CAAD Ruling on Stamp Tax for Construction Land Under Verba 28.1 TGIS (Case 663/2014-T)

Arbitral Decision [1]

Claimant – A

Respondent - Tax and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 12 November 2014, with respect to the case above identified, has decided the following:

1. REPORT

1.1 A (hereinafter referred to as "Claimant"), taxpayer no. ..., resident at Street ..., in ..., submitted a request for arbitral decision and constitution of a single arbitral tribunal, on 8 September 2014, pursuant to the provisions of Article 4 and no. 2 of Article 10 of Decree-Law no. 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is the respondent (hereinafter referred to as "Respondent").

1.2 The Claimant requests that the Arbitral Tribunal "deign to consider the present request for arbitral decision (...) well-founded on the grounds of fact and law (...) presented and, in consequence, the Stamp Tax assessment in question be annulled or declared null, with the legal consequences".

1.3 The request for constitution of the Arbitral Tribunal was accepted by the Director of CAAD on 8 September 2014 and notified to the Respondent on the same date.

1.4 The Claimant did not proceed with the appointment of an arbitrator, so, pursuant to the provisions of Article 6, no. 2, subparagraph a) of the RJAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of CAAD, the appointment having been accepted within the legally prescribed deadline and terms.

1.5 On 21 October 2014, the parties were duly notified of this appointment, and neither manifested any intention to refuse the appointment of the arbitrator, in accordance with the provisions of Article 11, no. 1, subparagraphs a) and b) of the RJAT, read together with Articles 6 and 7 of the Deontological Code.

1.6 Thus, in accordance with the provisions of subparagraph c), no. 1, of Article 11 of the RJAT, the Arbitral Tribunal was constituted on 12 November 2014, with an arbitral order issued on the same date, notifying the Respondent to, pursuant to the provisions of Article 17, no. 1 of the RJAT, submit a response within a maximum period of 30 days and, if it wished, request the production of additional evidence.

1.7 On 18 December 2014, the Respondent submitted its Response, having defended itself by way of objection and concluded that "the request for a declaration of illegality and consequent annulment of the disputed assessment should be ruled unfounded, and the Tax Authority (AT) be absolved of the request".

1.8 On the same date, the Respondent also submitted a request seeking an exemption from the holding of the first arbitral meeting (in accordance with the provisions of Article 18 of the RJAT), which, having been notified to the Claimant, obtained its agreement on 6 January 2015.

1.9 Accordingly, by order of this Arbitral Tribunal, dated 7 January 2015, the Claimant and the Respondent were notified to "in this order and successively, submit written submissions within 15 days, with the period for the Respondent to commence upon notification of the attachment of the Claimant's submissions".

1.10 The date of 25 February 2015 was also set in the order referred to in the previous point for the purpose of issuing the arbitral decision, and the Claimant was warned that "until the date of issuing the arbitral decision it should proceed with the payment of the subsequent arbitral fee, in accordance with the provisions of no. 3 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD" (which it did on 4 February 2015).

1.11 On 14 January 2015, the Claimant submitted a request asking this Arbitral Tribunal that "in case of a decision favorable to the Claimant deign to order the reimbursement of the sums unduly paid (...) concerning the first installment, plus the corresponding indemnatory interest" taking into account that "on 16.10.2014, the Claimant proceeded to payment with the Tax Authority of the said first installment and respective interest in the total amount of EUR 6.626,58".

1.12 On 22 January 2015, the Claimant submitted written submissions reiterating the arguments presented in the Request for Arbitral Decision, concluding that "the assessment act in question is thus null and void, since the sum demanded has no legal or factual basis whatsoever", whereby:

1.12.1 "The present objection should be ruled well-founded and upheld, annulling or declaring null the act under judicial review, with the legal consequences";

1.12.2 "The reimbursement of the sum unduly paid regarding the assessment of the first installment (...), plus the corresponding indemnatory interest should be ordered".

1.13 The Respondent did not submit submissions, notwithstanding timely notification to do so (see point 1.9., above).

2. GROUNDS OF CLAIM

The Claimant bases its request, in summary, as follows:

2.1 "It is the owner of the urban property registered in the urban property register under item 847, of the parish of ..., municipality of Lisbon".

2.2 In this context, the Claimant was "notified of the assessments of Stamp Tax no. 2014 ... (concerning the first installment), in the amount of EUR 6.407,86 and no. 2014 ... (concerning the second installment), in the amount of EUR 6.407,84, with 2013 being the respective tax year in question, corresponding to the total amount of EUR 19.223,54".

2.3 As it did not agree, "the Claimant submitted, on 30 April 2014, an administrative complaint concerning the Stamp Tax assessed", requesting that "the present complaint should be granted and accordingly the disputed Stamp Tax assessment (...) in the amount of EUR 19.223,54 should be annulled, concerning the land for construction registered in the urban property register of the parish of ... ... under item ...".

2.4 On 23 July 2014, the Claimant was notified to "exercise the right to prior hearing and take note of the draft decision and its reasoning, concluding by dismissing the administrative complaint submitted".

2.5 On 1 August 2014, the Claimant exercised its right to prior hearing, in writing, reiterating "the conclusions previously formulated as, with the elements now presented, considers that the Administrative Complaint should be granted, as well-founded and, consequently, the Stamp Tax assessment (...) no. 2013 ... should be annulled".

2.6 On 20 August 2014, the Claimant was notified of the decision to dismiss the administrative complaint submitted.

2.7 According to the Claimant, "the assessment in question is allegedly based on the application of the provisions of Law no. 55-A/2012, of 29 October", affecting item 28 of the General Table of Stamp Tax (TGIS) "only upon the ownership, usufruct or right of surface of urban properties whose patrimonial value for tax purposes (VPT) shown in the register, in accordance with the Code of Municipal Tax on Property (IMI), is equal to or greater than EUR 1.000.000 on the VPT used for IMI purposes: per property with residential use".

2.8 Now, according to the Claimant, "as evidenced in the urban property booklet concerning the land in question (...), it is land for construction and not a property with residential use as the law states".

2.9 The Claimant adds that "it proceeded with the acquisition of the property in question, within the scope of its professional activity of purchase for resale of properties, having not proceeded with any construction on the same".

2.10 "Thus, the Stamp Tax assessment in question, in the name of the principle of legality and typicality of taxes, could only have been made based on the provisions of the TGIS and in accordance with the facts foreseen therein by the legislator (...)" and, "in this sense, in accordance with the principle of legality and typicality, the Tax Administration should only proceed with the assessment that is pertinent in case of verification of all and each one of the typical elements provided for in the law as generators of the State's right to the tax".

2.11 Now, still according to the Claimant, "since in the present case the verification of the prerequisites upon which the exigibility of the tax in question depends was not proven, it is manifest that no tax fact was constituted, whereby the payment demanded from the now Claimant is illegal and inexigible".

2.12 In this measure, "the assessment act in question constitutes the creation of a true tax or special contribution not permitted by law" whereby "the act in question is thus null and void (...)".

2.13 In these terms, for the Claimant, "the Stamp Tax assessment act thus suffers from manifest lack of substantiation of fact and law or, at least, this is insufficient, obscure and incongruous, whereby were frontally violated articles 268°, no. 3 of the Constitution of the Portuguese Republic (CRP), 124° and 125° of the Code of Administrative Procedure (CPA) and 77° of the General Tax Law (LGT)" whereby "the assessment act (...) should be annulled".

2.14 Thus, the Claimant concludes by petitioning this Arbitral Tribunal that "deign to consider the present request for arbitral decision (...) well-founded on the grounds of fact and law above presented and, in consequence, be annulled or declared null the Stamp Tax assessment in question, with the legal consequences".

3. RESPONSE OF THE RESPONDENT

3.1 The Respondent responded arguing the lack of merit of the request for arbitral decision, having invoked the following arguments:

3.2 "It is the understanding of the AT that the property on which the disputed assessment falls has the legal nature of property with residential use, whereby the assessment act which is the subject of the present request for arbitral decision should be maintained, as it embodies the correct interpretation of Item 28 of the General Table, added by Law 55-A/2012, of 29/12".

3.3 "With this legislative amendment, Stamp Tax would now apply also to the ownership, usufruct or right of surface of urban properties whose VPT shown in the register, in accordance with the Code of IMI is equal to or greater than EUR 1.000.000,00".

3.4 "In the absence of any definition of the concepts of urban property, land for construction and residential use, in the context of Stamp Tax, one must resort to the Code of IMI, in the search for a definition that allows ascertaining the potential subjection to Stamp Tax, in accordance with the provisions of Article 67°, no. 2 of the Code of Stamp Tax in the wording given by Law no. 55-A/2012, of 29/10".

3.5 Thus, continues the Respondent, "in accordance with the aforesaid legal provision, to matters not regulated in the Code, concerning item no. 28 of the TGIS, the provisions of the Code of IMI shall apply subsidiarily", in accordance with which:

3.5.1 "Provides Article 2°, no. 1 that property is every fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or resting thereon, with a character of permanence provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances have economic value (...)" and,

3.5.2 "Provides Article 6°, no. 1 (...) integrating in this concept" (of urban property) "the lands for construction, that is the lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of a subdivision or construction operation (...)".

3.6 On the other hand, according to the Respondent, "the notion of use of the urban property is found in the part relating to the assessment of properties, which is well understood since the assessment of the property (purpose) incorporates value to the property, constituting a fact of distinction determinative (coefficient) for purposes of assessment".

3.7 "Contrary to what is argued by the Claimant, the AT understands that the concept of properties with residential use, for purposes of the provisions of item 28 of the TGIS, comprises both constructed properties and lands for construction, starting with regard to the literal element of the rule".

3.8 "Note that the legislator does not refer to properties intended for housing, having opted for the notion residential use - a different and broader expression, the meaning of which should be found in the need to integrate other realities beyond those identified in Article 6°, no. 1 subparagraph a) of the Code of IMI".

3.9 On the other hand, even though "with regard to the legal framework of urbanization and construction, (...) the same has as its premise already constructed buildings", "one cannot ignore that the building permit for the carrying out of urban operations should contain, among other elements, the number of lots, (...), the purpose (...)", the Respondent understanding that "also the Municipal Master Plans establish the strategy for municipal development, municipal policy for land management and urbanism and other urban policies (...)" whereby "long before the actual construction of the property, it is possible to ascertain and determine the intended use of the land for construction".

3.10 With respect to the "alleged violation of constitutional principles, the AT cannot fail to note that the CRP requires that equal treatment be given to what is necessarily equal and as different what is essentially different, not preventing different treatment (...)", whereby "the AT understands that the provision of item 28 of the TGIS does not constitute a violation of any constitutional command" given that "it applies to the ownership, usufruct or right of surface of urban properties with residential use, whose VPT shown in the register, in accordance with the Code of IMI, is equal to or greater than EUR 1.000.000,00, that is, it applies to the value of the property", being "a general and abstract rule, applicable indistinctly to all cases in which the prerequisites of fact and law are verified".

3.11 In fact, "the different aptness of properties (housing/services/commerce) supports the different treatment, having been a choice of the legislator, for political and economic reasons, to exclude from the scope of Stamp Tax properties intended for purposes other than residential".

3.12 In fact, "(...) taxation in the context of Stamp Tax obeys criteria of adequacy, being applied indistinctly to all holders of properties with residential use of value superior to EUR 1.000.000,00, applying to the wealth embodied and manifested in the value of properties".

3.13 "Thus, the choice of this mechanism for obtaining revenue is found to be legitimate, which would only be censurable, in light of the principle of proportionality, if it resulted in manifestly indefensible", "which is not the case since such measure will be applied indistinctly to all holders of properties with residential use of value superior to EUR 1.000.000,00".

3.14 In these terms, "(...) the assessment in question embodies a correct interpretation and application of law to the facts, not suffering from a vice of violation of law (...) and should, in consequence, be ruled unfounded the claimed pretension and the respondent Entity be absolved of the request".

3.15 Finally, and regarding the testimonial evidence presented by the Claimant, the Respondent understands that "the question submitted to the appreciation of the Arbitral Tribunal is a strictly legal question, whereby there is no need for production of evidence of any facts, beyond those that are documentally proven in the process", "whereby it is not seen the necessity of hearing the witnesses called, taking into account that the tribunal can and should ex officio know of all the legal questions posed, without the need to previously hear the witnesses called".

4. PROCEDURAL MATTERS

4.1 The request for arbitral decision is timely since it was submitted within the period provided for in subparagraph a) of no. 1 of Article 10 of the RJAT.

4.2 The parties have legal personality and capacity, are legitimate regarding the request for arbitral decision and are duly represented, in accordance with the provisions of Articles 4 and 10 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

4.3 The Tribunal is competent regarding the appreciation of the request for arbitral decision formulated by the Claimant.

4.4 No exceptions were raised which it is necessary to address.

4.5 There are no nullities, so it is now necessary to examine the merits of the request.

5. FACTS

5.1 Of the proved facts

5.2 The following facts are considered as proved based on the documents attached to the file:

5.2.1 The Claimant is the owner of an urban property (land for construction), registered in the urban property register under no. ... of the parish of ... (...), in …, whose VPT, determined in 2012, amounts to EUR 1.922.353,92 (according to documents no. 1 and 2, attached with the request).

5.2.2 The Claimant was notified of the assessment of Stamp Tax no. 2013 ..., dated 17 March 2014, in the total amount of EUR 19.223,54, concerning the property identified in point 5.2.1., above, having been subsequently notified of the document relating to the payment of the first installment of that tax, which is identified below:

5.2.3 The Claimant made payment of the first installment relating to the above-identified tax assessment on 16 October 2014 (according to document presented with request attached to the process on 14 January 2015).

5.2.4 The Claimant submitted an administrative complaint concerning the above-identified Stamp Tax assessment on 2 May 2014 (document no. 5 attached with the request), having been notified of the draft decision (in the sense of dismissal), through Office no. ..., of 15 July 2014, to exercise the right to prior hearing (document no. 6 attached with the request).

5.2.5 The Claimant exercised, on 1 August 2014, the right to prior hearing in writing (document no. 7 attached with the request), having been notified of the decision to dismiss the above-identified administrative complaint, through Office no. ..., of 14 August 2014 (document no. 8 attached with the request).

5.2.6 The Claimant attached with the request a document relating to the payment of the second installment of Stamp Tax, which is identified below, but which is not related to the tax assessment which is the subject of the request for arbitral decision (in fact, there is no coincidence of its elements), whereby it will not be considered here:

5.3 No other facts capable of affecting the decision on the merits of the request were proved.

5.4 Of the facts not proved

5.5 No evidence was obtained of the documents relating to the second and third installments of Stamp Tax concerning the assessment which is the subject of Arbitral Decision, nor was evidence obtained regarding the payment of these installments.

5.6 Notwithstanding the foregoing in the previous point, the tax act being analyzed is the assessment of Stamp Tax no. 2013 ..., of 17 March 2014, in the total value of EUR 19.223,54, a fact already given as proved in point 5.2.2., above.

5.7 No other facts were verified as not proved with relevance to the arbitral decision.

6. LEGAL GROUNDS

6.1 In the proceedings, the essential question to be decided is that of determining the scope of item 28.l. of the TGIS, in the wording given to it by Law no. 55-A/2012 of 29 October, namely, whether:

6.1.1 In that rule should be included lands for construction and, in particular;

6.1.2 Lands for construction with VPT equal to or greater than EUR 1.000.000 are subsumed, or not, in the category of urban properties "with residential use",

in order to determine whether the assessment of Stamp Tax which is the subject of the request for Arbitral Decision suffers from a vice of violation of that item no. 28.1. (due to error regarding the prerequisites of law), which would justify the declaration of its illegality and respective annulment.

6.2 The answer to the questions set out in the previous point requires the analysis of the legal rules applicable to the concrete case, in order to determine what is the correct interpretation in light of the Law and the Constitution, given that it is a matter of ascertaining a prerequisite for the incidence of tax, carefully protected by the principle of fiscal legality, resulting from the provisions of Article 103°, no. 2 of the CRP.

Regarding the scope of item 28.l. of the TGIS (in the wording given to it by Law no. 55-A/2012 of 29 October)

6.3 Law no. 55-A/2012 made several amendments to the Code of Stamp Tax and added to the TGIS item 28, with the following wording:

"28. Ownership, usufruct or right of surface of urban properties whose VPT shown in the register, in accordance with the Code of IMI, is equal to or greater than EUR 1.000.000,00 – on the VPT for purposes of IMI:

28.1 – Per property with residential use – 1%.

28.2 – (...)".

6.4 Notwithstanding the text of Law no. 55-A/2012 (in force since 30 October 2012) did not proceed with the qualification of the concepts contained in the aforesaid item no. 28, in particular, the concept of "property with residential use", if we observe the provisions of Article 67°, no. 2, of the Code of Stamp Tax (also added by the aforesaid Law), it is verified that "to matters not regulated in this Code, concerning item 28 of the General Table, the Code of IMI shall apply, subsidiarily" (emphasis ours).

6.5 Now, from the reading of the Code of IMI, we easily realize that the concept of "property with residential use" refers, naturally, to the concept of "urban property", defined in accordance with Articles 2° and 4° of that Code.

6.6 In fact, in accordance with the provisions of Article 2°, no. 1 of the Code of IMI, "(...) property is every fraction of territory, encompassing the waters, plantations, buildings and constructions of any nature incorporated therein or resting thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as the waters, plantations, buildings or constructions, in the above circumstances, endowed with economic autonomy in relation to the land where they are situated, although located in a fraction of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature" (emphasis ours).

6.7 Still in accordance with nos. 2 and 3 of the same article, "the buildings or constructions, even though mobile by nature, are deemed as having a character of permanence when devoted to non-transitory purposes", being presumed "the character of permanence when the buildings or constructions are situated in the same location for a period exceeding one year".

6.8 On the other hand, in accordance with the provisions of Article 4° of the Code of IMI, "urban properties are all those that should not be classified as rural (...)".

6.9 In this scope, among the various species of "urban properties" referred to in Article 6° of the Code of IMI, "lands for construction" are expressly mentioned [no. 1, subparagraph c)], with no. 3 of the same article adding that "lands for construction are considered those situated within or outside an urban agglomeration, for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of a subdivision or construction operation, and also those which have been so declared in the acquisition title, excepting the lands in which the competent entities prohibit any of those operations, in particular those located in green areas, protected areas or which, in accordance with municipal land management plans, are intended for public spaces, infrastructure or facilities" (emphasis ours).

6.10 As can be seen from the norms of the Code of IMI transcribed above, it is not possible to extract what the legislator intended to say when it refers in the text of the law to "properties with residential use", since this concept is not used in the classification of properties, nor is this concept found, with this terminology, in any other statute.

6.11 On the other hand, given that Law no. 55-A/2012, of 29/10, has no preamble, it results that it is not possible to withdraw from it the intention of the legislator.

6.12 Thus, in the absence of exact terminological correspondence of the concept of "property with residential use" with any other concept used in other statutes, several interpretative hypotheses can be raised, and the text of the law must be the starting point of the interpretation of that expression, as it is based on it that the legislative thought will have to be reconstructed, as results from the provisions of no. 1 of Article 9° of the Civil Code, applicable by virtue of the provisions of Article 11°, no. 1, of the LGT.

On the interpretation of the concept of "urban property with residential use"

6.13 In fact, in accordance with the provisions of Article 9° of the Civil Code, "interpretation should not be limited to the letter of the law, but reconstruct, from the texts, the legislative thought, having especially in mind the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied", and cannot "be considered by the interpreter the legislative thought which does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed" (emphasis ours).

6.14 In these terms, it can be stated that fiscal laws are interpreted as any others, and it is necessary to determine their true meaning in accordance with the techniques and interpretative elements generally accepted by doctrine (see Article 9° of the Civil Code and Article 11° of the LGT) [2].

6.15 Thus, the concept most closely aligned with the literal wording of the expression "property with residential use" is manifestly that of "residential properties", referred to in Article 6°, no. 1 of the Code of IMI (and defined in no. 2 of the same article), encompassing buildings or constructions licensed for residential purposes or, in the absence of a license, which have as their normal destination residential purposes (emphasis ours).

6.16 "That is, for purposes of the Code of IMI, both properties licensed for residential use are residential, even if they are not being used for that purpose, and, in the case of lack of license, which have as their normal destination that purpose" [3].

6.17 Therefore, if one were to adopt the interpretation that "property with residential use" means "residential property", the assessment whose declaration of illegality is requested would, in fact, be illegal, since there is, in any of the lands, any building or construction.

6.18 However, the non-coincidence of the terms of the expression used in item no. 28.1. of the TGIS with that which is extracted from the provisions of no. 2 of Article 6° of the Code of IMI, suggests that the legislator did not intend to use the same concept.

6.19 On the other hand, it is necessary to also consider that the rules of incidence of taxes should be interpreted in their exact terms, without recourse to analogy, making certainty and security prevail in their application. [4]

6.20 Finally, it is also important to inquire what is the ratio legis underlying the rule of item 28.1. of the TGIS and, in obedience to the provisions of Article 9° of the Civil Code [5], what are the circumstances in which the rule was drawn up and what are the specific conditions of the time in which it is applied.

6.21 In fact, in this scope, the legislator intended to introduce a principle of taxation on the wealth externalized in the ownership, usufruct or right of surface of luxury urban properties with residential use, having considered, as the determinative element of contributory capacity, urban properties, with residential use, of high value (of luxury), that is, of value equal to or greater than EUR 1.000.000,00, on which a special rate of Stamp Tax would (and did) apply (emphasis ours).

6.22 In truth, in the preamble of the bill that introduced the amendments to item 28 of the TGIS were presented as reasons:

6.22.1 "The pursuit of the public interest, in view of the economic-financial situation of the Country, requires a strengthening of budgetary consolidation which will require, besides permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat the budgetary deficit".

6.22.2 "These measures are fundamental to strengthen the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices for compliance with the adjustment program (...) with the Government strongly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live on the income of their work".

6.22.3 "In accordance with this purpose, this bill expands the taxation of capital income and property, equitably encompassing a broad set of sectors of Portuguese society".

6.22.4 "A special rate is created in the context of Stamp Tax applying to urban properties of residential use whose VPT is equal to or greater than one million Euros" (emphasis ours).

6.23 Thus, it results from this motivation of the legislator that the taxation in question aims at "an effective distribution of sacrifices", making this taxation apply to property (as opposed to earned income, already affected by other measures).

6.24 As it is overly broad, this enumeration of the reasons underlying the adoption of the measures has brought few contributions to the interpretation of the concept of "urban property with residential use".

6.25 And we understand that this same conclusion can also be drawn from the analysis of the discussion of Bill no. 96/XII in the Assembly of the Republic [6], which was at the origin of the proposal for amendments, with no distinct interpretative ratio being invoked beyond that presented here. [7]

6.26 In fact, the justification for the measure called "special rate on the highest-value urban residential properties" is based on the invocation of the principles of social equity and fiscal justice (calling upon to contribute in a more aggravated manner the holders of high-value properties intended for housing), by making the new special rate apply to "houses of value equal to or greater than 1 million Euros" (emphasis ours).

6.27 Now, if such logic seems to make sense when applied to a "residence" (whether it be a house, an autonomous fraction, a part of a property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, a contributory capacity above average (and, in that measure, susceptible to determining a special contribution to guarantee the fair distribution of fiscal effort), it would make no sense if applied to a "land for construction".

6.28 In these terms, the Respondent cannot distinguish where the legislator itself understood not to do so, under the penalty of violating the coherence of the fiscal system and the principles of fiscal legality (Article 103°, no. 2 of the CRP), of justice, equality and fiscal proportionality (included therein).

6.29 On the other hand, taking into account the above analysis, it should be noted that the concept of "urban property with residential use" was not defined by the legislator, neither in the text of Law no. 55-A/2012 (which introduced it), nor in the Code of IMI, to which no. 2 of Article 67° of the Code of Stamp Tax (equally introduced by that Law) refers subsidiarily.

6.30 In truth, it is a concept which, probably due to its imprecision (a fact all the more serious since it is in function of it that the scope of objective incidence of the new taxation is defined), had a fairly short life, since it was abandoned when the Law of the State Budget for 2014 [8] entered into force (on 1 January 2014), which gave a new wording to that item no. 28.1. of the TGIS and which now defines its scope of objective incidence through the use of concepts that are legally defined in Article 6° of the Code of IMI [9].

6.31 This amendment, "to which the legislator did not attribute an interpretative character, merely makes clear, for the future, that lands for construction the construction on which, authorized or planned, is for residential purposes are encompassed within the scope of item 28.1. of the TGIS (provided that their respective VPT is of a value equal to or greater than 1 million Euros), clarifying nothing, however, regarding prior situations" (in particular, assessments concerning the year 2013), as is the case with the assessment in question in the present proceedings (emphasis ours) [10].

6.32 Now, regarding the assessment which is the subject of the Request for Arbitral Decision, it does not result, either from the letter or the spirit of the law, that its intention was, ab initio, to encompass within its scope of objective incidence lands for construction on which construction of residential buildings has been authorized or planned, as results today from the text of item 28.1. of the TGIS, (after the wording introduced by the Law of the State Budget for 2014 [11]) (emphasis ours).

6.33 In this scope, from the letter of the law nothing unequivocal results since it itself, by using a concept which it did not define (and which also was not defined in the statute to which it referred subsidiarily), lent itself, unnecessarily, to ambiguities, in matters of tax incidence (a matter in which certainty and legal security should also be primary concerns of the legislator).

6.34 And from its "spirit", ascertainable in the statement of reasons [12] of the bill which is at the origin of Law no. 55-A/2012 nothing more results than the concern to raise new fiscal revenue, from sources of wealth "more spared" in the past by the legislator than earned income, in particular capital income, property gains and property, reasons which bring no relevant contribution to the clarification of the concept of "urban properties with residential use", since they take it as settled, without any concern to clarify it.

6.35 Thus, it can be ascertained that the reality which it was intended to tax was after all, in common parlance (and notwithstanding the terminological imprecision of the law with the expression "urban residential properties"), that of "houses", and not any other realities.

6.36 It should be added that, "residential use" always appears in the Code of IMI as relating to "buildings" or "constructions", since only these can be inhabited, which is not the case with lands 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 thereon.

6.37 In this way, given that a land for construction (whatever the type and purpose of the building which will or could be erected on it) does not, by itself, satisfy any condition to, as such, be licensed or to be defined as having housing as its normal destination, and the rule of incidence of Stamp Tax refers to urban properties with "residential use" (without any specific concept being established for the purpose), cannot it be extracted from it that it contains a future potentiality, inherent to a distinct property which might possibly be built on that land.

6.38 It can thus be concluded that, resulting from Article 6° of the Code of IMI a clear distinction between urban properties "residential" and "lands for construction", these cannot be considered as "urban properties with residential use", for purposes of the provisions of item no. 28.1. of the TGIS, in its original wording (which was given to it by Law no. 55-A/2012, of 29 October) (emphasis ours) [13].

6.39 In these terms, and in answer to the questions raised above in points 6.1.1. and 6.1.2., it is concluded that "lands for construction" cannot be subject to the Stamp Tax referred to in item no. 28.1. of the TGIS (in the wording provided by Law no. 55-A/2012) since lands for construction (with VPT equal to or greater than EUR 1.000.000) do not fall within the category of urban properties "with residential use", and therefore, the assessment act which is the subject of the Request for Arbitral Decision submitted by the Claimant is illegal.

Regarding the request for reimbursement of the tax paid, plus indemnatory interest

6.40 Thus, following the illegality of the assessment act above already identified, and in accordance with the provisions of subparagraph b), no. 1, of Article 24° of the RJAT (in accordance with what is established therein), "the arbitral decision on the merits of the pretension from which no appeal or challenge may be made binds the tax administration from the end of the period set for appeal or challenge, and the latter must restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been undertaken, adopting the acts and operations necessary for this purpose" (emphasis ours), whereby there must be reimbursement of the amounts possibly already paid by the Claimant, for the tax supported, as a way to achieve the reconstitution of the situation that would have existed if the illegality had not been committed.

6.41 Additionally, and in light of the provisions of Article 61° of the Code of Tax Procedure and Process (CPPT), the requirements for the right to indemnatory interest being met (that is, the existence of error imputable to the services which results in payment of the tax debt in an amount greater than that legally due, as provided for in no. 1, of Article 43° of the LGT), the Claimant has the right to indemnatory interest [14] at the legal rate, calculated on the amounts paid regarding the assessment of Stamp Tax no. 2013 ... (and concerning the year 2013), which will be counted in accordance with the provisions of no. 3 of Article 61° of the CPPT, that is, from the date of payment of the unduly paid tax until the date of issue of the respective credit note.

7. DECISION

7.1 In accordance with the provisions of Article 22°, no. 4, of the RJAT, "the arbitral decision issued by the arbitral tribunal includes the fixing of the amount and the distribution among the parties of the costs directly resulting from the arbitral process".

7.2 In this scope, the basic rule regarding responsibility for process costs is that the party that gave rise to them should be condemned, and it is understood that the defeated party causes the costs of the process, in the proportion in which it was defeated [Article 527°, nos. 1 and 2 of the Code of Civil Procedure (CPC)].

7.3 In the case being analyzed, taking into account the foregoing, the principle of proportionality requires that the entire responsibility for costs be attributed to the Respondent.

7.4 In these terms, taking into account the analysis made, this Arbitral Tribunal has decided:

7.4.1 To rule the request for arbitral decision submitted by the Claimant well-founded and condemn the Respondent regarding the request for a declaration of illegality of the assessment of Stamp Tax, dated 17 March 2014 (concerning the year 2013) and identified in this proceeding, annulling, in consequence, the respective tax act;

7.4.2 To condemn the Respondent to the reimbursement of the amounts unduly paid by the Claimant, plus indemnatory interest at the legal rate, counted in accordance with the legal terms;

7.4.3 To condemn the Respondent to the payment of the costs of the present proceeding.

Value of the proceeding: Taking into account the provisions of Article 306°, no. 2 of the CPC, Article 97°-A, no. 1 of the CPPT and Article 3°, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at EUR 19.223,54.

Costs of the proceeding: In accordance with the provisions of Table I of the Regulation of Costs in Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceeding is fixed at EUR 1.224,00, at the charge of the Respondent, in accordance with Article 22°, no. 4 of the RJAT.

Let it be notified.

Lisbon, 25 February 2015

The Arbitrator

Sílvia Oliveira

[1] The present decision is drafted in accordance with the spelling prior to the Orthographic Agreement of 1990, except with regard to the transcriptions made.

[2] In this sense, see Court of Appeal of the Supreme Administrative Court (TCAS) Proceedings 07648/14, of 10 July.

[3] See CAAD Arbitral Decision no. 48/2013-T, of 9 October.

[4] See Court of Appeal of the Supreme Administrative Court Proceedings 5320/12, of 2 October, Court of Appeal of the Supreme Administrative Court Proceedings 7073/13, of 12 December and Court of Appeal of the Supreme Administrative Court Proceedings 2912/09, of 27 March 2014.

[5] In accordance with this article, the interpretation of the legal rule should not be limited to the letter of the law, but reconstruct the legislative thought, from the texts and the remaining elements of interpretation, taking into account the unity of the legal system.

[6] Available for consultation in the Journal of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.

[7] As already referred to in various Arbitral Decisions issued by CAAD (in particular, Proceedings no. 48/2013-T, of 9 October).

[8] Introduced by Law no. 83-C/2013, of 31 December.

[9] See in this sense Court of Appeal of the Supreme Administrative Court 048/14, of 9 April and Court of Appeal of the Supreme Administrative Court 0272/14, of 23 April.

[10] See in this sense Court of Appeal of the Supreme Administrative Court 048/14, of 9 April and Court of Appeal of the Supreme Administrative Court 0272/14, of 23 April.

[11] In this scope, it should be noted that, taking into account the provisions of Article 103°, no. 3, of the CRP (prohibition of authentic retroactivity of fiscal law), it is not possible to admit the application of the new wording of item 28.1. of the TGIS (in force since 1 January 2014) to an assessment of Stamp Tax concerning the year 2013, since we would be facing the application of a new law to a prior tax fact (given that this fact occurred on 31 December 2013 and is, therefore, prior to the entry into force of the new wording of the law).

 Still on this matter, and in support of the interpretation of the constitutional rule, it is also important to mention the provisions of Article 12°, no. 1 of the LGT, in accordance with which "tax rules apply to facts subsequent to their entry into force, and no retroactive taxes can be created".

 In judicial matters, the Constitutional Court (CC), in its case law on fiscal matters, in particular, in Decision (AC) no. 128/2009, of 12 March, considered that it follows from Article 103°, no. 3, CRP that "any fiscal rule (...) will be constitutionally censured when it assumes a retroactive nature, with the expression retroactivity being used, here, in its proper or authentic sense", that is, "it prohibits the application of a new fiscal law, disadvantageous, to a tax fact occurring within the validity of the repealed fiscal law (the old law) and more favorable".

[12] In the presentation and discussion in the Assembly of the Republic of Bill no. 96/XII – 2ª (which gave rise to Law no. 55-A/2012, of 29 October), the Secretary of State for Tax Affairs allegedly stated explicitly that "the Government proposes the creation of a special rate on the highest-value urban residential properties (...) being the first time that in Portugal a special taxation is created on high-value properties intended for housing. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013 and will apply to houses of value equal to or greater than 1 million Euros" [See Journal of the Assembly of the Republic (DAR I Series no. 9/XII, of 11 October, page 32)].

[13] See Court of Appeal of the Supreme Administrative Court 048/14, of 9 April, Court of Appeal of the Supreme Administrative Court 0272/14, of 23 April, Court of Appeal of the Supreme Administrative Court 0505/14, of 29 October and Court of Appeal of the Supreme Administrative Court 0740/14, of 10 September.

[14] In truth, in accordance with the provisions of Article 100° of the LGT, applicable to the case by virtue of the provisions of subparagraph a), no. 1, of Article 29° of the RJAT, "the tax administration is obliged, in case of total or partial merit of complaints or administrative appeals, or judicial process in favor of the taxpayer, to immediately and fully restore the situation that would have existed if the illegality had not been committed, including the payment of indemnatory interest, in the terms and conditions provided for in the law" (emphasis ours).