Summary
Full Decision
ARBITRAL DECISION
Report
A..., S.A., (hereinafter, "Claimant") with the tax identification number..., with registered office in..., requested the Administrative Arbitration Centre (CAAD), on 14 December 2017, the constitution of an Arbitral Tribunal in tax matters, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Tax Arbitration or "RJAT") and of articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (AT) is the Respondent, with a view to declaring the illegality of the decision dismissing the request for official review (1) handed down on 11 November 2017, by the Finance Directorate of Faro, Taxation and Collection Division, and the consequent annulment of the act of assessment of Stamp Duty ("IS"), relating to the years 2014 and 2015, in the total amount of €45,789.20 (forty-five thousand, seven hundred and eighty-nine euros and twenty cents), assessments numbered 2015..., ... and ..., two with the unit value of 7,631.53€ and one with the unit value of 7,631.54€ and assessments 2016..., ... and ..., two with the unit value of 7,631.53€ and one with the unit value of 7,631.54€, issued with reference to the urban property registered in the property register of the parish of..., municipality of..., district of Faro, under number..., corresponding to a plot of land for construction.
The Claimant chose not to appoint an arbitrator.
The request for constitution of an Arbitral Tribunal was accepted by the President of CAAD on 15 December 2017 and automatically notified to AT on the same date.
The Undersigned was designated by the President of the Deontological Council of CAAD as arbitrator of a sole Arbitral Tribunal, in accordance with the provisions of article 6 of RJAT, having communicated acceptance of the appointment within the legal period, in accordance with article 4 of the CAAD Deontological Code.
The Parties were notified of the designation of the Undersigned on 1 February 2018, in accordance with article 11, no. 1, paragraphs a) and b) of RJAT, having raised no objection to it.
The sole Arbitral Tribunal was thus regularly constituted on 21 February 2018, in accordance with the provision of paragraph c) of no. 1 of article 11 of RJAT.
AT was notified of the arbitral dispatch of 21 February 2018, to submit a response within 30 (thirty) days, which it submitted on 2 April 2018, and which was immediately notified to the Claimant.
By arbitral dispatch of 2 April 2018, the Claimant was ordered to be notified to, if it so wished, comment on the alleged exceptions of untimeliness and absolute lack of jurisdiction raised by AT.
By petition submitted on 13 April 2018, the exceptions were answered, which was immediately notified to AT.
By arbitral dispatch of 18 April 2018, the consideration of the exceptions invoked was postponed to the rendering of the arbitral decision, and the Arbitral Tribunal also considered, under the provision of article 16, paragraphs c) and e) of RJAT, the meeting provided for in article 18 of RJAT to be unnecessary, in accordance with the principle of the autonomy of the Arbitral Tribunal in the conduct of the proceedings, expedition, simplification and procedural informality (articles 19, no. 2 and 29, no. 2 of RJAT).
The production of written submissions was also dispensed with, by application of the same principles.
The Parties have legal personality and capacity and are legitimate (articles 4 and 10, no. 2 of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings are not affected by vices that would invalidate them.
Claimant's Request
The Claimant presented a request for arbitral pronouncement with a view to declaring the illegality and consequent annulment of the acts of assessment of IS relating to the years 2014 and 2015, following dismissal of a request for official review of a tax act, which it also seeks to have declared illegal.
The Claimant presented the present request on the basis of the reasoning briefly indicated below:
The IS assessments refer to the urban property plot of land for construction, corresponding to the urban property registered in the property register of the parish of..., municipality of..., district of Faro, under number....
Item 28.1 of the TGIS, in the version given by Law no. 83-C/2013, of 31 December, which entered into force on 1 January 2014, provides for the taxation of "plot of land for construction the building of which, authorised or planned, is for dwelling" whose patrimonial value equal to or exceeding 1,000,000.00€.
The tax event foreseen in item 28.1 will be applicable in situations where the actual building of the "land" in the specific case has been authorised or planned and such building is intended for "dwelling", mere registration of the property as "plot of land for construction" not being sufficient.
The fact that a "plot of land for construction" is located in an area in which, in accordance with the respective Municipal Master Plan, it is possible to build and that such (permitted) constructions may be intended for dwelling cannot, in itself alone, give rise to the application of item 28.1 of TGIS.
"In the present case", the property in question in these proceedings did not have, in 2014 and 2015, a "building, authorised or planned" for "dwelling", as required by item 28.1 of TGIS.
Subsidiarily, the Claimant considers that the special taxation provided for in item 28.1 of TGIS, when applied to "plots of land for construction", is contrary to the fundamental principle of equality, enshrined in article 13 of the Constitution of the Portuguese Republic and, in parallel, contrary to the principle of tax equality and contributive capacity enshrined in article 104, no. 3 of the same document.
In summary, the Claimant requests the declaration of illegality of the acts of assessment of Stamp Duty (IS) relating to the years 2014 and 2015, of item 28.1 of TGIS, added by Law no. 55-A/2012, of 29 October and amended by Law no. 83-C/2013, of 31 December, in the total amount of € 45,789.20 relating to the property, plot of land for construction, appearing in the urban property register under article ... of the parish of ..., municipality of Lagoa.
Respondent's Response
The Respondent presented its Response, which it bases on the following grounds:
On the exception of untimeliness of the request for arbitral pronouncement
Since this concerns a request for official review of Stamp Duty assessments from 2014 and 2015, the available period for submission would be, at most, that of administrative complaint, that is, 120 days after the end of the period for voluntary payment of the instalments legally notified to the taxpayer, in accordance with article 70 and paragraph a) of no. 1 of article 102 CPPT.
The Claimant cannot base the timeliness of recourse to the Arbitral Tribunal on the submission of a petition for review of a tax act that is untimely.
In the situation in question, the request for constitution of an Arbitral Tribunal presented by the Claimant was filed on 2017-12-14, and is therefore untimely.
Untimeliness constitutes a peremptory exception, in accordance with article 576 of the Code of Civil Procedure (applicable subsidiarily by article 29 of RJAT), which imports the dismissal of AT as to the request, since it prevents the legal effect of the facts articulated by the Claimant.
On the exception of lack of material jurisdiction of the Arbitral Tribunal to assess the request for declaration of material unconstitutionality of item no. 28 of TGIS;
The competence of the arbitral jurisdiction does not include assessment of the constitutional conformity of legislative acts or their norms, by virtue of article 2, no. 1 of RJAT.
Wherefore the Arbitral Tribunal is incompetent ratione materiae to assess the request for declaration of unconstitutionality of item 28 of the General Table of Stamp Duty, for violation of the principle of contributive capacity, as an aspect of the principle of equality, provided for in articles 13 and 104, no. 3 of the CRP, as the Claimant seeks.
Absolute lack of jurisdiction ratione materiae constitutes a dilatory exception that prevents the continuation of the proceedings, leading to the dismissal of the instance as to the respective request, in accordance with the provisions of articles 576, no. 2, 577, paragraph a) and 278, no. 1, paragraph a) of CPC, applicable by virtue of article 29, paragraph e) of RJAT.
By way of contestation;
At the date of the birth of the tax obligation, the Claimant was the owner of the above-identified property, intended for dwelling, whose VPT was € 2,289,460.00, and it appears from the urban property ledger that the plot of land for construction is intended for dwelling.
Urban properties that are plots of land for construction and to which residential use has been assigned in the context of their respective assessments, with such use appearing in their respective registers, are subject to Stamp Duty.
The fact that, in the tax rule – item 28.1 of TGIS – the property with residential use has been positivised rather than the residential property, calls for the application of the use coefficient, cf. article 41 of CIMI, which applies indiscriminately to all urban properties.
For there is nothing more logical than that, by the need to correct budgetary deficit, without disregarding fairness of the tax system, "…to promote the broadening of the tax base, requiring increased effort from taxpayers with higher incomes…", the Tribunal should not discuss the merit of the norm.
Wherefore there is no violation of the principle of equality in any of its aspects.
Factual Matters
Facts Proven
Based on the elements contained in the file and in the administrative proceedings attached to the case, the following facts are considered proven:
The Claimant is the owner of an urban property, registered in the property register of the parish of..., municipality of..., district of Faro, under number..., corresponding to a plot of land for construction.
The property is registered in the urban property register as a plot of land for construction, with registration since 1998.
It appears from the urban property ledger that the property is a Plot of land for urban construction, with total land area of 28,080.0000 m2, building footprint area of 8,000.0000 m2, equal gross building area, with percentage for calculation of footprint area of 25% and Location coefficient type Residential.
The patrimonial value attributed to the property registered under article..., is 2,289,460.00€.
The assessment indicated was not contested by the Claimant.
AT proceeded to the assessment of IS relating to the years 2014 and 2015, based on the matricial use of the same, with location coefficient as Residential and on the patrimonial value of the property, in the total amount of €45,789.20 (forty-five thousand, seven hundred and eighty-nine euros and twenty cents), assessments numbered 2015..., ... and ..., two with the unit value of 7,631.53€ and one with the unit value of 7,631.54€ and assessments 2016..., ... and ..., two with the unit value of 7,631.53€ and one with the unit value of 7,631.54€.
The Claimant submitted a request for official review of those assessment acts on 18.04.2017.
By decision of the Finance Directorate of Lisbon notified to the claimant on 17/11/2017, the official review requested was summarily rejected, on the grounds that, "As stated above, it is concluded that the present review request does not fall within the requirements of article 78° of LGT, and its summary rejection is proposed, in accordance with instructions no. .../DSJT/2013 and no. .../DSJT/2014.
It is proposed that prior hearing rights be waived, in view of the instructions set out in paragraph a) of point 3 of circular no. 13/1999 of DSJT.
In accordance with the competencies delegated by the Deputy Director General of the Tax Management Area of Property in Dispatch no. 9007/2016 of 14 July, as the DSIMT is competent for decision in terms of functional area. In accordance with point II "provided that it is not a matter of interpretation of legal norms not yet sanctioned", in accordance with paragraph a) and delegated to the finance directors the competency to "Assess and decide requests for review provided for in article 78° of the General Tax Law, up to the amount of 50,000.00 EUR."
The Claimant filed the present arbitral action on 14.12.2017.
Facts Not Proven
None with relevant interest for the decision of the case.
Preliminary Matters
In compliance with the provisions of article 29, no. 1, paragraphs a) and e) of RJAT, 13 of the Code of Procedure in Administrative Courts (CPTA) and 608, no. 1, of the Code of Civil Procedure, the Arbitral Tribunal will assess the exceptions raised by AT:
a) On the exception of untimeliness of the request for arbitral pronouncement
The raising of an exception is a means of defence available to parties in proceedings.
"Contestation may take the forms of defence by contestation and by exception (article 571 of CPC).
Defence by exception consists in the invocation of facts that prevent assessment of the merits of the action or that, serving as a cause preventing, modifying or extinguishing the right invoked by the plaintiff, result in the total or partial dismissal of the claim (article 571, no. 2, second part). In the first case the Defendant alleges the lack of a procedural requirement and invokes a dilatory exception (cf. articles 576, no. 2 and 577); in the second the Defendant opposes a peremptory exception (cf. articles 576, no. 3).(2)
As is known, as a rule peremptory exceptions should be raised by the party to whom they benefit (article 579).
What the Respondent invokes is the (in)timeliness of raising the review of a tax act, subsequently linking it to the untimeliness of raising the present arbitral pronouncement.
However, the present Arbitral Tribunal can and must assess what is in question: the in(timeliness) of the request for arbitral pronouncement. It was established as proven that the Claimant was notified on 17/11/2017 of the decision on the procedure for review of a tax act, and it was also established as proven that the Claimant filed the present arbitral action on 14.12.2017.
Article 10, no. 1, paragraph a) of RJAT,(3) provides that "The request for constitution of an arbitral tribunal is presented a) Within 90 days, counted from the facts provided for in nos. 1 and 2 of article 102 of the Code of Procedure and Tax Procedure…", in which decisions on reviews of tax acts are included.(4)
As the present arbitral pronouncement is timely.
But even if one could (or should) assess the question of the untimely raising of the review, not already of the arbitral pronouncement, but of the official review request, such matter is perfectly settled in our Courts, so by mere procedural economy, we will transcribe below only one Judgment:
Judgment of the Central Administrative Court of the North, Case: 00558/12.1BECBR, 2nd Section - Tax Contentious, of 30-04-2015, TAF of Coimbra, Paula Moura Teixeira
Descriptors: JUDICIAL IMPUGNATION
Summary: I. From the interpretation of paragraph a) of article 102 of CPPT the period for impugnation is 90 days after the end of the period for voluntary payment of the tax instalments legally notified to the taxpayer.
II. It follows from no. 1 of article 78º of LGT that the taxpayer may request from the administration the review of the tax acts, within the period of administrative complaint and on the basis of any illegality.
III. It is settled and repeated case law of the STA, just as the tax administration can, on its own initiative, proceed with official review of the tax act, within four years of the assessment or at any time if the tax has not yet been paid, on the basis of error attributable to the services (article 78º of the General Tax Law) so too may the taxpayer, within that period of official review, request this same review on those grounds.(5)
Thus, also by this reasoning the invoked exception would fail.
On the exception of lack of material jurisdiction of the Arbitral Tribunal to assess the request for declaration of material unconstitutionality of item no. 28 of TGIS;
The Respondent subsequently invoked what it designated as a dilatory exception of this Arbitral Tribunal to know of the request for possible declaration of unconstitutionality of item 28.1 of TGIS.
By way of prelude, it should be said from the outset that the invocation of this exception presupposes as acquired by the Respondent that there is no untimeliness whatsoever regarding the raising of anything, however, we consider that the same is raised by way of caution and by mere precaution of counsel, despite omitting such invocation.
The Respondent invoked that "the competence of the arbitral jurisdiction does not include assessment of the constitutional conformity of legislative acts or their norms, by virtue of article 2, no. 1 of RJAT", adding that "Wherefore the Arbitral Tribunal is incompetent ratione materiae to assess the request for declaration of unconstitutionality of item 28 of the General Table of Stamp Duty, for violation of the principle of contributive capacity, as an aspect of the principle of equality, provided for in articles 13 and 104, no. 3 of the CRP, as the Claimant seeks."
Analysing from the perspective of the claims as conclusions tending to "define the form of legal protection that it seeks for the alleged legal situation", the Claimant concluded its petition with:
Subsidiarily, and without dispensing with the above, it requests
d) That item 28 of the General Table of Stamp Duty be disapplied in the concrete case, for manifest unconstitutionality, for violation of the constitutional principle of equality (cf. Article 204 of CRP) and, consequently, that the illegality of the tax acts of assessment of Stamp Duty sub judice be declared, because based on unconstitutional norms, being the same promptly annulled, with all legal consequences."
For its part, in the request to exercise the right to reply to the exception raised by AT, the Claimant also formulated the following request:
"Let it be decided by this Arbitral Tribunal that the norms in question are unconstitutional when applied in the concrete case and, consequently, that such norms be disapplied in casu and, as such, that the illegality of the tax acts of assessment of Stamp Duty sub judice be declared insofar as based on those norms, with all legal effects."
First and foremost, it should be established that what is at issue is item 28.1 of TGIS, despite both Claimant and Respondent mentioning item 28 in their pleadings. What is in question is the amendment made by Law 83-C/2013, of 31/12 to item 28.1.
Having made this clarification, the Constitution of the Portuguese Republic, without prejudice to modern legal relationships with legislation of international scope which enshrine in article 8 the so-called automatic reception clause of International Law and with added specificity of the European Union, is still configured as the principal juridical-normative system, where are embodied the principles of a Rule of Law and Democratic State translated into constitutional legal principles.
"From the outset, and in the first instance, the principle of the Rule of Law means and requires, as we have said, guarantee and promotion of fundamental rights, for it is in function of these objectives that the State adopts the particular structuring and binding to Law that identify it as the historical type of State. As it was said at the advent of the Rule of Law, Constitution means, in that sense fundamental freedoms and separation of powers." (6) Thus having reached the primacy of the State and its "Magna Carta" of social behaviour governed by Law, the Arbitrator has the obligation to interpret and apply constitutional norms.
But RJAT, as is known, went further than articles 39, no. 4 and 46 of the Voluntary Arbitration Law. The same article enshrines the possibility of direct recourse to the Constitutional Court in accordance with no. 1 of article 25, insofar as it states that "
1 — The arbitral decision on the merits of the claim submitted that terminates the arbitral proceedings is susceptible to appeal to the Constitutional Court in that part in which it refuses to apply
any norm on the basis of its unconstitutionality or which applies a norm whose unconstitutionality has been raised."
From this alone it immediately follows that it falls within the competence of CAAD to refuse to apply any norm it deems unconstitutional, as well as to apply a norm whose unconstitutionality has been raised, otherwise the provision cited in the aforementioned article would have no utility.
Descending to the concrete case, assessing the invoked incompetence of arbitral jurisdiction to "Wherefore the Arbitral Tribunal is incompetent ratione materiae to assess the request for declaration of unconstitutionality of item 28 of the General Table of Stamp Duty, for violation of the principle of contributive capacity, as an aspect of the principle of equality, provided for in articles 13 and 104, no. 3 of the CRP, as the Claimant seeks" we hold as established that, in accordance with no. 1 of article 2 of RJAT, the competence of Arbitral Tribunals includes the "illegality of acts of tax assessment".
Acts that apply norms not in conformity with fundamental law are illegal, which immediately results from no. 2 of article 266 of the Constitution of the Portuguese Republic (CRP).
Therefore, when a citizen or company resorts to the Arbitral Tribunal to obtain a declaration of illegality of a tax assessment act, accusing it of being based on law, better, a constitutional norm that is unconstitutional, that Tribunal is competent.
It is not, clearly, to declare the unconstitutionality of the norm with general binding force, for that is solely the competence of the Constitutional Court (article 281, no. 2 of CRP), but to censure the act based on an unconstitutional norm, eliminating it from the legal system, as is its obligation, imposed by article 204 of CRP: as courts cannot apply unconstitutional norms, they also cannot maintain the administrative acts submitted to them that are based on norms violating the Constitution.(7)
After all, what the Claimant seeks is a declaration of illegality of the tax acts of assessment of Stamp Duty sub judice, because based on unconstitutional norms, being the same promptly annulled, with all legal consequences.
That is, the object of the proceedings is not the declaration of material unconstitutionality of any legal norm, but the verification of the legality, in light of the CRP, of the acts of assessment of a tax.
It is thus evident that this Tribunal is competent, and the present exception is also considered unfounded.
In addition to being competent, the Tribunal is regularly constituted, with the parties presenting themselves with legal personality, capacity, legitimacy and representation, with no nullities or other exceptions or preliminary matters preventing the assessment of the merits of the case.
Matters of Law
Questions to be decided:
The Claimant considers that item 28.1 of TGIS, applied by the referred acts, suffers, in the segment that matters for the case, from unconstitutionality, for violation of:
The principle of tax equality based on the principle of contributive capacity; (cf. articles 61 to 109 of the Claimant's initial petition);
If the property in the present case that was subject to taxation under item 28.1 of the General Table of Stamp Duty constitutes a tax event for the purposes of that norm.
Let us begin by analysing the question of the non-application of the norm contained in 28.1 of the General Table of Stamp Duty to plots of land for construction, in its various aspects, as it is prejudicial to all others.
It is known that properties with residential use became subject to stamp duty by virtue of item 28 of TGIS, added by article 4 of Law 55-A/2012, of 29 October, in the following terms:
"28 – Ownership, usufruct or right to build urban properties whose patrimonial value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000.00 – on the patrimonial value used for the purposes of IMI:
28.1 – Per property with residential use – 1%
28.2 – Per property, when the passive subjects that are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by dispatch of the Minister of Finance – 7.5%".
Law no. 83-C/2013, of 31 December, in force from 1 January 2014, amended the wording of item 28.1, which now read:
"per residential property or per plot of land for construction the building of which, authorised or planned, is for dwelling, in accordance with the provisions of the IMI Code".
The controversy was thus resolved as to whether or not plots of land for construction with residential use fell within the said item.
Despite it being certain, since 2014, that plots of land for construction are considered properties with residential use, subject to stamp duty, questions have arisen regarding the constitutionality of the said norm, as noted by the Claimant.
Some of these questions have already been raised and decided, on numerous occasions, by various Courts, albeit reaching different conclusions.
The decisions contained in the CAAD cases 218/2013-T; 247/2013-T; 292/2013-T; 507/2015-T and 114/2016-T (the latter in the aspect that "item 28.1 of TGIS, as far as plots of land for construction are concerned, does not, however, contain any limitation to its application depending on the value of the authorised or planned dwellings, so it must be concluded that it only makes its application dependent on the patrimonial value of the plot itself") pronounced in favour of unconstitutionality of item 28.1 of TGIS in light of the principle of tax equality.
By way of example, it was decided in the past in favour of the unconstitutionality of item 28.1 in CAAD case no. 507/2015-T, in which it was stated "that item 28.1 of TGIS, in the version given by Law no. 83-C/2013, of 31 December, is materially unconstitutional, insofar as it subjects to taxation in Stamp Duty the ownership of plots of land for construction whose patrimonial value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1 000 000, regarding which the building, authorised or planned, does not include any individual dwelling of value equal to or exceeding that, as well as insofar as it applies to situations where plots of land for construction belong to companies engaged in the sale of plots of land for resale".
However, this Judgment did not consider the aforementioned norm inapplicable in the aspect that it would violate the principle of equality by taxing (only) properties intended for dwelling in the face of the non-taxation of properties with different use.
Other Arbitral Tribunals, also within CAAD, pronounced in the opposite sense – that is, concluding for the non-unconstitutionality of item 28.1 – with emphasis, among others, on the judgments of CAAD resulting from cases no. 219/2013-T; 4/2014-T; 366/2014-T; 517/2014-T; 577/2014-T; 485/2015-T 495/2015-T; 515/2015-T; 509/2015-T and 516/2015-T.
It is true that by careful reading of the Judgments and decisions it appears that the matter under analysis is not exactly the same, so each Judgment requires a cursory analysis.
As for the Constitutional Court itself, to which it falls to declare, or not, the unconstitutionality of any legal norm, we have always taken as reference the decision adopted in Judgment no. 590/2015, which concluded for the non-unconstitutionality of item 28.1 in light of the principle of tax equality.
In the aforementioned judgment no. 590/2015, and with regard to the principle of tax equality, the Constitutional Court considered the following:
"The constitutional principle of tax equality, as a specific expression of the general structuring principle of equality (article 13 of the Constitution), finds embodiment "in the generality and uniformity of taxes. Generality means that all citizens are bound by the payment of taxes (…); in turn, uniformity means that the distribution of taxes among citizens obeys the same identical criterion for all" (TEIXEIRA RIBEIRO, Lessons in Public Finance, 5th edition, p. 261). And such criterion, as CASALTA NABAIS emphasises, is found in the principle of contributive capacity: "This thus implies equal tax for those with equal contributive capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributive capacity in proportion to that difference (vertical equality)" (Tax Law, 7th edition, 2012, p. 155). As a presupposition and criterion of taxation, the principle of contributive capacity "on the one hand, constituting the ratio or cause of taxation obliges the legislature away from arbitrariness, obliging it to that in the selection and articulation of tax events, it adheres to revelations of contributive capacity, that is, erects into the object and taxable matter of each tax a certain economic presupposition that is a manifestation of that capacity and is present in the various legal hypotheses of the respective tax" (CASALTA NABAIS, op. cit., p. 157).
This Court has, however, emphasised that the principle of contributive capacity does not preclude the need for other constitutional principles. As stated in Judgment no. 711/2006, «it is clear that the "principle of contributive capacity" must be made compatible with other principles with constitutional dignity, such as the principle of the Social State, the freedom of the legislature to shape the law, and certain requirements of practicability and cognoscibility of the tax event, equally essential for the performance of the purposes of the tax system». And it continues: «To ascertain, however, the existence of a particularism sufficiently distinct to justify a difference in legal regime, and to decide on the circumstances and factors to be regarded as relevant in that ascertainment, is a task that primarily falls to the legislature, which holds the primacy of the concretisation of constitutional principles and the corresponding freedom to shape the law. For this reason, the principle of equality presents itself fundamentally to legal operators, in the context of constitutionality review, as a negative principle (…) - as a prohibition of arbitrariness».
However, we cannot fail to note what the Judgment of the Constitutional Court no. 250/2017, handed down on 24 May in the context of case 156/2016, has established: and essentially because it specifically addressed plots of land for construction.
In this Judgment, the Constitutional Court comes, in line with previous Arbitral Decisions, to pronounce on the unconstitutionality of the norm of Item 28.1 of the General Table of Stamp Duty (TGIS), insofar as it imposes annual taxation on the ownership of a plot of land for construction the building of which, authorised or planned, is for dwelling, whose patrimonial value (VPT) is equal to or exceeding € 1,000,000.00.
What was discussed in the context of the cited Judgment concerns the exegetical analysis of the principle of contributive capacity, as an aspect of the principle of tax equality that, "by imposing that
each one pays taxes in accordance with their possibilities, (…) it does not only impose that one verifies that this requirement respects the economic strength of each taxpayer, and that it translates a fair distribution of the tax burden, but also that one assesses whether that burden is not excessive, so it is necessary to assess the legitimacy of the addition of plots of land for construction to the normative provision of item 28.1 of TGIS, weighing the admissibility of the broadening of its tax base in light of the fundamental principles governing the tax system, but also comparing it with the very reasons that originally presided over the creation of this tax". (8)
The cited Judgment continues that "What is not at issue is the systematic insertion of a mechanism of taxation of real property within Stamp Duty, which has been used by the legislature as a residual, or complementary, tax, where different manifestations of wealth not covered by other taxes are inserted, without that alone constituting any constitutional deviation.", since such taxation with revenue-raising objectives is not integrated into a homogeneous fiscal – normative system.
"But if item 28.1 of TGIS has assumed itself as a "complementary IMI rate", aimed at "discriminating properties of higher patrimonial value and subjecting them to a more burdensome tax regime than the others", as suggested by José Maria Fernandes Pires (cf. Lessons on Taxes on Property and Stamp, 3rd edition, Almedina Publisher, Coimbra, 2015, p. 504), it should have encompassed, or at least considered, the whole of the real property assets of each taxpayer, on pain of affecting different taxpayers in an excessively unequal manner.", which with a completely different "appearance" and having as criterion the value of the taxpayer and their spouse's real property, ended up being created in the additional to IMI, with characteristics of personal nature, not of real property indirectly, but taxing these manifestations directly.(9)
The current model of taxation is clearly distinguished from what was contained in item 28 of the CIS, being that this, not being progressive nor having as criterion the totality of real property, allowed for "…that is why the patrimonial value of one property is less by only one euro than the million required by the said item for the respective owner to have nothing to pay, even if they are the owner of several properties of that value.", concluding the cited Judgment "There is, in fact, an original sin in item 28.1 of TGIS, as it was conceived by Law no. 55-A/2012, of 29 October, and which, as we shall see below, Law no. 83-C/2013 worsened by the addition of plots of land for construction to the mentioned normative provision. This is because, by not broadening the tax base, at least to the whole of the real property assets of each taxpayer, not sufficiently personalising the tax, that item did not prove adequate to pursue "the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to comply with the adjustment programme", as the legislature proposed in the explanatory statement of Legislative Proposal no. 96/XII/2ª, which was at the origin of the said Law no. 55-A/2012."
The amendment made to item 28.1, in the wording of article 194 of Law 83-C/2013, of 31/12, combined in the same item the taxation of luxury homes and plots of land for construction, on the assumption that both are subsumed generically to the category of immovable property of high patrimonial value and with that "…confused manifestations of wealth with factors of production of that same wealth."
"It has been emphasised by tax doctrine that, as a criterion of tax equality, the principle of contributive capacity "requires, first and foremost, the personalisation of the tax, that when one taxes any manifestation of wealth one asks about the person behind it and the conditions in which they find themselves" (cf. Sérgio Vasques, Contributive capacity, income and property, in Taxation – Review of Law and Tax Management, no. 23, Coimbra Publisher, Coimbra, 2005, p. 19).
Now, if behind the tax imposed on the owner of a dwelling of patrimonial value exceeding one million euros could be a taxpayer with sufficient economic strength to bear the respective tax burden, behind the tax imposed on the owner of a plot of land for construction will normally be an entrepreneur, as a rule in the form of a commercial company engaged in real property promotion, about whose economic strength we know nothing. In truth, we cannot presume that that taxpayer has an economic strength proportional to the value of the plot, which is merely instrumental in relation to their economic activity. We do not know what profit margin they will derive from their exercise, if they are in legal and economic conditions to develop it, or whether they may not have a negative net position.
Which leads us to a second perversion of the principle of contributive capacity, which requires that the net income of the taxpayer be taxed, after deducting the expenses necessary for its own obtaining."
The Constitutional Court continues its analysis in the cited Judgment on another line of argumentation, stating that the amendment resulting from the said Law no. 83-C/2013 to item 28.1 of TGIS departed from the ratio iuris of its initial provision, "…insofar as it broadens the normative provision to distinct realities, both in the physical and legal planes, which therefore correspond to equally distinct tax events."
In truth, residential properties are distinguished from plots of land for construction, with the first category consisting of buildings or constructions already existing and intended for dwelling, "whilst the second is composed exclusively of plots of land for which the right to build structures intended for that or other purposes has been consolidated by an administrative act of prior control of an urban operation."
This argumentation is indisputably more solid when, as in the case of the present proceedings, we are faced with a merely matricial use, with the application of automatic calculation parameters of gross building area and of buildability area, merely potential, future and uncertain, it being known, as it is, that the mere qualification of plot of land for construction – not of plot of land for residential construction, results from mere declaration in the acquisition act. It is exactly along these lines that the Judgment continues:
"Thus, whilst residential buildings correspond to real, definitely incorporated buildability in the legal sphere of their holder, plots of land for construction correspond to merely potential buildability, legally consolidated in the legal sphere of the owner of the plot, but not yet materialised.
That is, the taxation of residential properties focuses on the existing reality, on corporal things, unlike the taxation of plots of land for construction, which focuses on building rights, on future things, as furthermore evidenced by article 45 of CIMI, by establishing that the patrimonial value of the latter is determined exclusively by the volume and quality of the building to be built on the plot, and not by its current characteristics."
Although both are apt to have a residential purpose, they possess a different nature not allowing that an equivalence of the contributive capacity of the respective owners, present or future, be projected on the basis solely of their use and their patrimonial value (VPT).
Thus concludes the Judgment that "If plots of land for construction are worth essentially by the content of their future urban utilisation, it is not possible to integrate them into the normative provision of a tax that aims to tax luxury homes, without considering, either the building typology, or the legal structure of the buildings that will be built on it. Taxing them in accordance with what those plots will become after the building is materialised, as occurs in IMI, and not in accordance with what they are before that activity is developed."
And by way of final summary the cited Judgment tells us further that "From what has been said it is evident that, if the amendment of plots of land for construction made by Law no. 83-C/2013 to item 28.1 of TGIS is not arbitrary, it is, in any case, in violation of the principle of tax equality enshrined in articles 13 and 104, no. 3 of the Constitution of the Portuguese Republic, both because it does not respect the different contributive capacity of the owners of the properties on which it bears, affecting indiscriminately taxpayers with and without the contributive strength necessary to bear the tax, and because the differentiations it introduces between those who are covered and excluded from its scope of application are not proportional, being inadequate to satisfy the purpose sought by the norm, which is to tax in an aggravated manner real property assets of greater value in terms that satisfy "the principle of social equity in austerity".
The Constitutional Court thus considers "It is held unconstitutional the norm of item 28.1 of the General Table of Stamp Duty, approved by Law no. 55-A/2012, of 29 October, and amended by Law no. 83-C/2013, of 31 December, insofar as it imposes annual taxation on the ownership of a plot of land for construction the building of which, authorised or planned, is for dwelling, whose patrimonial value is equal to or exceeding € 1,000,000.00;"
We do not adhere to the thesis of unconstitutionality of the other segments of item 28 and its sub-items, but we adhere to this reasoning in its entirety when it concerns the application of item 28.1 to plots of land for construction with the characteristics of the case in the present proceedings of mere criterion of potential matricial residential use.
Consequently, the assessments which are the object of the present proceedings are affected by a vice of violation of law, by embodying error about the legal presuppositions for the application of a materially unconstitutional norm, which justifies its annulment (cf. article 163, no. 1, of the Administrative Procedure Code), and is also illegal and not necessarily in this order, for being integrated in the decision set out in the request for review of a tax act.
Any assessment (pre) or subsequent in terms of the merits of the present arbitral action is thus rendered moot.
Requests for Reimbursement and Indemnity Interest
The Claimant requests reimbursement of the tax improperly paid, plus indemnity interest.
In accordance with the provision of article 24, no. 1, paragraph b) of RJAT "(the) arbitral decision on the merits of the claim which is not subject to appeal or impugnation binds the tax administration from the end of the period set for appeal or impugnation, with this, in the exact terms of the success of the arbitral decision in favour of the passive subject and until the end of the period set for spontaneous execution of the decisions of the tax courts, alternatively or cumulatively, as the case may be:
(…)
b) Re-establish the situation that would have existed if the tax act that is the object of the arbitral decision had not been undertaken, adopting the acts and operations necessary to that effect;
In the same sense, article 100 of LGT provides that "(the) tax administration is obliged, in the event of total or partial success of complaints or administrative appeals, or of judicial proceedings in favour of the passive subject, to the immediate and full re-establishment of the situation that would have existed if the illegality had not been committed, including the payment of indemnity interest, in the terms and conditions provided for by law."
Thus, by virtue of articles 24, no. 1, paragraph b), of RJAT and 100 of LGT, there is cause for reimbursement of the tax paid following the act of illegal assessment which is the object of the present proceedings.
As for indemnity interest, article 43, no. 1, of LGT provides that "…indemnity interest is due when it is established, in administrative complaint or judicial impugnation, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due."
In the case sub judice, the assessment does not suffer from error attributable to the Respondent, but rather from a vice deriving from the unconstitutionality of the legal norm, which the Respondent could not disapply, unless it were a matter of violation of rights, freedoms and guarantees constitutionally enshrined, which is not the case (10).
In these terms, the Tribunal holds the request for indemnity interest unfounded, without prejudice to the right to reimbursement of the amount improperly paid, which should be calculated by the Tax and Customs Authority in execution of the present judgment.
DECISION
This Arbitral Tribunal therefore decides as follows:
Holds the exceptions raised by the Respondent unfounded;
Holds the request for arbitral pronouncement well-founded in its entirety as to the request for annulment of the assessments sub judice;
Condemns the Respondent to reimburse to the Claimant the amounts improperly paid by virtue of the annulled assessment acts;
Holds the request for condemnation of the Respondent Tax Administration for indemnity interest unfounded and absolves it of this request;
Condemns the Respondent for 90% of the costs and the Claimant for 10% thereof, in view of its partial lack of success.
Value of the Case
The value of the case is set at €45,789.20 (forty-five thousand, seven hundred and eighty-nine euros and twenty cents), in accordance with the provision of article 306, no. 2, of CPC, 97-A, no. 1, paragraph a), of CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings.
Costs
The arbitration fee is set at 2,142.00 €, with 90% of that amount to be borne by the Respondent and 10% by the Claimant, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, 4, no. 4, of the Regulation of Costs in Tax Arbitration Proceedings and annexed Table I.
Notification shall be made, including the Public Prosecutor, for the purposes of the provision in article 72, no. 3 of Law no. 28/82, of 15 November.
Lisbon, 25 June 2018
The Sole Arbitrator
António Pragal Colaço
(1) In the present judgment the expressions official review and review of tax act are used with identical meaning indiscriminately;
(2) On dilatory exceptions, cf. SOUSA, MIGUEL TEIXEIRA DE, Introduction to Civil Procedure (Lisbon 1993), 75 et seq.; on peremptory exceptions, cf. SOUSA, MIGUEL TEIXEIRA DE, The parties, the object and proof in the declaratory action (Lisbon 1995), 160 et seq.
(3) Legal Regime of Tax Arbitration, created by Decree Law 10/2011, of 20 January and amended by Law 64-B/2011, of 30 December;
(4) That is, they are simultaneously arbitrable and challengeable
…
Express dismissal acts of administrative complaints, hierarchical appeals or requests for official review that themselves assess (legality of the act of assessment, self-assessment, withholding at source or payment on account – under a teleological interpretation of paragraph a) of no. 1 of article 2 of RJAT and of paragraph a), of article 2, of the Binding Ordinance, being certain that the object of the arbitral proceedings is always the first-degree tax act whose (i) legality the passive subject seeks to have assessed; In. TRINDADE, CARLA CASTELO, Legal Regime of Tax Arbitration Annotated, 2016, p. 242;
(5) In. www.dgsi.pt; Cf. also Judgment of the Supreme Administrative Court, 2nd Section, Case 0678/16, of 08-02-2017, CASIMIRO GONÇALVES, in. Ibidem;
(6) Cf. NOVAIS, JORGE REIS, the Constitutional Structuring Principles of the Portuguese Republic, Coimbra Publisher, 2004, p. 44 et seq;
(7) We follow very closely what is set out in the Judgment of CAAD handed down in Case no. 468/2016-T, of 2017-03-10, in. www.caad.org.pt;
(8) FERREIRA & ASSOCIATES, ROGÈRIO FERNANDES, Newsletter no. 11/17, of 4/7/2017;
(9) Additional to the Municipal Property Tax, created by Law 42/2016 of 28/12 and amended by 85/2017, of 18/8 and Law 114/2017, of 29/12;
(10) Cf., in this sense, among others, the Judgment of the Supreme Administrative Court of 26/02/2014, case no. 0481/13;
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