Process: 665/2015-T

Date: April 7, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 665/2015-T, the Administrative Arbitration Center (CAAD) addressed a challenge to a Stamp Tax assessment under Item 28.1 of the General Stamp Tax Table (TGIS) on an urban property valued at €5,789,820.00 for the year 2014. The claimant contested the tax assessment on multiple grounds: formal defects including lack of legal grounds and insufficient reasoning; factual error arguing the property was merely an ancillary space rather than a parcel of land for urban construction; the property's extinction in May 2015 when it was integrated into another urban property; and constitutional violations of the principles of equality, ability to contribute, material justice, and equity in tax burden distribution. The claimant also argued that Item 28 of the TGIS, in its 2014 version, did not cover parcels of land for urban construction, citing jurisprudence from superior courts. However, before the arbitral tribunal could rule on the merits, the Tax and Customs Authority filed a response informing that the Stamp Tax assessment for 2014 had been annulled on December 1, 2015. Consequently, the Tax Authority requested that the arbitration petition be declared extinct due to supervening futility of the dispute (inutilidade superveniente da lide), with the Tax Authority being absolved of all claims. The tribunal notified the claimant to comment on this development, but no submission was made. The case demonstrates the procedural principle that when the contested administrative act is annulled by the Tax Authority during arbitration proceedings, the dispute becomes moot, leading to dismissal without a substantive ruling on the constitutional and interpretative questions raised regarding the application of Stamp Tax to high-value real estate properties.

Full Decision

ARBITRAL DECISION [1]

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 15 January 2016, with respect to the proceedings identified above, decided as follows:

1. REPORT

1.1

A…, holder of tax identification number nº…, with registered office at Avenida…, …, in Lisbon (hereinafter referred to as the "Claimant"), filed a petition for arbitral pronouncement and for the constitution of a single Arbitral Tribunal on 29 October 2015, under the provisions of article 4 and number 2 of article 10 of Decree-Law nº 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], against the Tax and Customs Authority (hereinafter referred to as the "Respondent").

1.2

The Claimant contends that "(…) a decision should be made in the sense of non-application due to violation of the constitutional principles of equality and ability to contribute, of material justice and equity in the distribution of tax burdens, of Item 28.1 of the TGIS (…)" and "judgment should be rendered in favor of the petition for annulment of the Stamp Tax Assessment Act (…) identified, based on that same provision due to defect of form by lack and insufficiency of legal grounds, due to error regarding applicable law, due to error regarding facts, due to non-existence of the property on 31.12.2014, and due to violation of mandatory law".

1.3

The petition for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 2 November 2015 and notified to the Respondent on the same date.

1.4

On 3 November 2015, the Claimant sent to CAAD a new corrected initial petition (as to its value and number of attached documents).

1.5

The Claimant did not proceed to appoint an arbitrator, so, under the provisions of article 6, number 2, paragraph a) of the RJAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of CAAD on 30 December 2015, with the appointment being accepted within the legally prescribed timeframe and terms.

1.6

On the same date the Parties were duly notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrator, under the provisions of article 11, number 1, paragraphs a) and b) of the RJAT, together with articles 6 and 7 of the Deontological Code.

1.7

Thus, in accordance with the prescription of paragraph c), number 1, of article 11 of the RJAT, the Arbitral Tribunal was duly constituted on 15 January 2016 and is materially competent, given the provisions of articles 2, number 1, paragraph a), and 30, number 1 of the RJAT.

1.8

On the same date an arbitral order was issued directing the Respondent to, under the terms of the provisions of article 17, number 1 of the RJAT, file a response within a maximum period of 30 days and, should it so wish, request the production of additional evidence.

1.9

On 17 February 2016, the Respondent filed its Response, alleging that, in view of the content of the arbitration decision petition, "information was requested from the respective tax office regarding the status of the file, and information was prepared contained in pages 85 to 89 of the AF (…) which confirms that the Stamp Tax assessment for 2014 which gave rise to the collection notes (…) identified was annulled on 01-12-2015", concluding that "the arbitration petition should be declared extinct due to supervening futility of the dispute, with the Tax Authority being absolved of all claims" (underlined by us).

1.10

On 19 February 2016, by arbitral order, the Claimant was notified to comment on the content of the Response sent by the Respondent.

1.11

The Claimant made no submission in response to the content of the arbitral order referred to in the preceding paragraph.

1.12

Thus, by arbitral order dated 30 March 2016, this Tribunal decided, in accordance with the procedural principles set forth in article 16 of the RJAT, to designate 7 April 2016 as the date for pronouncement of the decision.

1.13

The Claimant was further warned that "by the date of pronouncement of the arbitral decision it should proceed to pay the subsequent arbitration fee, under the provisions of number 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate this payment to CAAD".

2. CAUSE OF ACTION

2.1

"The Claimant is the owner and legitimate proprietor and possessor of the urban property described in the urban property registry of the Parish of …(…)", "(…) described in the urban property registry (…) under number … (…) to which was assigned the taxable property value of € 5,789,820.00 (…)".

2.2

"The Claimant was subject to a Stamp Tax assessment – item 28.1, relating to the year 2014, with reference to this urban property (…)", but does not agree with this "(…) Stamp Tax assessment (…) as it understands that the assessment act in question is illegal due to direct and unequivocal violation of mandatory law, error regarding the legal prerequisites (…)".

2.3

The Claimant bases its arguments on the alleged "lack of grounds for the assessment act, lack of identification of the law specifically applied, of the author of the act and lack of notification for the exercise of prior hearing", therefore raising "the declaration of its invalidity and consequent full annulment".

2.4

On the other hand, the Claimant also alleges that "the property subject to taxation is not a parcel of land for urban construction", as it is "(…) merely an ancillary space of the urban property registered under article … of the same parish".

2.5

The Claimant further clarifies that it requested, in the past, "(…) the alteration of the registration of the then article nº … of the parish of…, current article nº … of the parish of … (…)" and that "as a result of the granting of the petitions filed (…) the two properties gave rise to a single urban property, which is registered in the registry under nº…, and into which the property that gave rise to the Stamp Tax at issue here was integrated as merely an ancillary space in the (new) urban property constituted (…)".

2.6

Thus, the Claimant states that "(…) in May 2015 this anomalous situation was corrected, with the property referred to in the Stamp Tax assessment at issue here being extinguished (…), and a new valuation was also carried out for the determination of the Taxable Property Value (…)".

2.7

Additionally, the Claimant further argues that "item 28 of the Table annexed to the Stamp Tax Code, in the version in force on 31.12.2014, does not cover parcels of land for urban construction", an understanding which the Claimant believes is shared by "the jurisprudence of the superior courts (…)".

2.8

On the other hand, the Claimant understands that "the contested Stamp Tax assessment is also illegal due to violation of the principle of equality, of justice, of equity and of ability to contribute" and that "the Tax Authority cannot, in the application of the legal regimes, ignore (…) the constitutional principles (…) set out (…)", and that "(…) the Tax Authority is obliged to adopt the interpretation most in accordance with the Constitution" and "this is a legal question (…) that renders the assessment act (…) illegal".

2.9

Finally, the Claimant petitions for the payment of compensatory interest, "(…) which should be counted (…) between the days on which the undue payments were made until the date of issuance of the corresponding credit notes".

2.10

In sum, the Claimant understands that "the contested assessment act should (…) be declared illegal and its full annulment ordered, with all other resulting consequences".

3. RESPONSE OF THE RESPONDENT

3.1

The Respondent in the Response filed states that "information was requested from the respective tax service regarding the status of the case, and information was prepared contained in pages 85 to 89 of the AF (…) and which confirms that the Stamp Tax assessment for 2014 which gave rise to the collection notes (…) identified was annulled on 01-12-2015".

3.2

Thus, the Respondent understands that "given the above, with the petitioned matter having been satisfied by the Claimant, the extinction of the proceedings is requested due to supervening futility of the dispute, under the terms of paragraph e) of article 277 of the CPC".

4. PRELIMINARY MATTERS

4.1

The arbitration decision petition is timely as it was filed within the deadline provided for in paragraph a) of number 1 of article 10 of the RJAT.[2]

4.2

The parties have legal personality and procedural capacity, are legitimated with respect to the arbitration decision petition and are duly represented, under the provisions of articles 4 and 10 of the RJAT and of article 1 of Ordinance nº 112-A/2011, of 22 March.

4.3

The Tribunal is competent to examine the arbitration decision petition filed by the Claimant.

4.4

The Respondent raised the issue of supervening futility of the dispute, a preliminary issue whose analysis should precede consideration of the merits of the petition (see Chapter 5), which may be compromised by the success of that issue.

4.5

No nullities are found.

5. FACTS

5.1 Proven facts.[3]

5.1.1

The Claimant is a religious legal entity registered in Portugal, being a … that is dedicated to the propagation of the Catholic faith and to assisting those in need, possessing therein the movable and immovable property necessary for the pursuit of its religious and charitable purposes (in accordance with articles 3 and 4 of the petition and uncontested).

5.1.2

The Claimant is the owner and legitimate proprietor and possessor of the urban property described in the urban property registry of the Parish of … (former parish of…), in Lisbon, under nº U-… to which the Taxable Property Value of EUR 5,789,820.00 was assigned, as per copy of the urban property title documents (document nº 5 attached with the petition).

5.1.3

The Claimant was notified in 2015 of the Stamp Tax assessment of item 28 of the TGIS nº 2014…, dated 20 March 2015, relating to the year 2014 and concerning the urban property located at Avenida…, s/n, …, in Lisbon, in the total amount of EUR 57,898.20, corresponding to the property (land for construction) registered in the registry under article U-… of the Parish of…, already identified above.

5.1.4

The Stamp Tax assessment identified above was materialized through the following collection notes:

YEAR MATRICIAL ARTICLE ASSESSMENT DATE COLLECTION DOC. TAX PAYMENT AMOUNT DOC.
2014 U-… … 20-03-2015 2015… 57,898.20 19,299.40 1
2015 … 19,299.40 1 A
N/D 19,299.40 [4] N/D
5.1.5

The Claimant did not make timely payment of any of the above-mentioned collection notes for Stamp Tax relating to the assessment in dispute, as per information attached with the administrative file (pp. 57 to 61, 67 to 71 and 77 to 80 of said file).

5.1.6

Due to non-payment within the deadline for voluntary payment of the tax obligations referred to in the preceding paragraph, tax certificates were issued and tax enforcement proceedings were instituted with respect to the first and second payments, and the same were extinguished by annulment of the assessment since 2 December 2015, as per information attached with the administrative file (pp. 62 to 66 and 72 to 76 of said file).

5.1.7

The urban property underlying the Stamp Tax assessment subject of the arbitration decision petition was extinguished by order of the Respondent issued on 27 November 2015, as per copy of the order dated 16 February 2016 attached with the administrative file (p. 89 of said file).

5.2 Unproven facts

5.2.1

No facts were found to be unproven that are relevant to the decision.

6. PRELIMINARY ISSUE TO BE DECIDED

6.1

The Respondent raised in its Response the issue of supervening futility of the dispute taking into account the annulment on 1 December 2015 of the Stamp Tax assessment underlying the arbitration decision petition.

6.2

The Claimant was notified to comment on the preliminary issue identified in the preceding paragraph but said nothing within the deadline that was set (see paragraphs 1.10 and 1.11 above).

6.3

The annulment of the contested Stamp Tax assessment pending the arbitration proceedings renders it pointless to examine its legality and leads to the conclusion that supervening futility of the dispute occurs, as argued by the Respondent.

6.4

Supervening futility of the dispute is grounds for extinction of the proceedings under the terms of article 287, paragraph e), of the Code of Civil Procedure (CPC).

7. RESPONSIBILITY FOR PROCESS COSTS

7.1

In accordance with the provisions of article 22, number 4 of the RJAT, "the arbitral decision issued by the arbitral tribunal includes the determination of the amount and allocation among the parties of costs directly resulting from the arbitration proceedings".

7.2

In general terms, in accordance with the provisions of article 527, number 1 of the CPC (by virtue of article 29, number 1, paragraph e) of the RJAT), it should be established that the Party that caused costs or, in the absence of success on the action, the party that benefited from the proceedings shall be condemned to pay costs.

7.3

In this regard, number 2 of the said article specifies the expression "caused costs", according to the principle of adverse outcome, holding that the losing party causes the costs of the proceedings in the proportion in which it loses.

7.4

However, in accordance with the provisions of number 1 of article 536 of the CPC, "when the claim of the (…) petitioner or the objection of the (…) were grounded at the time they were filed or raised and ceased to be so due to circumstances beyond the control of the latter, costs are divided between them in equal parts", and according to number 3 of the same article, in the case of extinction of proceedings due to supervening futility of the dispute, "(…) responsibility for costs shall be borne by the (…) petitioner, unless such impossibility or futility is attributable to the (…) respondent, in which case the latter is responsible for all costs" (underlined by us).

7.5

Now, the Stamp Tax assessment subject of the present arbitration decision petition was annulled by the Respondent on 1 December 2015, that is, after the filing of the petition by the Claimant (29 October 2015).

7.6

In this regard, it should be noted that, with the petition for constitution of the Arbitral Tribunal having been accepted by His Excellency the President of CAAD on 2 November 2015 and notified to the Respondent on the same date, the Respondent could "(…) within a period of 30 days from knowledge of the petition for constitution of the arbitral tribunal, proceed to revoke, ratify, reform or convert the tax act whose legality was raised (…)", as provided in article 13 of the RJAT.

7.7

Notwithstanding what was stated in the preceding paragraph, and despite the Respondent having internally annulled the assessment act subject of the arbitration decision petition on 1 December 2015, it allowed this Arbitral Tribunal to be constituted on 15 January 2016, having presented, in its Response (on 17 February 2016), the issue of supervening futility of the dispute, requesting the resulting consequences.

7.8

Thus, in the present case, taking into account that there is grounds for extinction of proceedings attributable to the Respondent (supervening futility of the dispute due to revocation of the contested acts, as stated in paragraphs 6.1 to 6.4 above), responsibility for costs should be solely attributed to the Respondent.

8. DECISION

8.1

Given the foregoing, this Arbitral Tribunal decides:

8.1.1

To declare the proceedings extinct due to supervening futility of the dispute, under the terms of paragraph e) of article 277 of the CPC, by virtue of paragraph e) of number 1 of article 29 of the RJAT, with the resulting consequences thereof;

8.1.2

To condemn the Respondent to pay the costs of the proceedings.

Value of the proceedings: Taking into account the provisions of article 306, number 2 of the CPC, article 97-A, number 1 of the Tax Procedure and Process Code (CPPT), and article 3, number 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at EUR 57,898.20.

Costs of the proceedings: Under the provisions of Table I of the Regulation of Costs in Tax Arbitration Proceedings, the value of the costs of the Arbitration Proceedings is set at EUR 2,142.00, to be borne by the Respondent, in accordance with article 22, number 4 of the RJAT.

Let notice be given.

Lisbon, 7 April 2016

The Arbitrator

Sílvia Oliveira

[1] The drafting of the present decision is governed by the orthography prior to the Orthographic Agreement of 1990, except with respect to transcriptions made.

[2] In general terms, taking into account the provisions of article 10, number 1, paragraph a) of the RJAT, "the petition for constitution of an arbitral tribunal is filed within a period of 90 days from the facts provided for in numbers 1 and 2 of article 102 of the CPPT, concerning acts capable of autonomous challenge (…)".

The Claimant, in the petition filed "(…) requests the constitution of an Arbitral Tribunal" and submits "a petition for arbitral pronouncement for examination of the Stamp Tax Assessment Act (…) identified (…)", "(…) notified to the Claimant through the collection notes (…)", a copy of which it attaches to the proceedings.

Now, in these collection notes (document nº 1 and 1a of the petition), concerning the payment of the first and second installments of the Stamp Tax assessed with respect to the year 2014 and relating to the property identified in paragraph 5.1.2, the deadlines for voluntary payment ended, respectively, on 30 April 2015 and 31 July 2015.

According to António Braz Teixeira (in "Principles of Tax Law", Vol. I, 3rd Edition, Almedina, Coimbra, 1995), "it is necessary not to confuse periodic payments which, although carried out by successive acts at different moments, originate from a single obligation and constitute the various installments of a single payment that has been divided, with payments that must be effected periodically, not due to a division of the overall payment, but rather to the birth, also periodic, of new obligations, due to the permanence of the factual prerequisites for taxation" (underlined by us).

Thus, with the payments in which a Stamp Tax assessment is divided being included in the first part of the sentence transcribed above, under the terms of the joint provisions of articles 113, number 1 and 120, both of the Municipal Property Tax Code (IMI), applicable by virtue of the provision of number 7 of article 23 of the Stamp Tax Code (as amended by Law nº 55-A/2012, of 29 October), it follows that in situations referred to in item 28 of the TGIS, a single annual assessment is made, with payment in installments being nothing more than a technique for collection of the tax and not a partial payment thereof.

Thus, it should be concluded that, with the arbitration decision petition under analysis being intended to control the Stamp Tax assessment act for 2014 dated 20 March 2015 (as per collection notes attached by the Claimant), and with no such payment (into which the assessment was subdivided) being independently annullable, the present arbitration decision petition constitutes a direct challenge to that tax act and should be filed within the period already referred to above.

Now, having the same been filed on 29 October 2015, and with the deadline for voluntary payment of the second tax installment having ended on 31 July 2015, the petition should be considered timely.

[3] The facts found proven consist of documents attached to the proceedings regarding which their correspondence to reality was not questioned, as well as of the content of the petition regarding the legal characterization of the Claimant, and whose veracity was not challenged by the Respondent.

[4] According to information attached by the Respondent (pp. 85 to 87 of the administrative file).

Frequently Asked Questions

Automatically Created

What is the Verba 28.1 of the Tabela Geral do Imposto do Selo (TGIS) and how does it apply to high-value properties?
Verba 28.1 of the Tabela Geral do Imposto do Selo (General Stamp Tax Table) establishes an annual Stamp Tax on urban properties with taxable property values (valor patrimonial tributário - VPT) exceeding certain thresholds. As applied in 2014, this provision subjected high-value urban properties to stamp taxation based on their cadastral value. In this case, a property valued at €5,789,820.00 was assessed under this provision. However, significant interpretative questions arose regarding whether Item 28 covered parcels of land for urban construction or only completed buildings. The claimant argued that the jurisprudence of superior courts supported the view that undeveloped land parcels were not covered by this provision, representing an important limitation on the scope of this tax obligation for high-value real estate.
What does supervening uselessness of proceedings (inutilidade superveniente da lide) mean in Portuguese tax arbitration?
Supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the object of the dispute ceases to exist during the course of the proceedings, rendering a judicial decision unnecessary or without practical effect. In Process 665/2015-T, this occurred when the Tax Authority annulled the contested Stamp Tax assessment on December 1, 2015, after the arbitration petition had been filed on October 29, 2015. When the challenged administrative act is eliminated by the Tax Authority itself, there is no longer any act to annul, making the claimant's request moot. In such cases, the arbitral tribunal declares the proceedings extinct without ruling on the substantive merits, and the Tax Authority is absolved of all claims. This procedural outcome prevents unnecessary judicial decisions on matters that have already been administratively resolved.
Can Stamp Tax (Imposto do Selo) assessments be annulled for lack of legal basis or insufficient reasoning?
Yes, Stamp Tax (Imposto do Selo) assessments can be annulled for lack of legal basis or insufficient reasoning under Portuguese administrative law. Assessment acts must comply with formal requirements including proper identification of the applicable legal provision, identification of the author of the act, statement of grounds explaining the factual and legal basis for the taxation, and notification of the right to prior hearing. In this case, the claimant alleged defects of form due to lack and insufficiency of legal grounds, which constitute grounds for annulment of administrative acts under the Tax Procedure and Procedure Code (CPPT). Additionally, assessments can be challenged for error regarding applicable law (erro sobre os pressupostos de direito) or error regarding facts (erro sobre os pressupostos de facto). However, in this particular case, the Tax Authority voluntarily annulled the assessment before the arbitral tribunal ruled, suggesting recognition that the assessment may have been defective.
How do constitutional principles of equality and contributive capacity affect Stamp Tax on real estate in Portugal?
Constitutional principles of equality and contributive capacity significantly affect Stamp Tax on real estate in Portugal by requiring that tax laws be interpreted and applied in conformity with constitutional mandates. The principle of ability to contribute (capacidade contributiva) under Article 104 of the Portuguese Constitution requires that taxes reflect taxpayers' economic capacity. The principle of equality (Article 13) prohibits arbitrary or discriminatory taxation. The claimant in this case argued that Item 28.1 of the TGIS violated these principles when applied to certain types of property, and that the Tax Authority was constitutionally obliged to adopt interpretations most consistent with the Constitution. These arguments reflect the doctrine that tax provisions potentially violating constitutional principles should not be applied, or should be interpreted restrictively. While the case was dismissed on procedural grounds before these constitutional questions were decided, they represent important limitations on the scope of wealth taxation on real estate in Portugal.
What is the procedure for challenging an Imposto do Selo liquidation before the CAAD tax arbitration tribunal?
The procedure for challenging an Imposto do Selo liquidation before the CAAD tax arbitration tribunal involves: (1) Filing a petition for arbitral pronouncement (pedido de pronúncia arbitral) within the legal deadline under Article 10 of the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011); (2) The petition must identify the contested act, state the legal and factual grounds for challenge, and specify the relief requested; (3) Payment of the initial arbitration fee; (4) The CAAD President accepts the petition and notifies the Tax Authority; (5) The claimant may appoint an arbitrator or one will be appointed by the CAAD Deontological Council; (6) Once constituted, the tribunal orders the Tax Authority to file a response within 30 days; (7) The tribunal may order additional evidence or hearings; (8) The claimant must pay the subsequent arbitration fee before the decision; (9) The tribunal issues a decision within 6 months of constitution. This arbitration procedure provides a faster alternative to judicial courts for resolving tax disputes.