CAAD 757/2014-T: Stamp Tax on Land for Construction Under Verba 28.1 TGIS – Arbitral Decision

ARBITRAL DECISION [1]

Claimant – A, Branch, Company in Liquidation

Respondent - Tax and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 8 January 2015, with respect to the process above identified, decided as follows:

1. REPORT

1.1

A, Branch, Company in Liquidation (hereinafter designated as "Claimant"), Legal Entity No. …, with registered office at …, No. …, submitted a request for arbitral determination and establishment of a sole arbitral tribunal, on 31 October 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 designated as "Respondent").

1.2

The Claimant requests that the Arbitral Tribunal declare "the illegality of the Corporate Income Tax assessment acts Nos. 2014 ...40 and 2014 ...41, both of 17.03.2014, in the total amount of EUR 28,561.78, referring to the 2nd and 3rd instalments of the year 2013 and the annulment of these acts, with all legal consequences".

1.3

The request for establishment of the Arbitral Tribunal was accepted by the Excellent President of the CAAD on 3 November 2014 and automatically notified to the Respondent on the same date.

1.4

The Claimant, duly notified for such purpose on 5 November 2014, did not proceed to the appointment of an arbitrator and therefore, pursuant to the provisions of article 6, No. 2, paragraph a) of the RJAT, the undersigned was designated as arbitrator by the President of the Deontological Council of the CAAD, on 19 December 2014, with the appointment being accepted within the timeframe and terms legally provided.

1.5

On 19 December 2014, the parties were also duly notified of this designation, and did not manifest any intention to refuse the appointment of the arbitrator, in accordance with the provisions of article 11, No. 1, paragraphs a) and b) of the RJAT, combined with articles 6 and 7 of the Deontological Code.

1.6

Accordingly, in compliance with the provisions of paragraph c) of No. 1 of article 11 of the RJAT, the Arbitral Tribunal was constituted on 8 January 2015, and an arbitral order was issued on the same date, to notify the Respondent to, in accordance with 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 11 February 2015, the Tax and Customs Authority submitted its Response, having defended itself by objection, to the effect that "it is the AT's understanding that the property on which the disputed assessment falls has the legal nature of a property with residential use, and therefore the assessment act which is the subject of this request for arbitral determination should be maintained, as it constitutes a correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12".

1.8

In these terms, the Respondent concludes by requesting that "the request for declaration of illegality and consequent annulment of the disputed assessment should be judged unfounded, with the AT being absolved of the claim".

1.9

On the same date, the Respondent also submitted a request to request the exemption from the first arbitral meeting, in accordance with the terms and purposes provided for in article 18 of the RJAT which, having been notified to the Claimant, by means of an arbitral order of 12 February 2015, no opposition was obtained within the five-day period granted in the order to do so, as the Request submitted by the Claimant, in this matter, came to the knowledge of this Arbitral Tribunal, for reasons beyond its control, on 5 March 2015.

1.10

In these terms, by order of this Arbitral Tribunal, dated 4 March 2015, the Request referred to in the previous point was admitted in the process, and the content of the arbitral order of 25 February 2015 was maintained, that is, the notification to the Claimant and the Respondent to "in this order and successively, submit written pleadings within a period of 15 days, with the period for the Respondent beginning to run with the notification of the joining of the Claimant's pleadings".

1.11

It was also designated, in the order referred to in the previous point, the date of 17 April 2015 for the purpose of delivery of the arbitral decision, and the Claimant was further warned that "until the date of delivery of the arbitral decision, it should proceed to 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 this payment to the CAAD".

1.12

On 13 March 2014, the Claimant submitted written pleadings to the effect of reiterating "that the Corporate Income Tax assessments sub judice suffer from the defect of violation of law, due to error regarding the legal prerequisites, and therefore should be declared illegal and, consequently, annulled, with all legal consequences (…)".

1.13

On the same date, the Respondent was notified of the submission of pleadings by the Claimant, so that it could comply with the content of the arbitral order of 25 February 2015 (see point 1.10., above).

1.14

The Respondent did not submit pleadings, despite being duly notified in a timely manner to do so (see point 1.10. and 1.14., above).

2. GROUNDS OF CLAIM

The Claimant supports its claim, in summary, as follows:

2.1

"The now Claimant is the holder of the property right over the land for construction located at ..., parish and municipality of ..., described in the Land Registry Office of ... under No. ... and registered in the urban property matrix of the said parish under article ...", in which "there are no buildings or constructions" and whose "Patrimonial Tax Value (VPT) (…) amounts to EUR 4,284,269.10".

2.2

"The Claimant was declared insolvent on 29.10.2012, that is, on a date prior to the occurrence of the tax event (…) that gave rise to the assessments sub judice (…)".

2.3

"Nevertheless (…), the Claimant was (…) notified to proceed to the payment of Corporate Income Tax - both the 1st instalment (whose assessment was not included by the Claimant in this Request for Arbitral Determination due to the untimeliness that such request would suffer) and the 2nd and 3rd instalments - referring to the year 2013, assessed in accordance with item No. 28.1. of the TGIS".

2.4

According to the Claimant, "(…) the assessments in question suffer from illegality due to error regarding the legal prerequisites, and therefore should be annulled (…).

2.5

It begins by stating, in its argumentation that "(…) this cumulation of claims is admissible in light of the provisions of No. 1 of article 3 of the RJAT, since, although different acts of Corporate Income Tax assessment are involved, the success of the claims depends entirely on the assessment of the same circumstances of fact and the interpretation and application of the same legal principles or rules".

2.6

It continues its argumentation, stating that "(…) the properties which underlie the Corporate Income Tax assessments of which it now complains have the nature of land for construction, which are a species of urban property, and on which there are no buildings or constructions whatsoever".

2.7

"However, item No. 28.1. of the TGIS is clear in the sense that the objective scope of the tax is restricted to urban properties with residential use".

2.8

"Now, although the Corporate Income Tax Code provides the Real Estate Tax Code as a diploma of subsidiary application, namely for all matters relating to item No. 28 of the TGIS that are not regulated therein, the latter does not contain any definition of urban property with residential use (…)", making it, according to the Claimant, "(…) imperative to resort to the interpretive rules of tax norms (…)".

2.9

In this context, according to the Claimant, given the provisions "(…) of the general rules and principles of interpretation and application of laws (…), it is clear and evident that the concept of urban property with residential use must necessarily be interpreted using the meaning it has in common language".

2.10

Thus, for the Claimant, "the only question that arises concerns whether residential use or occupation must be current and effective, that is, whether the property must have effective residential use at the moment when the Corporate Income Tax scope is determined".

2.11

In order to give an affirmative answer to the question raised, the Claimant cites several arbitral decisions rendered by the CAAD[2], as well as citing a Decision of the Supreme Administrative Court[3], to the effect that, "in the absence of a legislative definition of the concept of properties (urban) with residential use, and as a result of article 6 of the Real Estate Tax Code (…) a clear distinction between urban residential properties and land for construction, these cannot be considered, for the purposes of the application of Stamp Tax (…) as urban properties with residential use".

2.12

In fact, the Claimant argues that "the interpreter cannot fail to distinguish what the legislator chose to distinguish clearly, under penalty of violation of the principle of fiscal legality", and therefore "we cannot confuse residential use, which implies an effective dedication of an urban property to that purpose, with the mere expectation or potentiality of an urban property being able to have residential use, the latter not being sufficient to classify a property under the norm of scope in question".

2.13

In these terms, the Claimant understands that "there can be no doubt that, in this case, the AT made an interpretation of the norm of objective scope contained in item No. 28.1. of the TGIS not in accordance with the Law approved in the Assembly of the Republic, which is why the Corporate Income Tax assessments sub judice suffer from the defect of violation of law, due to error regarding the legal prerequisites", concluding its claim by requesting that "such assessments be declared illegal and, consequently, annulled (…) with all legal consequences".

3. RESPONDENT'S ANSWER

3.1

The Respondent answered by sustaining the unfoundedness of the request for arbitral determination and invoking the following arguments:

3.2

"It is the AT's understanding that the property on which the disputed assessment falls has the legal nature of a property with residential use, and therefore the assessment act which is the subject of this request for arbitral determination should be maintained, as it constitutes a correct interpretation of item 28 of the General Table, amended by Law 55-A/2012, of 29/12".

3.3

In fact, according to the Respondent, "Law No. 55-A/2012, of 29/10/2012 came (…) to add item 28 to the TGIS and, with this legislative amendment, Stamp Tax would also apply to the ownership, usufruct or right of superficies of urban properties whose patrimonial tax value contained in the matrix, in accordance with the Real Estate Tax Code, was 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 (…) one must resort to the Real Estate Tax Code, in search of a definition that allows determining the possible subjection to Stamp Tax (…)" applying "(…) subsidiarily the provisions of the Real Estate Tax Code".

3.5

"Contrary to what is proposed by the Claimant, the AT understands that the concept of properties with residential use, for the purposes of item 28 of the TGIS, comprises both built properties and land for construction, in light of the literal element of the norm".

3.6

Also according to the Respondent, "the legislator does not refer to properties intended for housing, having opted for the notion of residential use, an expression different and broader, whose meaning is to be found in the need to integrate other realities beyond those identified in art. 6, No.1, paragraph a) of the Real Estate Tax Code".

3.7

On the other hand, the Respondent understands that "the Municipal Master Plans establish the strategy for municipal development, the municipal policy for land use and urban planning and other urban policies (…)" and therefore "long before the actual building of the property, it is possible to determine and ascertain the use of the land for construction".

3.8

"Regarding the alleged violation of constitutional principles, the AT cannot fail to point out that the CRP requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiated treatment, but only arbitrary, unreasonable discrimination, that is, distinctions in treatment that do not have sufficient justification and material basis" and therefore "the AT understands that the provision of item 28 of the TGIS does not constitute a violation of any constitutional command".

3.9

In fact, according to the Respondent, "the measure implemented seeks to achieve maximum effectiveness as to the objective to be attained, with minimum injury to other interests considered relevant (…), the choice of this mechanism for obtaining revenue is therefore legitimate, which would only be censurable, in light of the principle of proportionality, if it resulted in being manifestly indefensible".

3.10

Thus, the Respondent concludes that "the assessment in question constitutes a correct interpretation and application of the law to the facts, not suffering from the defect of violation of law, whether of the CRP or of the Stamp Tax Code, and should, consequently, the claim be judged unfounded and the Respondent Entity be absolved of the claim".

4. PROCEDURAL MATTERS

4.1

The request for arbitral determination was submitted on 31 October 2014 and is therefore timely (as it was submitted within the period provided for in paragraph a) of No. 1 of article 10 of the RJAT) as to the third instalment (document No. 2014 ...41) of the Stamp Tax assessment under analysis (whose deadline for voluntary payment was November/2014) but untimely as to the second instalment (document No. 2014 ...40) of the Stamp Tax assessment under analysis (whose deadline for voluntary payment was July/2014).

4.2

In fact, the Arbitral Tribunal may, by its own motion, verify whether the right to sue has lapsed, as a preliminary issue to be decided, with the consequent lack of timeliness of the request for arbitral determination regarding the assessment(s) that may suffer from this defect.

4.3

Generally speaking, the time limits for bringing actions are substantive time limits, of extinction, and form part of the material legal relationship itself in dispute, aimed at determining the period for the exercise of a right and peremptory deadlines, as their expiration extinguishes the right itself.

4.4

As a substantive time limit, they are calculated in accordance with the provisions of article 279 of the Civil Code [by reference from article 20 of the Code of Tax Administrative Procedure and Process (CPPT)], that is, continuously, with no suspension during the period of judicial holidays.

4.5

Under the tax arbitration regime, article 10, No. 1, of the RJAT establishes that the request for establishment of an arbitral tribunal must be submitted "within a period of 90 days, counted from the facts provided for in Nos. 1 and 2 of article 102 of the CPPT, as to acts capable of autonomous challenge and, likewise, from the notification of the decision or the end of the legal period for decision of hierarchical appeal".

4.6

In this matter, it should be noted that the arbitral nature of this tribunal and the application of the tax arbitration regime do not entail any modification regarding the nature, modalities and form of calculation of time limits, as can be extracted from the reading of the RJAT, and much less regarding substantive time limits, which form an integral part of the material status of the tax credit right itself.

4.7

And, if there were any doubt, article 29 of the RJAT provides for the subsidiary application of norms of a procedural (or tax procedural) nature, norms on organization and process in administrative and tax courts, of the Administrative Procedure Code (CPA) and the Civil Procedure Code (CPC).

4.8

Thus, this Tribunal understands that the 90-day period from the deadline for voluntary payment (article 10, No. 1, paragraph a) of the RJAT) was not observed regarding the period to react to the second instalment of the Stamp Tax assessment under analysis, since if that deadline for voluntary payment was 31 July 2014, therefore, the aforementioned 90-day period ended on 29 October 2014, that is, two days before the date of entry of the Request for Arbitral Determination in the CAAD (31 October 2014).

4.9

In these terms, in view of the above, this Tribunal understands that on the date on which the Claimant requested the establishment of this Arbitral Tribunal (31 October 2014) the right to sue had already lapsed with respect to the second instalment of the Stamp Tax assessment under analysis.

4.10

As the lapse of the right to sue is a peremptory exception, to be known by the Tribunal of its own motion, the examination of the merits of the claim is barred as far as the said instalment of the tax is concerned, which determines the absolution of the Respondent as to the part of the claim that concerns this second instalment of the tax.

4.11

The parties enjoy legal personality and capacity, are entitled as to the request for arbitral determination and are duly represented, in accordance with the provisions of articles 4 and 10 of the RJAT and article 1 of Regulation No. 112-A/2011, of 22 March.

4.12

The Tribunal is competent as to the examination of the request for arbitral determination submitted by the Claimant.

4.13

No other exceptions requiring examination were raised.

4.14

No nullities were found and therefore it is now necessary to examine the merits of the claim.

5. MATTERS OF FACT

5.1

Findings of Proven Facts

5.2

The following facts are considered proven as documented by the following documents attached to the proceedings:

5.2.1

The Claimant is the owner of the land for construction, registered in the matrix since 2009, under No. U-00... of the Parish of ... (080402), whose VPT, determined in 2012, amounts to EUR 4,284,269.10 (as per document No. 3 attached to the claim).

5.2.2

The Claimant was notified of the Stamp Tax assessment identified below, dated 17 March 2014, whose deadline for payment was, respectively, "July/2014" (2nd instalment)[4] and "November/2014" (3rd instalment):

5.3

No other facts capable of affecting the decision on the merits of the claim were proven.

5.4

Unproven Facts

5.5

No evidence was obtained as to whether the Claimant effected payment of the second and third instalments relating to the Stamp Tax assessment which is the subject of the Request for Arbitral Determination and, if it did so, whether that payment was made within the time limit, bearing in mind that it is requested, in the conclusion of that claim, "the annulment of these acts, with all legal consequences".

5.6

However, the lack of evidence referred to in the previous point does not prejudice the examination of the merits of the case.

5.7

No other facts were established as unproven with relevance to the arbitral decision.

6. GROUNDS OF LAW

6.1

The essential question to be decided in these proceedings is what is the scope of item 28.1. of the General Table of Stamp Tax (TGGIS), in the wording given to it by Law No. 55-A/2012 of 29 October, namely, whether land for construction should be included in that norm and, in particular, whether land for construction with VPT equal to or greater than EUR 1,000,000 fall, or not, within the category of urban properties "with residential use", so as to determine whether the Stamp Tax assessments which are the subject of the Request for Arbitral Determination suffer from the defect of violation of that item No. 28.1., due to error regarding the legal prerequisites, which would justify the declaration of its illegality and respective annulment.

6.2

The answer to this question requires the analysis of the legal norms applicable to the case in question, so as to determine what is the correct interpretation in light of the provisions of the Law and the Constitution, given that it is a matter of assessing a tax scope prerequisite, carefully protected by the principle of fiscal legality, resulting from the provisions of article 103, No. 2 of the CRP.

6.3

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

"28. Ownership, usufruct or right of superficies of urban properties whose VPT contained in the matrix, in accordance with the Real Estate Tax Code, is equal to or greater than EUR 1,000,000.00 – on the VPT for purposes of Real Estate Tax:

28.1 – For property with residential use – 1%.

28.2 – (…)".

6.4

Although the text of Law No. 55-A/2012 (in force since 30 October 2012) did not qualify the concepts contained in the said item No. 28, namely, the concept of "property with residential use", if we observe the provisions of article 67, No. 2, of the Stamp Tax Code (also amended by the said Law), it is verified that "to matters not regulated in this Code, relating to item 28 of the General Table, the Real Estate Tax Code is applied, subsidiarily" (emphasis added).

6.5

Now, from reading the Real Estate Tax Code, it is easy to perceive that the concept of "property with residential use" naturally refers back 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 Real Estate Tax Code, "(…) property is any fraction of territory, comprising waters, plantations, buildings and constructions of any kind incorporated in it or situated on it, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of an asset different from it or does not have a patrimonial nature" (emphasis added).

6.7

Also in accordance with No. 2 and 3 of the same article, "buildings or constructions, although moveable by nature, are deemed to have a character of permanence when dedicated to non-transitory purposes", being presumed "the character of permanence when buildings or constructions are situated in the same place for a period exceeding one year".

6.8

On the other hand, in accordance with the provisions of article 4 of the Real Estate Tax Code, "urban properties are all those which should not be classified as rural (…)".

6.9

In this scope, among the several species of "urban properties" referred to in article 6 of the Real Estate Tax Code, "land for construction" is expressly mentioned [No.1, paragraph c)], with No. 3 of the same article adding that "land for construction shall be considered those lands situated within or outside an urban agglomeration, for which a building or land use permit has been granted or previous notification admitted or favorable prior information issued for a subdivision or construction operation, and also those which have been so declared in the acquisition deed, excepting lands in which the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with the municipal land use and urban planning plans, are allocated to public spaces, infrastructure or facilities" (emphasis added).

6.10

As can be seen from the provisions of the Real Estate Tax Code transcribed above, it is not possible to extract what the legislator intended to say when referring 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, with this terminology, found in any other legal diploma.

6.11

On the other hand, given that Law No. 55-A/2012, of 29/10, has no preamble, it is therefore not possible to extract 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 legal diplomas, various interpretive hypotheses can be put forward, and the text of the law must be the starting point of the interpretation of that expression, for it is on the basis of it that the legislative thought will have to be reconstructed, as follows from the provisions of No. 1 of article 9 of the Civil Code, applicable by force of the provisions of article 11, No. 1, of the General Tax Law (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 confined to the letter of the law, but should reconstruct, from the texts, the legislative thought, having especially in account 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 added).

6.14

In these terms, one could state that tax laws are interpreted like any others, being necessary to determine their true meaning in accordance with the techniques and interpretive elements generally accepted by doctrine (see article 9 of the Civil Code and article 11 of the LGT) [5].

6.15

Thus, the concept closest to the literal meaning of the expression "property with residential use" is manifestly that of "residential properties", referred to in article 6, No. 1 of the Real Estate Tax Code (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 residential purposes as their normal destination (emphasis added).

6.16

"That is, for the purposes of the Real Estate Tax Code, both are residential those immovable properties licensed for residential use, even if they are not currently being used for that purpose, and, in the case of absence of a license, which have that purpose as their normal destination"[6].

6.17

If it is understood that the expression "property with residential use" coincides with that of "residential properties", it is manifest that the assessments under analysis will suffer from error regarding both the facts and the law, since all properties with respect to which Stamp Tax was assessed, under the said item No. 28.1., are land for construction, without any building or construction required to fulfill that concept of "residential properties" (emphasis added).

6.18

For this reason, if the interpretation is adopted that "property with residential use" means "residential property", the assessments whose declaration of illegality is being requested will, in fact, be illegal, as there is, in any of the lands, no building or construction.

6.19

However, the non-coincidence of the terms of the expression used in item No. 28.1. of the TGIS with that extracted from the provisions of No. 2 of article 6 of the Real Estate Tax Code, points to the fact that the legislator did not intend to use the same concept.

6.20

On the other hand, it is also necessary to take into account that the norms of tax scope must be interpreted in their exact terms, without resorting to analogy, making prevalence and certainty in their application prevail.[7]

6.21

Finally, it will also be important to inquire into the underlying purpose of the rule of item 28.1. of the TGIS and, in obedience to the provisions of article 9 of the Civil Code[8], what were the circumstances in which the norm was drawn up and what are the specific conditions of the time in which it is applied.

6.22

In fact, in this scope, the legislator intended to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies of luxury urban properties with residential use, having considered, as a determining element of contributory capacity, urban properties, with residential use, of high value (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 added).

6.23

In fact, in the preamble of the draft Law which introduced the amendments regarding item 28 of the TGIS the following reasons were presented:

6.23.1

"The pursuit of the public interest, in light of the economic-financial situation of the Country, requires a strengthening of budgetary consolidation which will require, in addition to permanent activism in reducing public spending, the introduction of tax measures inserted in a broader set of measures to combat the budgetary deficit".

6.23.2

"These measures are fundamental to strengthening the principle of social equity in austerity, ensuring an effective sharing of the sacrifices necessary to comply with the adjustment program (…) with the Government strongly committed to ensuring that the sharing of these sacrifices will be made by all and not just by those who live from the income of their work".

6.23.3

"In accordance with this goal, this diploma broadens the taxation of income and property, encompassing equitably a broad set of sectors of Portuguese society".

6.23.4

"A tax rate is created under Stamp Tax applying to urban properties with residential use whose patrimonial tax value is equal to or greater than one million Euros" (emphasis added).

6.24

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

6.25

Because it is too broad, this statement of the reasons underlying the adoption of the measures brought little contribution to the interpretation of the concept of "urban property with residential use".

6.26

And we believe that this is also what can be concluded from the analysis of the discussion of draft Law No. 96/XII in the Assembly of the Republic[9], which was at the origin of the proposal for amendments, with no different interpretive purpose being envisaged from that presented here.[10][11]

6.27

In fact, the justification for the measure called "special tax on urban residential properties of highest value" is thus based on the invocation of the principles of social equity and fiscal justice, calling on the holders of properties of high value intended for residential use to contribute more intensely, thus making the new special tax apply to "houses of value equal to or greater than 1 million Euros" (emphasis added).

6.28

Thus, it can be ascertained that the reality which it was intended to tax was in fact, in common language [and notwithstanding the imprecision in the legal terminology of the expression "urban (residential) properties"], that of "houses", and not any other realities.

6.29

It should be added that "residential use" always appears in the Real Estate Tax Code as relating to "buildings" or "constructions", since only these can be inhabited, which is not the case with land for construction which do not, in themselves, have conditions for such, not being capable of being used for residential purposes except if and when the authorized and intended construction is built on them.

6.30

Thus, given that land for construction (whatever the type and purpose of the building which will be, or may be, erected on it) does not, in itself, satisfy any condition for, as such, being licensed or for it to be possible to define residential use as its normal destination, and the norm of scope of Stamp Tax refers to urban properties with "residential use" (without any specific concept being established for the purpose), cannot from it be extracted that it contains a future potentiality, inherent to a different property which may possibly be built on that land.

6.31

It can thus be concluded that, as a result of article 6 of the Real Estate Tax Code a clear distinction between "residential" urban properties and "land for construction", these cannot be considered as "urban properties with residential use", for the purposes of the provision in item No. 28.1. of the TGIS, in the wording given to it by Law No. 55-A/2012, of 29 October.[12]

6.32

And if this logic seems to make sense when applied to a "residence" (whether a house, an autonomous apartment, a part of a property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, an above-average contributory capacity (and, to that extent, capable of determining a special contribution to ensure the fair sharing of the tax burden), it would make no sense if applied to "land for construction".

6.33

In fact, the ownership of real property by a real estate company which holds in its sphere land for construction intended to carry out its corporate purpose and to develop, in particular, real estate promotion activities, would not represent luxury assets and much less exceptional contributory capacity, as such lands are not considered luxury goods but rather investment goods allocated to real estate promotion operations carried out by the company.

6.34

Thus, the ownership of these properties would not, in itself, evidence above-average contributory capacity, so as to legitimize a "solidarity tax" as is the case of the Stamp Tax of item 28.1. of the TGIS, as was extensively referred to above.

6.35

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

6.36

Thus, in view of the above, and in response to the question raised above (see point 6.1.), it is concluded that Stamp Tax as referred to in item No. 28.1. of the TGIS in the wording provided by Law No. 55-A/2012 cannot apply to "land for construction" and is therefore illegal the assessment act relating to the third instalment (document No. 2014 ...41) of Stamp Tax which is the subject of the Request for Arbitral Determination submitted by the Claimant.

6.37

In these terms, and as a result of the illegality of the assessment act referred to in the previous point, there must be a reimbursement of the amount possibly already paid by the Claimant, by way of tax, as a way of achieving the reconstruction of the situation that would have existed if the illegality had not been committed.

6.38

In fact, in accordance with the provisions of article 100 of the LGT, applicable to the case by force of the provisions in paragraph a), of No. 1, of article 29 of the RJAT, "the tax administration is obliged, in case of full or partial success of complaints or administrative appeals, or of court proceedings in favor of the taxpayer, to the immediate and full reconstruction of the situation that would have existed if the illegality had not been committed, including the payment of indemnity interest, under the terms and conditions provided for in law" (emphasis added).

6.39

Thus, if there is payment of indemnity interest, in accordance with the provisions of the previous point, it appears that, in light of what is established in article 61 of the CPPT and provided that the requirements for entitlement to indemnity interest are met (that is, the existence of error attributable to the services resulting in payment of the tax debt in an amount greater than legally due, as provided for in No. 1, of article 43 of the LGT), the Claimant will be entitled to indemnity interest at the legal rate, calculated on the amount possibly paid regarding the third instalment of the Stamp Tax assessment, dated 17 March 2014 (and relating to the year 2013), which shall 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 undue tax until the date of issuance 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 determination of the amount and apportionment 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 which gave rise to them should be condemned, being understood that the losing party gives rise to the costs of the process, in the proportion in which it is unsuccessful (article 527, No. 1 and 2 of the CPC).

7.3

In the case under analysis, having regard to the above, the principle of proportionality requires that responsibility for costs be apportioned between the Claimant and the Respondent, in the proportion of 50% to each.

7.4

In these terms, having regard to the analysis carried out, this Arbitral Tribunal decided:

7.4.1

To judge untimely the request for arbitral determination, submitted by the Claimant, regarding the request for declaration of illegality of the second instalment (document No. 2014 ...40) relating to the Stamp Tax assessment (dated 17 March 2014 and relating to the year 2013), identified in this process, with the Respondent being absolved of this part of the arbitral claim, maintaining, consequently, the respective tax act relating to that second tax instalment;

7.4.2

To judge partially founded the request for arbitral determination submitted by the Claimant and to condemn the Respondent as to the request for declaration of illegality of the third instalment (document No. 2014 ...41) relating to the Stamp Tax assessment, (dated 17 March 2014 and relating to the year 2013), identified in this process, annulling, consequently, the respective tax act relating to that tax instalment, with the legal consequences deriving therefrom (condemnation to reimburse the amount possibly paid by the Claimant, plus indemnity interest at the legal rate, calculated in accordance with legal terms);

7.4.3

To condemn the Claimant and the Respondent, in equal parts, to the payment of the costs of this process.

Value of the Proceedings: Having regard to the provisions of articles 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 proceedings is set at EUR 28,561.78.

Costs of the Proceedings: Pursuant to the provisions of Table I of the Regulation of Costs of Tax Arbitration Proceedings, the amount of the costs of the Arbitral Process is set at EUR 1,530.00, charged to the Claimant and the Respondent, in equal parts, in accordance with article 22, No.4 of the RJAT.

Let it be notified.

Lisbon, 17 April 2015

The Arbitrator

Sílvia Oliveira

[1] The drafting of this decision is governed by the spelling prior to the 1990 Spelling Agreement, except with respect to transcriptions made.

[2] Process No. 288/2013-T, of 30 April and Process No. 310/2013-T, of 22 April 2014.

[3] See Supreme Administrative Court Decision, Process No. 01870/13, of 9 April 2014.

[4] As to this second instalment, given the untimeliness of the claim as to the same, it shall not therefore be subject to arbitral analysis (see point 4.1. to point 4.10.).

[5] In this sense, see Supreme Administrative Court Decision, Process 07648/14, of 10 July.

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

[7] See Supreme Administrative Court Decision, Process 5320/12, of 2 October, Supreme Administrative Court Decision, Process 7073/13, of 12 December and Supreme Administrative Court Decision 2912/09, of 27 March 2014.

[8] In accordance with this article, the interpretation of the legal norm should not be confined to the letter of the law, but should reconstruct the legislative thought, from the texts and other interpretive elements, taking into account the unity of the legal system.

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

[10] As already mentioned in various Arbitral Decisions issued by the CAAD (namely, in Process No. 48/2013-T, of 9 October).

[11] This clarification may have arisen from the words of the State Secretary for Tax Affairs, who is reported to have explicitly stated that "the Government proposes the creation of a special tax on urban residential properties of highest value (…) being the first time in Portugal that special taxation on high-value properties intended for residential use is created. This tax will be of 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".

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