not only by those who live on the income of their work," it is manifest, on the one hand, that those reasons for equity, certainly existing, did not begin to be worth in mid-2012, already existing at the beginning of the year, when the General State Budget came into effect, and on the other hand, that the scope of Item no. 28.1, by additionally taxing properties with residential dedication and not also properties that do not have it, suggests that the concerns of social equity and the stated intention of distributing sacrifices among all, reaches much more some than properly all.

In this context, with no secure interpretive elements that allow the detection of legislative coherence in the solution adopted in the aforementioned Item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretive purposes in light of no. 3 of Article 9 of the Civil Code), the tenor of the legal text must be the primordial element of interpretation, in accordance with the presumption, imposed by the same no. 3 of Article 9, that the legislator knew how to express his thought in adequate terms."

That said. Having analyzed the wording – both the original and the current – of Item 28.1 of the TGIS, we find that this norm has a fundamentally referential character, as its relevant regulatory content depends on the normativity ad quam contained in the Real Estate Tax Code.

In fact, whether with respect to objective incidence, with the reference to "urban properties" and to the "tax patrimonial value contained in the land register, under the terms of the Real Estate Tax Code," or with respect to the fixing of the taxable amount, with the reference to the "tax patrimonial value used for IMI purposes," the regulatory tenor of this Item 28 of the TGIS results from the delegation – under the terms of a general referral – to the regulatory set found in the Real Estate Tax Code.

Indeed, this aspect is reinforced by no. 2 of Article 67 of the CIS, which provides that to matters not regulated in the CIS concerning Item 28 of the TGIS, the provisions of the Real Estate Tax Code apply, subsidiarily.

In this framework, it is therefore necessary to gather the norms of the Real Estate Tax Code that appear relevant for understanding and, therefore, for the application of Item 28.1 of the TGIS.

In the Real Estate Tax Code, the concept of "property" is defined in Article 2 as follows:

1. For purposes of this Code, property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or established therein, with a 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 waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are implanted, although located in a fraction of territory that constitutes an integral part of a diverse patrimony or does not have a patrimonial nature.

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

3. The character of permanence is presumed when the buildings or constructions have been established at the same location for a period exceeding one year.

4. For purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property.

Subsequently, in Articles 3 to 5 of the CIMI, the species of properties existing are enumerated, namely:

Rural Properties (Article 3):

Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, under the terms of no. 3 of Article 6, provided that:

a) They are devoted or, in the absence of concrete dedication, have as their normal destination a use generating agricultural income, such as are considered for purposes of the personal income tax (IRS);

b) Not having the dedication indicated in the preceding subparagraph, they are not built or have only buildings or constructions of an accessory nature, without economic autonomy and of reduced value.

2 – Rural properties also include lands situated within an urban agglomeration, provided that, by force of legally approved disposition, they cannot have a use generating any income or can only have a use generating agricultural income and are actually having this dedication.

3 – Rural properties also include:

a) Buildings and constructions directly devoted to the production of agricultural income, when located on the lands referred to in the preceding paragraphs;

b) Waters and plantations in the situations referred to in no. 1 of Article 2.

4 – For 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 use streets, with their perimeter delimited by points distanced 50 m from the axis of the streets, in the transverse sense, and 20 m from the last building, in the direction of the streets.

Urban Properties (Article 4):

Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article.

Mixed Properties (Article 5):

1. Whenever a property has rural and urban parts it is classified, in its entirety, according to the main part.

2. If neither of the parts can be classified as main, the property is deemed mixed.

Subsequently, in Article 6 of the CIMI, the species of urban properties are indicated:

1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

1. Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose by municipalities or, in the absence of licensing, which have as their normal destination each of these purposes.

2. Land for construction is considered the lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, prior notice admitted or favorable prior information issued for development or construction operation, and also those that have been so declared in the acquisition title, excepting lands where the competent entities prevent any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal land planning plans, are devoted to spaces, public infrastructure or equipment.

3. In the provision of subparagraph d) of no. 1 are included lands situated within an urban agglomeration that are not land for construction nor are covered by no. 2 of Article 3, and also buildings and constructions licensed or, in the absence of licensing, which have as their normal destination other purposes than those referred to in no. 2, and still those of the exception in no. 3.

Regarding "tax patrimonial value," Article 7 of the CIMI provides as follows:

1. The tax patrimonial value of properties is determined in accordance with this Code.

2. The tax patrimonial value of urban properties with parts classifiable in more than one of the classifications of no. 1 of the preceding article is determined:

a) Should one of the parts be main and the other or others merely accessory, by application of the valuation rules of the main part, taking into account the appreciation resulting from the existence of the accessory parts;

b) Should the different parts be economically independent, each part is valued by application of the corresponding rules, and the value of the property is the sum of the values of its parts.

1. The tax patrimonial value of mixed properties corresponds to the sum of the values of its rural and urban parts determined by application of the corresponding rules of this Code.

Under the heading "concept of land registers," Article 12 of the CIMI provides as follows:

1. Land registers are records which contain, namely, the characterization of properties, their location and tax patrimonial value, the identity of the owners and, where applicable, of usufructuaries and surface right holders.

2. There are two registers, one for rural property and another for urban property.

3. Each floor or part of property capable of independent use is considered separately in the matricial registration, which also discriminates the respective tax patrimonial value.

4. The registers are updated annually with reference to 31 December.

5. Matricial registrations for tax purposes only constitute a presumption of ownership.

Also with respect to land registers, it is important to note no. 1 of Article 13 of the CIMI, from which it follows that the registration of properties in the register and the updating thereof are carried out based on a statement presented by the taxable person.

With respect to the determination of tax patrimonial value, it is important to invoke the following norms of the CIMI:

• Article 38 of the CIMI, entitled Determination of tax patrimonial value:

1. The determination of the tax patrimonial value of urban properties for housing, commerce, industry and services results from the following expression:

Vt = Vc x A x Ca x Cl x Cq x Cv

where:

Vt = tax patrimonial value;

Vc = base value of constructed properties;

A = gross construction area plus the area exceeding the implantation area;

Ca = dedication coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = age coefficient.

1. The tax patrimonial value of urban properties calculated is rounded to the nearest ten euros above.

• Article 45 of the CIMI, entitled Tax patrimonial value of land for construction:

1. The tax patrimonial value of land for construction is the sum of the value of the implantation area of the building to be constructed, which is that situated within the perimeter of the building's fixing to the ground, measured by the outer part, added to the value of the land adjacent to the implantation.

2. The value of the implantation area varies between 15% and 45% of the value of the buildings authorized or planned.

3. In fixing the percentage of the value of the implantation land account is taken of the characteristics referred to in no. 3 of Article 42.

4. The value of the area adjacent to the construction is calculated under the terms of no. 4 of Article 40.

5. When the document proving constructive viability referred to in Article 37 only makes reference to the PDM indices, the appraisers must, in a reasoned manner, estimate the respective area of construction, taking into account, in particular, the average areas of construction in the surrounding zone.

In light of the literal tenor of Item 28.1 of the TGIS, subject to this rule of tax incidence are urban properties with a tax patrimonial value equal to or greater than € 1,000,000.00, which are residential properties or land for construction with construction, authorized or planned, for housing.

Considering the norms of the CIMI cited above, we have that residential are buildings or constructions licensed by municipalities for that purpose or, in the absence of licensing, which have as their normal destination that use (Article 6, no. 2, of the CIMI); thus, residential properties are such buildings or constructions, and these are the ones subject to Item 28.1 of the TGIS.

With respect to land for construction, only those for which construction has been authorized or planned for residential purposes are covered by the scope of incidence of Item 28.1 of the TGIS, in the sense resulting from the definition of residential property given by no. 2 of Article 6 of the CIMI; in this way, excluded from subjection to Item 28.1 of the TGIS are lands for construction for which construction has been authorized or planned for purposes other than residential purposes, namely for commercial, industrial or service purposes.

The correctness of this interpretation, as to the scope of incidence of Item 28.1 of the TGIS is confirmed by the ratio legis perceptible from the restriction of the field of application of the norm to residential properties – a restriction that remained as to the dedication (housing) in the subsequent legislative amendment that came to broaden the scope of incidence to land for construction –, in the context of the circumstances under which the law was elaborated and the specific conditions of the time in which it is applied, which Article 9, no. 1, of the Civil Code also establishes as interpretive elements.

Indeed, the limitation of the application of the tax to residential properties and to land for construction for which construction is planned or authorized for housing reveals the intention not to burden the productive sector and companies in general and, in that sense, it was not intended to encompass within the scope of incidence of the tax nor properties devoted to services, industry or commerce, that is, properties devoted to economic activity, nor land for construction for which construction is planned or authorized for those other purposes. This is understandable in a context in which the economy was in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historic levels, with an avalanche of business closures due to economic unsustainability. On the ratio legis of the introduction of Item 28 of the TGIS, see, among others, the decisions handed down in cases nos. 50/2013-T, 132/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/20114-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of CAAD.

In light of that situation and given that it is well-known and public that the revival of economic activity and the increase of exports are the ways out of the crisis, it is understood that, despite the pressing need to increase tax revenues, legislative measures were not taken that would hamper economic activity, namely the increased tax burden that hinders it and affects international competitiveness.

For this reason, it is to be concluded that the interpretive elements available, including the circumstances under which the law was elaborated and the specific conditions of the time in which it is applied, clearly point to the fact that it was not intended to encompass within the scope of incidence of Item 28.1 of the TGIS non-residential properties and land for construction for which construction is authorized or planned for purposes other than housing.

To conclude this exegesis of Item 28.1 of the TGIS, it is important to also state that Articles 38 to 46 of the CIMI have no relation to the classification of urban properties, as in those norms only the factors to be considered in their respective valuation are indicated; and, specifically regarding Article 45 of the CIMI, when reference is made there to the building to be constructed, account is being taken of the destination of the land, which is something that, in the context of the CIMI, does not imply dedication and occurs before it (in this sense, see the decision handed down in case no. 53/2013-T of CAAD).

§2. ON THE (NON) APPLICATION OF ITEM 28.1 OF THE TGIS TO THE CASE SUB JUDICE

As was proven, the urban property in question in this case is land for construction, on which a building was subsequently constructed intended for housing, services and commerce (cf. established facts a), b), c) and d)).

It is our understanding that the interpretation we made of Item 28.1 of the TGIS is particularly peremptory in a case such as the present one in which, on the land for construction in question, construction was authorized and carried out simultaneously for residential purposes and for other purposes, specifically for commerce and services.

In such circumstances, there is not entered in the register nor is used for IMI purposes a tax patrimonial value of the part intended for housing, another tax patrimonial value of the part intended for commerce and yet another tax patrimonial value of the part intended for services. In fact, what the CIMI establishes, according to the cited Article 7, no. 2, al. b), and what is entered in the register is that the value of the property is the sum of the values of its parts, therefore, of all of its parts, whatever their dedication.

It is important to emphasize that the CIMI only refers, as results from Article 7, no. 2, al. b), to the value of the property as resulting from the sum of all of its parts subject to autonomous valuation, and therefore does not legitimize configuring partial values of the property – even if these are concretely determinable – referring only to certain economically independent parts of the property – in the perspective of the application of Item 28.1 of the TGIS, those that have residential dedication –, disregarding parts with other dedications (in the present case, for commerce and services).

Given what has been stated, without need for further considerations, it is imperative to conclude that the urban property in question – land for construction – is not subject to the Stamp Tax provided for in the rule of tax incidence contained in Item 28.1 of the TGIS.

Consequently, both the tacit rejection of the administrative review petition no. …2016… and the contested Stamp Tax assessment suffer from a defect of violation of law, due to error regarding the factual and legal premises, embodied in the erroneous interpretation and application of Item 28.1 of the TGIS, which implies the declaration of its illegality and consequent annulment, which will be decided finally.

Given the merit of the requested declaration of illegality of the aforementioned tacit rejection of the administrative review petition and the contested Stamp Tax assessment, due to a defect that prevents the renewal of the act, the examination of the alleged unconstitutionality is foreclosed as being futile.

§3. ON THE REIMBURSEMENT OF AMOUNTS PAID AND THE PAYMENT OF COMPENSATORY INTEREST

The Claimants also petition for the condemnation of the AT to reimburse the unduly paid tax, in the amount of € 13,077.00, plus the respective compensatory interest.

Article 24, no. 1, subparagraph b), of the RJAT provides that the arbitral decision on the merits of the claim to which no appeal or challenge is available binds the tax administration from the end of the deadline provided for appeal or challenge, and the latter must, in the exact terms of the merit of the arbitral decision in favor of the taxable person and until the end of the deadline provided for the voluntary execution of the decisions of the tax courts, restore the situation that would exist by adopting the acts and operations necessary for this purpose, which is to be understood, in accordance with the provisions of Article 100 of the LGT, applicable ex vi subparagraph a) of no. 1 of Article 29 of the RJAT, as encompassing the payment of compensatory interest, in accordance, besides, with the provisions of no. 5 of the same Article 24 of the RJAT.

Article 43, no. 1, of the LGT determines that "compensatory interest is due when it is determined, in an administrative review petition or judicial challenge, that there was error imputable to the services from which resulted payment of the tax debt in an amount greater than legally due," with no. 5 of Article 61 of the CPPT providing that "interest is calculated from the date of unduly paid tax until the date of processing of the respective credit note, on which they are included."

In the concrete case, it is verified that the illegality of the contested tax assessment, due to error regarding the factual and legal premises, is imputable to the AT by reason of having, in that assessment, proceeded with the erroneous interpretation and application of the provision contained in Item 28.1 of the TGIS, whereby the Claimants have the right, in accordance with the provisions of Article 24, no. 1, subparagraph b), of the RJAT and 100 of the LGT, to the reimbursement of the amount of tax unduly paid – € 13,077.00 – and to compensatory interest, in accordance with the provisions of Article 43, no. 1, of the LGT and 61 of the CPPT, calculated from the dates of payment of the respective instalments – 29/04/2015, 30/07/2015 and 27/11/2015 (cf. established facts h), i) and j)) –, at the rate resulting from no. 4 of Article 43 of the LGT, until the date of processing of the respective credit note, on which they are included.

IV. DECISION

In accordance with what has been stated, this Arbitral Tribunal decides:

a) To judge the arbitral claim entirely meritorious and, consequently, due to a defect of violation of law, due to error regarding the factual and legal premises, embodied in the erroneous interpretation and application of Item 28.1 of the TGIS:

• to declare illegal the tacit rejection of the administrative review petition no. …2016…, regarding the contested Stamp Tax assessment, with its consequent annulment;

• to declare illegal the contested Stamp Tax assessment in these proceedings, in the total amount of € 13,077.00, relating to the year 2014 and concerning the urban property (land for construction) registered under Article … in the urban land register of the parish of…, municipality and district of Porto, with its consequent annulment;

b) To judge meritorious the claim for condemnation of the Tax and Customs Authority to reimburse the Claimants the total amount of Stamp Tax unduly paid – € 13,077.00 –, plus compensatory interest in accordance with legal terms, from the dates on which the payments of the corresponding instalments were made, until the date of processing of the respective credit note, on which they are included;

c) To condemn the Tax and Customs Authority to pay the costs of the proceedings.

VALUE OF THE CASE

In accordance with the provisions of Articles 306, no. 2, of the CPC, 97-A, no. 1, subparagraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 13,077.00 (thirteen thousand and seventy-seven euros).

COSTS

In accordance with Article 22, no. 4, of the RJAT, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, payable by the Tax and Customs Authority.

Lisbon, 27 February 2017.

The Arbitrator,

(Ricardo Rodrigues Pereira)

[1] All arbitral decisions referenced are available at www.caad.org.pt/tributario/decisoes.