Stamp Tax on Construction Land: Verba 28 TGIS Exemption for Building Plots (CAAD 66/2014-T)

I. REPORT

1. A..., S.A., a company with single identification and collective person number ..., with registered office at Rua …, in Sintra, which falls within the geographical jurisdiction of the Finance Service of Sintra – 1, having been notified through official letter No. ..., of 21.10.2013, of the decision of dismissal, issued by dispatch of 21.10.2013, by His Excellency the Deputy Head of Finance of the Finance Service of Porto – 1, which fell upon gracious administrative appeal No. ..., submitted pursuant to articles 68 et seq. of the Tax Procedure and Process Code (CPPT), with reference to the tax act embodied in the levy of Stamp Tax (IS) on the property of the urban property registered in the property matrix under No. ..., located in the parish of ..., municipality of Porto, with reference to the year 2012, dated 21.03.2013, in the total amount of € 83,467.19, hereby, pursuant to the provisions of articles 2, No. 1, paragraph a), 5, No. 3, paragraph a), 6, No. 2, paragraph a), 10, No. 1, paragraph a), all of the Legal Regime of Tax Arbitration (RJAT) and article 102, No. 2, of the CPPT, requests the ESTABLISHMENT OF A COLLECTIVE ARBITRAL TRIBUNAL with a view to declaring the illegality of that tax act.

The petitioner requests the annulment of the tax acts and the restitution of the amounts paid with compensatory interest.

It sets out the grounds for its request concisely, alleging in essence:

• that it is a commercial company which, within the scope of its activity, engages in real estate promotion, namely in the implementation and development of real estate business and projects.

• that it was the owner, at the date to which the facts relate, i.e., in the year 2012, of the urban property registered in the property matrix under article No. ..., located in the parish of ..., municipality of Porto, with the tax patrimonial value of € 8,346,718.63, which was composed of a plot of land for construction, in accordance with a copy of the property notebook attached as document No. 1.

• In accordance with the Master Plan for ... in force at the date of the facts, a copy of which is attached as document No. 2, 17,400m² of the total area of the respective land was intended for housing and 2,465m² was intended for commerce and services.

• At the date of the facts, the identified land had no construction whatsoever, nor was there any pending application for a construction license.

• Following the entry into force of Law No. 55-A/2012, of 29 October, which introduced amendments to the Personal Income Tax Code (IRS Code), the Corporate Income Tax Code (IRC Code), the Stamp Tax Code (IS Code) and the General Tax Law (LGT), the Petitioner was notified of IS levy No. 2012 ..., of 07.11.2012, which calculated IS payable on the property of the identified urban property in the amount of € 40,225.15, as a result of the application of the transitional rate of 0.5% – "Properties with housing allocation evaluated in accordance with the IMI Code" – (cf. article 6, No. 1, paragraph f), sub-paragraph i), of Law No. 55-A/2012, of 29 October), a copy of which levy is attached as document No. 3.

• Within the deadline established for voluntary payment – 20.12.2012 – the Petitioner proceeded to pay the amount of IS calculated in the identified levy (cf. doc. No. 3).

• Subsequently, the Petitioner was notified of the IS levy better identified in the preamble, amounting to a total collection of € 83,467.19, as a result of the application of the rate of 1% provided for in item 28.1 – "For property with housing allocation" – of the TGIS, as amended by Law No. 55-A/2012, of 29 October, materialized in the levy for payment of the first installment, a copy of which is attached as document No. 4.

• The Petitioner was likewise notified of the levy for payment of the second installment, a copy of which it undertakes to attach as document No. 5, and of the levy for payment of the third installment, a copy of which it undertakes to attach as document No. 6, and the legality of the same is necessarily dependent upon the levy for payment of the first installment (cf. doc. No. 4).

• Within the deadlines established for voluntary payment – April, July and November 2013, respectively – the Petitioner proceeded to pay the amounts calculated in those levies (cf. docs. Nos. 4 to 6).

• Being convinced of the illegality of the IS levy better identified in the preamble, the Petitioner made a gracious administrative appeal against the same tax act on 28.08.2013.

• As grounds for the gracious appeal the Petitioner invoked, in summary, that the urban property in question is classified as land for construction, and therefore does not fall within the category of urban property with actual allocation and, consequently, is not subject to IS; that the IS levy incurs a defect of double taxation, insofar as a tax already paid is levied as a result of IS levy No. 2012 ..., of 07.11.2012; and, finally, that the IS levy is manifestly violative of the principles of equality and contributory capacity, as well as the principle of progressivity, and therefore materially unconstitutional is the provision in question provided for in Law No. 55-A/2012, of 29 October.

• On 30.09.2013, the Petitioner was notified to exercise the right of prior hearing of the draft dismissal order of the gracious appeal presented, a copy of which is attached as document No. 7.

• In fact, the tax administration states in the draft dismissal that "It is the understanding of the tax authority (AT) that urban properties that are land for construction and to which housing allocation has been attributed within the scope of their respective valuations, with such allocation appearing in their respective matrices, are subject to stamp tax (…)." (cf. page 3 of doc. No. 7).

• For the tax administration "The fact that housing allocation has been positivized in the incidence norm (item 28.1 of TGIS) appeals to the allocation coefficient (art. 41 of CIMI), which applies indistinctly to all urban properties." (cf. page 3 of doc. No. 7).

• With regard to the alleged double taxation, the tax administration argues that the Claimant is also not correct, since "(…) the payment of the tax calculated in the levy (…) relates to a tax fact that temporarily had as the basis for the taxable matter the tax patrimonial value resulting from the rules provided for in the Municipal Property Tax Code by reference to the year 2011 and not to the year 2012" (cf. page 3 of doc. No. 7).

• In the absence of a response from the Petitioner, that draft was converted into final by dismissal order dated 21.10.2013, which was notified by Official Letter No. ..., in accordance with a copy attached as document No. 8, within which the tax administration maintains the levy of stamp tax, as drafted.

• However, and as is apparent from the levy in question, the tax administration classified the identified urban property, composed of a plot of land for construction, as "Property with housing allocation" and, consequently, subjected the property thereof to IS, pursuant to item No. 28.1 of the TGIS.

• the tax acts subject to review suffer from illegality, double taxation and violate the constitutional principles of equality, contributory capacity and progressivity.

• The concept of urban property with "housing allocation" is not expressly defined in the IS Code, in Law No. 55-A/2012, of 29 October, nor in the IMI Code, the legal norm to which the IS Code refers for the regulation of other aspects related to the incidence, levy and collection of this new tax on property.

• The expressions used in sub-paragraphs i) and ii) of paragraph f) of No. 1 of article 6 of Law No. 55-A/2012, of 29 October, utilized a concept that, in the fullness of its written expression, is not used in any other provision of a tax nature in those precise terms, namely, that of "property with housing allocation".

• The classification of an urban property as residential, commercial, industrial for services or land for construction generally depends on a requirement of a formal nature, namely, licensing.

• In this sense, J. SILVÉRIO MATEUS and L. CORVELO DE FREITAS state that "(…) the tax law does not provide the concept of each of the types of urban properties listed in number 1 of this article [article 6 of the IMI Code]. As already observed, No. 2 merely refers, in the first instance, to the use attributed by licensing and, in the absence of a license, to the criterion of normal allocation".[1]

• Tax arbitration jurisprudence defines, for its part, residential properties as those that "are classified according to their respective municipal license or, if none exists, as a result of normal use" or "normal destination of the property" as opposed to land for construction, which "are defined according to their legal potential" (see, for this purpose, the decision issued within the scope of case No. 49/2013-T of the Administrative Arbitration Centre) (emphasis ours).

• Given the provision of article 6, No. 2 of the IMI Code, only buildings or constructions that have a residential purpose are qualified as residential properties,

• On the other hand, land for construction are qualified and given the provision of article 6 No. 3 of the IMI Code, those in which the owner has acquired the right to build or carry out subdivision operations, as well as those that have been expressly acquired for that purpose.

• "The expression 'with housing allocation' suggests, on a simple reading, an idea of actual and present functionality. It is not possible to extract from the norm in question, by interpretation, that (…) the legislator's choice of that expression is intended to integrate 'other realities beyond those identified in article 6, No. 1, paragraph a) of the IMI Code'. Such interpretation has no legal support".[2]

• "If it is understood that the expression 'property with housing allocation' coincides with that of 'residential properties', it is manifest that the levies will be affected by an error regarding the factual and legal presuppositions, since all properties in relation to which Stamp Tax was levied pursuant to the aforementioned item No. 28.1 are land for construction, without any building or construction required to fulfill that concept of 'residential properties'".[3]

• The urban property in question, and in relation to which IS was levied pursuant to item No. 28.1 of the TGIS, is classified as land for construction, and at the date to which the facts relate, no construction whatsoever is built thereon (cf. point 4 above and docs. No. 1 and No. 2).

• From which it is concluded that the levy in question is illegal, and accordingly, its annulment is necessary.

B) On double taxation

• If the foregoing does not proceed – which is only conceived out of caution of representation, without, however, proceeding –, the IS levy in question would always be illegal due to double taxation.

• This is because the levy in question repeats the taxation, relating to the year 2012, of the property of the urban property identified above (cf. point 2 and doc. No. 1), already effected by IS levy No. 2012 ..., of 07.11.2012 (cf. doc. No. 3).

• As stated above, Law No. 55-A/2012, of 29 October, in its transitional provisions, provided that, with regard to the tax relating to the year 2012, the tax fact would occur on 31 October 2012 (cf. article 6, No. 1, paragraph a) of Law No. 55-A/2012, of 29 October).

• In this sequence, the Petitioner was notified of IS levy No. 2012 ..., of 07.11.2012, in which the amount of tax payable was calculated at € 40,225.15 (cf. doc. No. 3).

• From an analysis of the aforementioned levy, it is noted that, in the field referring to "Tax year", there is a reference to "Law 55A/2012" (cf. doc. No. 3).

• It was with perplexity that the Petitioner, notified of the IS levy in discussion, discovered that it was again required to pay the tax relating to the year 2012 (cf. doc. No. 4).

• Notwithstanding the provision of article 6 of Law No. 55-A/2012, of 29 October, determining that, with regard to the year 2012, the tax fact would occur on 31 October 2012, instead of, as is customary, occurring on 31 December 2012 (cf. article 8, No. 1 of the IMI Code ex vi article 2, No. 4 of the IS Code), and that the tax would be levied in November and paid by 20 December 2012, the tax administration chose to again proceed with the levy of IS on the property of the same urban property and by reference to the same year – 2012 –, thereby disregarding the fact that such reality had already been taxed.

• In fact, pursuant to article 205, No. 1 of the CPPT "There shall be double taxation (…) when, having paid a tax in full, another of equal nature is demanded of the same or a different person, relating to the same tax fact and the same period of time".

• In an annotation to the aforementioned legal provision, JORGE LOPES DE SOUSA identifies the following cumulative requirements of double taxation: "a) uniqueness of the tax facts; b) identity of nature between the tax paid and the one newly demanded; c) temporal coincidence of the tax paid and the one sought to be newly collected".[4] [5]

• Double taxation constitutes a defect generating illegality of the tax act, as indeed follows from article 78, No. 6 of the LGT and, for that reason, can also be invoked through any gracious, judicial or arbitral means.

C) On the violation of the principles of equality and contributory capacity

• the taxation as contemplated by the levy in question constitutes a violation of the principles of equality and contributory capacity, enshrined in articles 13, 103, No. 1 and 104, No. 1 and No. 3, all of the CRP.

D) On the violation of the principle of progressivity

• Beyond the violation invoked above, Stamp Tax on property, as approved by Law No. 55-A/2012, of 29 October, also incurs a violation of the principle of progressivity, enshrined in articles 103, No. 1 and 104, No. 1 and No. 3, both of the CRP.

E) Compensatory interest

• The Petitioner proceeded to voluntarily pay the tax calculated in the levy in question (cf. docs. No. 4, No. 5 and No. 6).

• As a consequence of the aforementioned payments, the success of the present request should determine, in accordance with law, the reimbursement to the Petitioner of the amounts now levied and unduly paid, plus the respective compensatory interest referred to in articles 43 of the LGT and 61 of the CPPT.

Response of the AT

The Tax Authority proceeded to defend the maintenance of the tax acts subject to review, requesting the dismissal of the request with a reaffirmation, in essence, of the arguments that founded the decision to maintain those acts. In summary, the Respondent maintains the following arguments:

• The AT responded in the sense that "the property registered under article ... in the urban property matrix of the parish of ..., municipality of Porto, has the legal nature of properties with housing allocation, and therefore the act of levy that is the subject of the present request for arbitral pronouncement should be maintained because it embodies the correct interpretation of Item 28 of the General Table as amended by Law 55-A/2012, of 29/12."

• After referring, in its essential terms, to the amendments introduced to the Code and General Table of Stamp Tax by the aforementioned Law, the respondent states that "In the absence of any definition of the concepts of urban property, land for construction, housing allocation without basis for IS, one must resort to the IMI in search of a definition that permits determining the possible subjection to IS in accordance with that provided for in article 67, No. 2 of the IS Code, as amended by Law No. 55-A/2012, of 29/10."

• In accordance with this norm, matters not regulated in the IS Code relating to Item 28 of the TGIS apply subsidiarily to the provisions of the IMI Code.

• The respondent argues that "The notion of allocation of urban property finds its place in the part relating to the valuation of property, which is well understood since the valuation of the property (purpose) incorporates value to the property constituting a fact of distinction determinative (coefficient) for purposes of valuation."

• It accordingly understands the respondent that, "As results from the expression '... value of authorized buildings' contained in art. 45, No. 2, of the IMI Code, the legislator chose to determine the application of the methodology for valuing properties in general to the valuation of land for construction, and therefore the allocation coefficient provided for in article 41 of the IMI Code is applicable to them."

• Contrary to the understanding of the petitioner, "the AT understands that the concept of 'properties with housing allocation' for purposes of the provision in Item 28 of the TGIS comprehends both built properties and land for construction, starting from the literal element of the norm."

• On one hand, the respondent argues, the legislator (of Item 28 of the TGIS) "does not refer to 'properties intended for housing', having opted for the notion of 'housing allocation'. A different and broader expression whose sense must be found in the need to integrate other realities beyond those identified in art. 6, No. 1, paragraph a), of the IMI Code."; on the other hand, "the tax law considers as an element integrating the evaluation of land for construction the value of the implantation area, which varies between 15% and 45% of the value of authorized or planned buildings based on the urbanization and construction project".

• Whereas, according to the RJUE, the license permit for the performance of urban operations should contain, among other elements, the number of lots and the indication of the location area, purpose, implantation area, construction area, number of floors, number of units of each of the lots, with specification of the lots intended for social housing.

• With regard to the alleged unconstitutionality, the AT considers that the provision of item 28 of the TGIS does not constitute any violation of the principle of constitutionality since it is a general and abstract norm that applies indistinctly to all cases in which the factual and legal presuppositions are met, not developing this position.

• Finally, the AT considers that there is no double taxation since article 6 of law No. 55-A/2012, of 29 October, contains transitional provisions providing that in the first year of validity of the new tax (2012), the tax fact occurs on 31 October, with the tax to be levied in the year of the tax fact.

• Thus, the levy to be made by the end of November is made based on the tax patrimonial value of 2011 and not 2012, in addition to having to apply a lower rate than that provided for in item 28 of the TGIS (0.5% or 0.8%) instead of 1%.

• For this reason, the transitional regime described would aim to attenuate the effects of the anticipation of the tax fact and collection of the new tax in 2012.

• Adding that, pursuant to the amendments introduced in the Stamp Tax Code by Law No. 55-A/2012, in situations subject to the incidence of item 28 of the TGIS, the tax fact shall occur on 31 December, as provided for in article 8 of the IMI Code applicable ex vi No. 4 of art. 2 of the Stamp Tax Code.

1. PROCEDURAL PURIFICATION

This collective Arbitral Tribunal was regularly established on 28-03-2014, with the arbitrators appointed by the Deontological Board of CAAD, complying with the respective legal and regulatory formalities (cf. articles 11-1/a) and b) of the RJAT and 6 and 7 of the CAAD Deontological Code), and is competent in respect of the subject matter, in conformity with article 2 of the RJAT.

By decision of the Tribunal of 28-5-2014, the meeting provided for in article 18 of the RJAT was dispensed with.

The parties have legal personality and capacity, are legitimate and are duly represented (cf. articles 4 and 10, No. 2 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March).

No procedural nullities were identified.

II REASONING

1. The matter under discussion in the present action is the levy of stamp tax, tax acts embodied in the levy of Stamp Tax (IS) on the property of the urban property registered in the property matrix under No. ..., located in the parish of ..., municipality of Porto, with reference to the year 2012, dated 21.03.2013, in the total amount of € 83,467.19 – (cf. article 6, No. 1, paragraph f), sub-paragraph i), of Law No. 55-A/2012, of 29 October), in accordance with copies of those levies (Docs Nos. 3 and 4, attached with the initial petition), being imputed to the respective tax act the defects of illegality, double taxation and violation of the constitutional principles of equality, contributory capacity and progressivity.

3.1. Matter of Fact

For the appreciation of these issues it is important to take into account the following established facts which are essentially those alleged by the petitioner, considering that they were not challenged by the AT:

3.1.1 The Petitioner is a commercial company which, within the scope of its activity, engages in real estate promotion, namely in the implementation and development of real estate business and projects.

3.1.2 The Petitioner was the owner, at the date to which the facts relate, i.e., in the year 2012, of the urban property registered in the property matrix under article No. ..., located in the parish of ..., municipality of Porto, with the tax patrimonial value of € 8,346,718.63, which was composed of a plot of land for construction, in accordance with a copy of the property notebook attached with the initial petition [document No. 1[6]].

3.1.3 In accordance with the Master Plan for ... (Porto) in force at the date of the facts [document No. 2], 17,400m² of the total area of the respective land was intended for housing and 2,465m² was intended for commerce and services.

3.1.4 At the date of the facts, the identified land had no construction whatsoever, nor was there any pending application for a construction license.

3.1.5 Following the entry into force of Law No. 55-A/2012, of 29 October [which introduced amendments to the Personal Income Tax Code (IRS Code), the Corporate Income Tax Code (IRC Code), the Stamp Tax Code (IS Code) and the General Tax Law (LGT)], the Petitioner was notified of IS levy No. 2012 ..., of 07.11.2012, which calculated IS payable on the property of the identified urban property in the amount of € 40,225.15, as a result of the application of the transitional rate of 0.5% – "Properties with housing allocation evaluated in accordance with the IMI Code" – (cf. article 6, No. 1, paragraph f), sub-paragraph i), of Law No. 55-A/2012, of 29 October) [cf. copy of that levy - document No. 3].

3.1.6 Within the deadline established for voluntary payment – 20.12.2012 – the Petitioner proceeded to pay the amount of IS calculated in the identified levy (cf. doc. No. 3).

3.1.7 Subsequently, the Petitioner was notified of the IS levy, amounting to a total collection of € 83,467.19, as a result of the application of the rate of 1% provided for in item 28.1 – "For property with housing allocation" – of the TGIS, as amended by Law No. 55-A/2012, of 29 October, materialized in the levy for payment of the first installment [document No. 4].

3.1.8 The Petitioner was likewise notified of the levy for payment of the second installment [document No. 5], and of the levy for payment of the third installment [doc no 6], and the legality of the same is necessarily dependent upon the levy for payment of the first installment (cf. doc. No. 4).

3.1.9 Within the deadlines established for voluntary payment – April, July and November 2013, respectively – the Petitioner proceeded to pay the amounts calculated in those levies (cf. docs. Nos. 4 to 6).

3.1.10 The Petitioner made a gracious administrative appeal against the same tax act on 28.08.2013.

3.1.11 As grounds for the gracious appeal the Petitioner invoked, in summary, that the urban property in question is classified as land for construction, and therefore does not fall within the category of urban property with actual allocation and, consequently, is not subject to IS; that the IS levy incurs a defect of double taxation, insofar as a tax already paid is levied as a result of IS levy No. 2012 ..., of 07.11.2012; and, finally, that the IS levy is manifestly violative of the principles of equality and contributory capacity, as well as the principle of progressivity, and therefore materially unconstitutional is the provision in question provided for in Law No. 55-A/2012, of 29 October.

3.1.12 On 30.09.2013, the Petitioner was notified to exercise the right of prior hearing of the draft dismissal order of the gracious appeal presented [doc no 7].

3.1.13 The tax administration states in the draft dismissal that "It is the understanding of the tax authority (AT) that urban properties that are land for construction and to which housing allocation has been attributed within the scope of their respective valuations, with such allocation appearing in their respective matrices, are subject to stamp tax (…)." (cf. page 3 of doc. No. 7).

3.1.14 For the tax administration "The fact that housing allocation has been positivized in the incidence norm (item 28.1 of TGIS) appeals to the allocation coefficient (art. 41 of CIMI), which applies indistinctly to all urban properties." (cf. page 3 of doc. No. 7).

3.1.15 With regard to the alleged double taxation, the tax administration argues that the Claimant is also not correct, since "(…) the payment of the tax calculated in the levy (…) relates to a tax fact that temporarily had as the basis for the taxable matter the tax patrimonial value resulting from the rules provided for in the Municipal Property Tax Code by reference to the year 2011 and not to the year 2012" (cf. page 3 of doc. No. 7).

3.1.16 As for the alleged unconstitutionalities stated by the tax administration in that draft that "(…) it is not in the context of a gracious appeal procedure that it may be appreciated, since it is not the proper procedural means to assess the (un)constitutionality of the norm;." (cf. page 2 of doc. No. 7).

3.1.17 In the absence of a response from the Petitioner, that draft was converted into final by dismissal order dated 21.10.2013, which was notified by Official Letter No. ... [document No. 8], within which the tax administration maintains the levy of stamp tax, as drafted.

3.2. Facts not established

No essential facts with relevance to the appreciation of the merits of the case were not established.

3.3 Motivation

The Tribunal based its conviction on the administrative record attached to the file and on the documentary elements attached to the case by the petitioner, namely those indicated above, in conjunction with the absence of controversy between the parties as to the essential facts considered established.

3.4 Reasoning (cont.)

The Law

The tax act impugned is the levy of stamp tax in the year 2012 and relating to the property intended for construction, owned by the petitioner, effected by the AT pursuant to item 28.1 of the TGIS and article 6 of Law No. 55-A/2012, of 29 October.

The petitioner understands that such levy was effected in violation of law insofar as, according to its allegation, apart from suffering from a defect in the presuppositions [land for construction is not subject to levy of IS pursuant to article 28 of the TGIS], the interpretation given by the AT to the cited article 28, violates the constitutional principles of equality, progressivity and contributory capacity.

In fact, illegality of the tax act not being subject to scrutiny by the Fiscal Administration, as will be better seen below, based exclusively on alleged unconstitutionalities, the decision could never be other than dismissal.

Let us then examine each of the issues raised.

For ease of exposition, the essential legal provisions are transcribed below, subsequently to assess the tax acts in light of the defects invoked by the petitioner.

• Law No. 55-A/2012, of 29 October [amends the Personal Income Tax Code, the Corporate Income Tax Code, the Stamp Tax Code and the General Tax Law]:

Article 3

Amendment to the Stamp Tax Code

Articles 1, 2, 3, 4, 5, 7, 22, 23, 44, 46, 49 and 67 of the Stamp Tax Code, approved by Law No. 150/99, of 11 September, shall have the following wording:

(…)

Article 2

[...]

1 - ...

2 - ...

3 - ...

4 - In the situations provided for in item No. 28 of the General Table, the tax subjects are those referred to in article 8 of the IMI Code.

Article 23

[...]

1 - ...

2 - ...

3 - ...

4 - ...

5 - ...

6 - ...

7 - If it is the tax due by the situations provided for in item No. 28 of the General Table, the tax is levied annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the IMI Code.

Article 67

[...]

1 - (Previous body of the article.)

2 - To matters not regulated in the present Code relating to item No. 28 of the General Table, there is applied subsidiarily the provision of the IMI Code.»

Article 4

Addition to the General Table of the Stamp Tax

Item No. 28 is added to the General Table of the Stamp Tax, attached to the Stamp Tax Code, approved by Law No. 150/99, of 11 September, with the following wording:

«28 - Property, usufruct or right of superficies of urban properties whose tax patrimonial value contained in the matrix, in accordance with the Municipal Property Tax Code (IMI Code), is equal to or greater than (euro) 1,000,000 - on the tax patrimonial value used for the purpose of IMI:

28.1 - For property with housing allocation - 1 %;

28.2 - For property, when the tax subjects that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime.

Article 6

Transitional Provisions

1 - In 2012, the following rules must be observed by reference to the levy of stamp tax provided for in item No. 28 of the respective General Table:

a) The tax fact occurs on 31 October 2012;

b) The tax subject of the tax is the one mentioned in No. 4 of article 2 of the Stamp Tax Code on the date referred to in the preceding paragraph;

c) The tax patrimonial value to be used in the levy of the tax corresponds to that which results from the rules provided for in the Municipal Property Tax Code by reference to the year 2011;

d) The levy of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

e) The tax should be paid, in a single installment, by the tax subjects by 20 December 2012;

f) The applicable rates are the following:

i) Properties with housing allocation evaluated in accordance with the IMI Code: 0.5 %;

ii) Properties with housing allocation not yet evaluated in accordance with the IMI Code: 0.8 %;

iii) Urban properties when the tax subjects that 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 ordinance of the Minister of Finance: 7.5 %.

2 - In 2013, the levy of stamp tax provided for in item No. 28 of the respective General Table must be based on the same tax patrimonial value used for purposes of levy of municipal property tax to be carried out in that year.

3 - The non-delivery, in whole or in part, within the indicated deadline, of the amounts levied by way of stamp tax constitutes a tax offense, punished in accordance with law.

Article 7

Entry into Force and Effectiveness

1 - This law enters into force on the day following its publication.

2 - The amendments to article 72 of the IRS Code and to article 89-A of the General Tax Law take effect from 1 January 2012.

On the application of item 28.1 of the General Table of Stamp Tax to land for construction, judgments of CAAD have already pronounced, among others, in cases number 53/2013-T, 49/2013-T, 42/2013-T, 180/2013-T, 75/2013-T, 215/2013-T, 240/2013-T, 310/2013-T and 284/2013-T.

In the same way, the Supreme Administrative Court has taken a position on the question, namely in the judgments of cases No. 0467/14 of 02-07-2014, No. 0676/14 of 09-07-2014, No. 0395/14 of 28-05-2014, No. 01871/13 of 14-05-2014 and No. 055/14 of 14-05-2014, No. 0425/14 of 28-05-2014, No. 0396/14 of 28-05-2014, No. 0274/14 of 14-05-2014 and No. 046/14 of 14-05-2014.

A – The concepts of "property with housing allocation" and "residential property"

The word "allocation", in this context of the use of a property, has the meaning of "the action of designating something for a determined use".

"When, as is usually the case, legal formulations contain more than one meaning, then the positive function of the text is translated in giving stronger support to or suggesting more strongly one of the possible meanings. For among the possible meanings, some will correspond to the most natural and direct meaning of the expressions used, while others can only fit into the verbal framework of the norm in a forced, contrived manner. Now, in the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should opt in principle for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to its technical-legal meaning, assuming (not always exact) that the legislator knew how to express its thought correctly".

The relevance of the text of the law is especially accentuated in the matter of interpretation of provisions of incidence of Stamp Tax, which can be traced back to an amalgamation, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on spending, on property, on acts, etc.), which leaves no 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 at the margin of the General State Budget, by a fiscal legislator without discernible overall fiscal guidance, who is successively implementing tax increase provisions as the vicissitudes of budget execution, the impositions of international institutional creditors (represented by the "troika") and the oversight of the Constitutional Court warrant.

In fact, although in the "Exposition of Motives" of the Legislative Proposal No. 96/XII/2 (3), on which Law No. 55-A/2012 was based, reference is made to the laudable concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with 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 from their work", it is manifest, on one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of item No. 28.1, by taxing additionally properties with housing allocation and not also properties that do not have it, gives the impression that the concerns of social equity and the proclaimed intention to distribute sacrifices among all reaches much more some than properly all.

In this context, in the absence of reliable interpretative elements that permit detecting 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 content of the legal text must be the primary element of interpretation, in conformity with the presumption imposed by the same No. 3 of article 9, that the legislator knew how to express its thought in adequate terms.

In light of those meanings of the words "allocation" and "allocate", which are "to give destination" or "to apply", the formula used in that item No. 28.1 of the TGIS manifestly encompasses properties that are already applied to residential purposes, and it is therefore necessary to inquire whether it will also encompass properties that, although not yet applied to residential purposes, are intended for them and those whose destination is unknown.

In light of the literal content of item No. 28.1, it is necessary to exclude from the scope of incidence of Stamp Tax there provided land for construction of some applicants that still do not have any defined type of use, since they are still neither applied nor intended for residential purposes. That is, land for construction that does not have defined use cannot be considered properties with housing allocation, since they do not yet have any allocation nor any other destination than construction of unknown type. An interpretation in the sense that item No. 28.1 refers to properties whose allocation is unknown has no minimal verbal correspondence in the letter of that norm, and therefore a hypothetical legislative thought of that type cannot be considered by the interpreter of the law, in face of the prohibition contained in No. 2 of article 9 of the Civil Code.

But this is not sufficient to clarify the situation of those land for construction that, while not yet applied to residential purposes, already have a determined destination.

For this reason, it is necessary to clarify when it can be understood that a property is allocated to a residential purpose, namely whether it is when that destination is fixed for it in a licensing act or similar, or only when the effective attribution of that destination is concretized.

In the first place, the confrontation of item No. 28.1 of the TGIS with No. 2 of article 6 of the IMI Code, which defines the concept of residential properties, clearly points in the direction that actual allocation is necessary.

In fact, a building or construction licensed for housing or, even without a license, but which has housing as its normal destination, is, in light of No. 2 of that article 6, a residential property.

For this reason, on the presupposition that the legislator of Law No. 55-A/2012 knew how to express its thought in adequate terms (as is required by article 9, No. 3 of the Civil Code to be presumed), if it intended to refer to those properties already licensed for housing or which have housing as their normal destination, it would certainly have used the concept of "residential properties", which would express perfectly and clearly its thought, in light of the definition given by that No. 2 of article 6 of the IMI Code.

Consequently, it should be presumed that the use of a different expression is intended to address a distinct reality, and therefore, in good hermeneutics, "property with housing allocation" cannot be a property merely licensed for housing or intended for that purpose (that is, it will not be sufficient that it be a "residential property"), having to be a property that already has actual allocation to that purpose. (In this sense see also the judgment of CAAD No. 53/2013-T, where the rapporteurs are Judge Counselor Jorge Lopes de Sousa, Dr. Conceição Pinto Rosa and Dr. Alberto Amorim Pereira).

That this is the sense of the expression "allocation", in the same context of property classification made by the IMI, is confirmed by article 3, in which, with respect to rural properties, reference is made to those "that are allocated or, in the absence of concrete allocation, have as normal destination a use generating agricultural income", which shows that allocation is concrete, actual. In fact, as is seen from the final part of this text, a property may have as destination a particular use and be or not allocated to it, which shows that allocation is, at the level of the connection of a property to a particular use, something more intense than mere destination and which may or may not occur downstream of this and not upstream. (4)

On the other hand, in the judgment of the STA of 09-07-2014, issued in case No. 0676/14, where Counselor Dulce Neto is the rapporteur, it is stated that "housing allocation always appears in the IMI Code referred to 'buildings' or 'constructions', existing, authorized or planned, because only these can be inhabited, which is not the case with land for construction, which do not have, in themselves, conditions for such, not being susceptible to being used for housing unless and when the construction authorized and planned for them is built on them (but in that case they will no longer be 'land for construction' but another species of urban properties – 'residential', 'commercial, industrial or for services' or 'others' – article 6 of the IMI Code)."

Furthermore, the text of the law, by adopting the formula "property with housing allocation", instead of "urban properties with housing allocation", which appears in the aforementioned "Exposition of Motives", points strongly in the direction that housing allocation must already be concretized, since only then will the property be with that allocation.

With regard to article 45 of the IMI Code, it has no relation whatsoever to the classification of properties, merely indicating the factors to be considered in the valuation of land for construction. What is considered there, by reference to the "building to be constructed" is the consideration of the destination of the land, which, as was seen, is something that, in the context of the IMI, does not imply allocation and occurs before this.

The correctness of this interpretation that only properties that are actually allocated to housing fall within the scope of incidence of item No. 28.1 of the TGIS is also confirmed by the ratio legis perceptible from the restriction of the field of application of the norm to properties with housing allocation, in the context of "the circumstances in which the law was drafted 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. (5).

In the first place, the limitation of taxation in Stamp Tax to "properties with housing allocation" suggests that it was not intended to encompass within the scope of incidence of the tax properties with allocation to services, industry or commerce, that is, properties allocated to economic activity, which is understandable in a context in which, as is notorious, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historically maximum levels, with an avalanche of business closures resulting from economic unsustainability.

Keeping in mind this situation and being known and public that the revival of economic activity and the increase of exports are the ways out of the crisis, it is understandable that legislative measures would not be taken that would hinder economic activity, namely the increase in the tax burden that hinders it and affects competitiveness in international terms.

For this reason, it is to be concluded that the available interpretative elements, including the "circumstances in which the law was drafted and the specific conditions of the time in which it is applied", clearly point in the direction that it was not intended to encompass within the scope of incidence of item No. 28.1 situations – as in the present case - of properties that are not yet allocated to housing, namely land for construction held by companies. (6)

See also in this regard the judgment of the Supreme Administrative Court, of 14-05-2014, case No. 046/14, where Ascenção Lopes is Rapporteur, which states that "having the legislator not defined the concept of 'urban properties with housing allocation', and resulting from article 6 of the IMI Code – subsidiarily applicable to the Stamp Tax provided for in the new item No. 28 of the General Table – a clear distinction between 'residential urban properties' and 'land for construction', the latter cannot be considered, for purposes of incidence of Stamp Tax (Item 28.1 of the TGIS, as amended by Law No. 55-A/2012 of 29 October), as urban properties with housing allocation."

Preliminarily it should be said that the AT could never validly grant or validate requests for declaration of unconstitutionality of norms insofar as it is the exclusive competence of the Courts to make such declaration.

In fact, the AT and the Public Administration in general are subject to the principle of legality (cf. art. 266, No. 2 of the CRP and art. 55 of the LGT) and "(…) cannot fail to apply a norm on the ground of unconstitutionality, unless the Constitutional Court has already declared the unconstitutionality thereof with mandatory general effect (cf. art. 281 of the CRP) or if there is a violation of directly applicable and binding constitutional norms, such as those referring to rights, freedoms and guarantees (cf. art. 18, No. 1 of the CRP), which is not the case (…)" [Cf. Judgment of the STA, of 12-10-2011, published at http://www.dgsi.pt/jsta.

For as VIEIRA DE ANDRADE says, "(…)this conflict [between constitutionality and the principle of legality] cannot be resolved through the automatic prevalence of constitutional law over legal law. That is not what is at stake, because what is at issue is not the constitutionality of the law, but the judgment that administrative bodies may make about that constitutionality. On one hand, the Administration is not a body for oversight of constitutionality; on the other hand, the submission of the Administration to the law is not aimed only at the protection of the rights of individuals, but also at the defense and pursuit of public interests […]. The grant to administrative power of unlimited powers to control the unconstitutionality of the laws to apply would lead to administrative anarchy, would invert the Law-Administration relationship and would directly attack the principle of separation of powers, as it is established in our Constitution (…)" (Constitutional Law, Almedina, 1977, p. 270.).

And, in the same sense, JOÃO CAUPERS states that "(…)the Administration does not, in principle, have the competence to decide the non-application of norms whose constitutionality offers it doubts, contrary to the courts, to whom falls the responsibility of diffuse and concrete oversight of constitutional conformity, as demonstrated by the differences between articles 207 [now 204] and 266, No. 2 of the Constitution. While the former prevents the courts from applying unconstitutional norms, the latter stipulates the subordination of administrative bodies and agents to the Constitution and the law. It is clear that the essential difference between the two provisions stems precisely from the fact that it was not intended to commit to the Administration the task of overseeing the constitutionality of the laws. The performance of such function by the latter must be seen as exceptional (…)" (The Fundamental Rights of Workers and the Constitution, Almedina, 1985, p. 157.).

We conclude, therefore, with the cited Doctrine and Jurisprudence, that in Portuguese Constitutional Law there is no possibility for the Administration to refuse to obey a norm that it considers unconstitutional, substituting itself for the bodies overseeing constitutionality, unless it is a matter of violation of rights, freedoms and guarantees constitutionally enshrined.

And for this reason, it is that, presented the appeal on the ground of violation of constitutional principles that do not put in question rights, freedoms and guarantees, listed in articles 24 et seq. of the Constitution, the outcome could never be other than dismissal.

C – On the violation of the principle of equality

This principle, basic to a state of law, translates the prohibition of any discrimination in the treatment of equal situations (equalizing dimension) and admission of unequal treatment of unequal situations [differentiating dimension).

In the matter of taxation, the principle of equality[7] is translated in the "[(…)idea of generality or universality, in accordance with which all citizens are bound by the duty to pay taxes, and uniformity, requiring that such a duty be assessed by the same criterion — the criterion of contributory capacity. This thus implies equal tax for those who have equal contributory capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those who have different contributory capacity in proportion to this difference (vertical equality) (…)]" (Casalta Nabais, Tax Law, 5th edition, Coimbra, 2009, pp. 151-152).

As stated in the judgment of CAAD No. 218/2013-T of 24-02-2014, where Judge José Poças Falcão is the rapporteur (also president of this collective Tribunal), "the principle of tax equality can be concretized through diverse aspects: i) in the generality of the tax law, in its application to all without exception; ii) in the uniformity of tax law, in treating in the same manner taxpayers who find themselves in equal situations and in different manner those who find themselves in different situations, in the measure of the difference, to be assessed by contributory capacity; iii) finally, but no less relevant for the case at hand, the principle of equality is concretized in the prohibition of arbitrariness, in preventing the introduction of discrimination between taxpayers that are devoid of rational foundation."

As a presupposition and criterion of taxation, the principle of contributory capacity "(…)distances the fiscal legislator from arbitrariness, obliging it to that in the selection and articulation of tax facts, it adheres to revelations of contributory 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, Cited Work, p. 154).

That is, in other words: it is constitutionally forbidden to the ordinary legislator to determine its norms in a "capricious" manner, but rather it should submit them to serious and rigorous dictates of equalization and positive discrimination, as appropriate.

The principle of equality has its express consecration in our Fundamental Law [cf. article 13 of the Constitution].

From this it results that this principle can also express itself in the obligation to impose differentiating measures in order to achieve the equality of opportunities necessary to equality (tending real) between citizens.

That is: the principle of equality should only be considered violated if the treatment considered unequal is arbitrary or, in less forceful terms, if the unequal treatment is not justified nor reasonable.

On the other hand, "(…)the principle of contributory capacity expresses and concretizes the principle of tax or fiscal equality in its 'uniformity' aspect – the duty of all to pay taxes according to the same criterion – filling contributory capacity the unitary criterion of taxation", being understood that criterion as being that in which "the incidence and distribution of taxes – of 'fiscal taxes' more precisely – should be made according to the economic capacity or 'capacity to spend' (-) of each and not according to what each might eventually receive in goods or public services (criterion of benefit)" [Cf. Judgment of the Constitutional Court No. 142/04[8]]

It is in this context that fiscal treatment differentiation of property would be justified, namely real estate, in order to tax, in an aggravated and proportional manner, the holders of properties of greater value or even creating autonomous taxation for those properties of exceptionally high value based on the presumption – which we know does not always materialize -, that those who have property of high value have the corresponding contributory capacity.

In the matter of tax equality, contributory capacity is an essential element to be considered since there will only be true equality of tax treatment of taxpayers if there is identical taxation for identical contributory capacities. As is evident.

The special taxation, in the matter of stamp tax, incurred on properties with housing allocation of value greater than € 1,000,000, was, as was seen, introduced into our tax system by Law No. 55-A/2012, of 29-10, with the addition to the General Table of Stamp Tax (TGIS) of item 28.1 [cf. article 4 of the cited Law].

With regard to the year 2012, a transitional regime was established by the cited Law [cf. article 6].

Let us then see whether the legislative choice, translated into the introduction of this new regime of subjection to stamp tax violates, by the form in which it was formulated, the constitutional principle of tax equality, with the inherent corollary translated in the principle of contributory capacity.

It has been the repeated understanding of the Constitutional Court that "(…)only the choices of regime made by the ordinary legislator can be censured, on the ground of violation of the principle of equality, in those cases in which it is proven that they result in differences of treatment between persons that do not find justification in reasonable, perceptible or intelligible grounds, taking into account the constitutional purposes that, with the measure of the difference, are pursued" (Cf. Judgment of the Constitutional Court No. 47/2010[9]).

It is an understanding that has been reiterated more recently in the well-publicized judgment of the Plenary of the Constitutional Court regarding the successive appreciation of provisions of the State Budget for 2013 - Judgment No. 187/2013, of 5 April 2013.

At the basis of the approval of the cited Law No. 55-A/2012, was the "(…) pursuit of public interest, in light of the economic and financial situation of the Country (…)" and the requirement of "(…) a consolidation effort that will require, in addition to a permanent activism in reducing public spending, the introduction of fiscal measures inserted in a wider set of measures to combat budget deficit (…)" measures "(…) fundamental to strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program (…) and in conformity with this desideratum, this statute broadens the taxation of capital and property income, encompassing equitably a wide set of sectors of Portuguese society (…)" – Cf. terms of the "Exposition of Motives" in the legislative proposal No. 96/XII/2 presented by the Government to the National Assembly and which was at the basis of the approval of the aforementioned Law (Cf. Records of the National Assembly – Series A, of 21-9-2012, pp. 44-52).

Contradictorily, such desiderata do not appear to emerge from or be fully evidenced in Law No. 55-A/2012.

In the first place because it is not understood or explained why only real estate allocated to residential purposes should be taxed, with the exclusion, therefore, of those which, although of value greater than € 1,000,000, are not allocated to that purpose.

On the other hand, taxation by item 28.1 of the TGIS leads to manifest inequity insofar as it leaves out of that taxation, unexplained and inexplicably, real estate of the same tax subject which, although all allocated to residential purposes, each have a VPT less than 1,000,000 but which together total a VPT greater (and, sometimes, even substantially greater) than €1,000,000.

That is: the principle of contributory capacity translated in the payment of the tax in function of the index of that capacity [the value of the real estate property of the tax subject], is brought into question insofar as the regime of taxation in the matter of stamp tax [and which, in the case, is translated into taxation of property] does not ensure – quite the contrary – an effective equality of taxation in function of the contributory capacity of the citizens subject to that incidence.

For this reason, the petitioner cannot fail to be given reason when it alleges that "(…)the circumstance that IS only applies to the property, usufruct and right of superficies of urban properties with housing allocation of tax patrimonial value equal to or greater than € 1,000,000.00, excluding from taxation other realities, equally capable of configuring manifestations of wealth, such as, for example, the property of rural properties or the property of urban properties intended for commerce and services or others, embodies unequal treatment and, consequently, unequivocally discriminatory (…)" being that "(…)such treatment cannot, in those terms, fail to be traced back to a violation of the principle of contributory capacity, corollary and expression of the principle of equality (…)".

Accordingly, with foundation in the violation of the principle of equality and contributory capacity, the request for annulment of the tax act of levy of stamp tax proceeds.

1. The request for compensatory interest

Once the illegality of the levy is determined and its consequent annulment, with the debt of undue tax paid, the right to compensatory interest subsists, whenever this results from error imputable to the services of the AT, as provided for in No. 1 of article 43 of the General Tax Law (LGT).

The legal norms determinative in the analysis of this question are article 43 of the LGT and article 61 of the CPPT, with article 43 of the LGT defining the situations that give rise to the payment of compensatory interest and article 61 of the CPPT defining the payment periods and the initial and final terms for the counting of compensatory interest. These two norms must be understood in consonance.

When due to error imputable to the services of the fiscal administration the taxpayer unduly pays a tax and the levy act was contested through gracious appeal or judicial challenge [or request for arbitral pronouncement] within the respective legal deadline (article 43, Nos. 1 and 2 of the LGT), compensatory interest is counted from the date of payment of the undue tax until the issuance of the respective credit note (article 61, No. 5 of the CPPT)

In light of the uniform Jurisprudence of the STA, "in general, it can be stated that error imputable to the services that operated the levy, understood in a global sense, is demonstrated when a gracious appeal or challenge of that same levy is made" (cf., v. g., Judgment of the Supreme Administrative Court of 31 October 2001, Case No. 26167).

It is naturally not excepted from this regime the case of annulment of the levy on the ground of illegality and/or unconstitutionality of the ordinary law in which those (levies) were based.

Accordingly and on the basis of the provisions of Nos. 1 and 2 of article 43 of the LGT and article 61 of the Tax Procedure and Process Code (CPPT), compensatory interest is due on the amount unduly levied and paid, counted from the day following the undue payments and until the date of issuance of the respective credit note, at the legal rate.

III DECISION

1. In accordance with the foregoing, this Tribunal decides:

a) To declare the illegality of the levies that are the subject of these proceedings, for lack of legal basis and violation of articles 4 and 6 of Law No. 55-A/2012, of 29 October and of the constitutional principles of equality and contributory capacity, and, consequently, judging the request well-founded on that ground, decides to annul the levy acts founded on that same norm now judged unconstitutional;

b) To judge well-founded the request for indemnification formulated and, consequently,

c) To condemn the Tax and Customs Authority to reimburse the value of the tax paid, with compensatory interest calculated at the legal rate and in the other terms provided for in articles 43 of the LGT and 61 of the CPPT.

1. Value of the proceedings

In accordance with the provision of art. 306, Nos. 1 and 2 of the CPC and 97-A, No. 1, paragraph a) of the CPPT and 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 83,467.19.

1. Costs

Pursuant to art. 22, No. 4 of the RJAT, the amount of costs is fixed at €2,754 (two thousand seven hundred and fifty-four euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, entirely at the charge of the Tax and Customs Authority.

Lisbon, 9-9-2014

(José Poças Falcão)

(Ana Teixeira de Sousa)

            (Suzana Fernandes da Costa)

[1] Taxes on Real Estate Property, Editor King of Books, 2005, page 116

[2] Cf., for this purpose, decision of the Administrative Arbitration Centre, available on 02.10.2013, issued within the scope of case No. 53/2013-T.

[3] Cf. decision cited above.

[4] Tax Procedure and Process Code Annotated and Commented, 6th edition, 2011, page 526.

[5] In the same sense, see, among others, judgment of the Central Administrative Court South of 11.09.2012, issued in case No. 03145/09.

[6] The reference to documents without mention of the pleadings refer to documents attached with the initial request.

[7] Unlike other Constitutions [e.g., Italian and German], there is no explicit provision in the Constitution mentioning the principle of equality in tax matters. This principle can only be expressly found in the General Tax Law (article 5).

[8] Cf. infra, note 4.

[9] This judgment as well as the others cited and issued by the Constitutional Court are published on its respective website: http://www.tribunalconstitucional.pt/tc/acordaos/