Stamp Tax on Building Land: CAAD Rules Verba 28.1 TGIS Does Not Apply to Non-Residential Plots

ARBITRAL DECISION

CAAD: Tax Arbitration

Process no. 94/2015-T

Subject: Land for construction – Item 28.1 of TGIS

I – Report

1. On 13.02.2015, A…, holder of tax identification number …, divorced, resident in …, …, …, requested from CAAD the constitution of an Arbitral Court, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "LRAT"), in which the Tax and Customs Authority is the Respondent, with a view to the annulment of the Stamp Tax assessment act carried out on 18.03.2014, based on item 28.1 of the General Table of Stamp Tax, concerning the year 2013, applicable to land for construction, located on Rua dos …, …, …, of the parish of …, municipality of …, registered in the respective urban register under article …, in the amount of € 20,248.99.

The Petitioner also sought the condemnation of the Tax and Customs Authority to return the amounts unduly paid, compensatory interest, as well as default interest assessed, costs of constitution of suitable guarantee for suspension of tax enforcement and court costs.

1. The request for constitution of the Arbitral Court was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.

In accordance with and for the purposes of the provisions of article 6, paragraph 1 of LRAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable periods, the undersigned was designated as arbitrator, who communicated the acceptance of the appointment to the Deontological Council and to the Centre for Administrative Arbitration within the regularly applicable period.

The Arbitral Court was constituted on 28.04.2015.

1. The grounds presented by the Petitioner, in support of her claim, were, in summary, that there is erroneous application of item no. 28.1 of the General Table of Stamp Tax, amended by Law no. 55-A/2012, of 29 October, given that the property in question is land for construction and not a building intended for housing, and thus is not before an urban property with residential use, but rather before land for construction, to which the aforesaid item 28.1 does not apply, in the wording at the date of the taxable event.

2. The ATA – Tax and Customs Administration, called upon to respond, contested the claim of the Petitioner.

From its response it results that its position is, in summary, that the property on which the contested assessment falls has the nature of property with residential use, whereby the assessment act subject to the present request for arbitral pronouncement should be maintained, as it constitutes a correct interpretation of Item 28.1 of the General Table, amended by Law 55-A/2012, of 29 October. To this end, the Respondent submits that the legislator opted to determine the application of the valuation methodology for properties in general to the valuation of land for construction, and therefore the allocation coefficient provided for in article 41 of CIMI applies to them, and from which results a different and more broad sense of the realities identified in article 6, paragraph 1, letter a) of CIMI.

1. By order of 11.06.2015 it was decided to dispense with the holding of the meeting provided for in article 18, paragraph 1, of LRAT, as well as the submission of arguments, on the grounds of its unnecessariness.

2. The Court is materially competent and is regularly constituted pursuant to LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings do not suffer from vices that would invalidate them.

II – The Relevant Facts

1. The Court considers the following facts proven:

1 - The Petitioner appears in the property register as the owner of land for construction, located on Rua dos …, …, …, of the parish of …, municipality of …, registered in the respective urban register under article ….

2 - The Petitioner was notified of the Stamp Tax assessment act, carried out on 18.03.2014, based on item 28.1 of the General Table of Stamp Tax, concerning the property identified, for the year 2013 in the amount of € 20,248.99, to be paid in 3 instalments of €6,749.67, €6,749.66 and €6,749.66, respectively, in the months of April, July and November.

Unproven Facts

It was not proven that the Petitioner paid any instalment concerning the assessed tax as well as default interest, costs and expenses of constitution of suitable guarantee for suspension of tax enforcement.

1. Reasoning of the decision on the facts.

The decision on the proven facts is based on the documents contained in the case file which were not objected to, and it should also be noted that there was no disagreement between the parties regarding the factual matter alleged and proven, with the divergence being limited to the matter of law.

With regard to the unproven facts, the Petitioner made no proof regarding the payment of any instalment of the tax, nor states when it may have effected it, the same occurring with regard to default interest, costs and expenses of constitution of suitable guarantee for suspension of tax enforcement.

III – The Applicable Law

1. Item 28 of the General Table of Stamp Tax established, in the wording at the date of the facts, that ownership of properties with residential use with taxable patrimonial value equal to or exceeding 1,000,000 euros was subject to stamp tax, in the following terms:

"28 – Ownership, usufruct or surface rights of urban properties whose taxable patrimonial value contained in the register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or exceeding 1,000,000 euros – on the taxable patrimonial value used for purposes of Municipal Property Tax:[1]

28.1 – For property with residential use – 1%;

28.2 – For property, when the taxpayers who are not individuals are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%".

1. It has been abundantly emphasised in various arbitral decisions[2] (namely in processes 42/2013-T, 48/2013-T, 49/2013-T, 51/2013-T, 53/2013-T, 144/2013-T and 202/2014-T) that the concept of "property with residential use" (which is not the subject of any specific definition in the Stamp Tax Code) is not used by CIMI[3], nor in any other legislative instrument.

All these arbitral decisions, whose doctrine is upheld, go, in essence, in the direction that such concept requires for its fulfilment, at least, the effective possibility of the existing property being used for housing and, in all of them, it was understood that land for construction, even if intended for the construction of residential buildings, are not subsumed in the concept of "property with residential use", as results from the following passages of the aforementioned processes:

Process 42/2013-T:

"The expression 'residential use' does not appear to be able to have any meaning other than 'use' for residential purposes, that is, urban properties that have an actual use for residential purposes, either because they are licensed for such, or because they have that normal destination.

And we cannot confuse a 'residential use' that implies an actual allocation of an urban property to that purpose, with the expectation, or potentiality, of an urban property being able to have a 'residential use'."

Process 49/2013-T:

"The expression 'with residential use' conveys, in a simple reading, an idea of real and present functionality. From the rule in question it is not possible to extract, by interpretation, that, as alleged in the respondent's response, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, letter a), of CIMI.' Such interpretation has no legal basis, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law.

Indeed, if the legislator intended to encompass within the scope of the tax other realities than those resulting from the classification governed by article 6 of CIMI, it would have said so expressly. But it does not do so, instead referring, in bulk, to the concepts and procedures provided for in the said Code".

Process 51/2013-T:

"The point that matters to decide is this: is there a difference between the expression that CIMI uses of 'urban residential property' and the expression used by article 4 of Law no. 55-A/2012, when referring to 'property with residential use'?

We are of the belief that there is not, since the same fundamental sense prevails, even if using somewhat different words, of taxing the ownership of properties with the same destination, the actuality or the possibility of the use being for purposes of human habitation, with all the consequences that the legislation in general and CIMI in particular gives to it."

Process 53/2013-T:

"(...) it should be presumed that the use of a different expression is intended to reflect a distinct reality, whereby, in good hermeneutics, 'property with residential use' cannot be a property merely licensed for habitation or intended for that purpose (that is, it will not be sufficient that it be a 'residential property'), but must be a property that already has actual use for that purpose."

Process 144/2013-T:

"(...) we consider that it is imperative, in the interpretation of the provisions of item 28.1 of TGIS, the understanding that the residential use of an urban property suggests that it be given that actual destination, or that it may be directly given that destination."

Proc. 202/2014-T

"The expression 'with residential use' conveys, in a simple reading, an idea of real and present functionality. From the rule in question it is not possible to extract, by interpretation, that, as alleged in the Respondent's response, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, paragraph 1, letter a), of CIMI.' Such interpretation has no legal basis, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law."

1. Also in the judgment of the Supreme Administrative Court, of 09-04-2014, appeal no. 048/14[4] it was considered that:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Code of Municipal Property Tax, to which paragraph 2 of article 67 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is in function of it that the scope of objective incidence of the new taxation is carved out -, had a short life, inasmuch as it was abandoned upon the entry into force of the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now carves out its scope of objective incidence through the use of concepts that are legally defined in article 6 of the Code of Municipal Property Tax.

This change - to which the legislator did not attribute an interpretative character, nor do we believe it did –, merely makes it unequivocal for the future that land for construction whose building, authorised or planned, is for residential purposes is encompassed within the scope of item 28.1 of the General Table of Stamp Tax (provided that its respective taxable patrimonial value is of value equal to or exceeding 1 million euros), but clarifies nothing, however, with respect to past situations (assessments of 2012 and 2013), such as that which is at issue in the present proceedings.

Well then, as to these, it does not appear possible to endorse the interpretation of the appellant, inasmuch as, contrary to what is alleged, it does not result unequivocally either from the letter, or from the spirit of the law that the intention of the latter was, ab initio, to encompass within its scope of objective incidence land for construction for which the construction of residential buildings was authorised or planned, as results today unequivocally from item 28.1 of the General Table of Stamp Tax."

(…)

"It is concluded therefore, with the respondent and in accordance with what was decided in the judgment under appeal, that, resulting from article 6 of the Code of Municipal Property Tax a clear distinction between urban properties "residential" and "land for construction", the latter cannot be considered, (...) as "properties with residential use" for purposes of the provision in item no. 28.1 of the General Table of Stamp Tax, in its original wording, as given to it by Law no. 55-A/2012, of 29 October."

1. This understanding continued to be endorsed by the Supreme Administrative Court, uniformly, in the other proceedings in which it was called upon to pronounce. As can be read in the judgment delivered in process 0707/14, of 10.09.2014[5]:

"The question was already decided by this Section of Tax Dispute of the Supreme Administrative Court on 9 April 2014, in processes nos. 1870/13 (Not yet published in the official journal, available at
http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/f6fd29ac6d6ebaf380257cc30030891a?OpenDocument.) and 48/14 (Not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/0e28073928824e5080257cc3003a0cbd?OpenDocument.), and, since then, reiterated uniformly in numerous judgments, and it can be considered that case law is established in the sense that land for construction cannot be considered for purposes of the incidence of Stamp Tax provided for in Item 28.1 (in the wording of Law no. 55-A/2012, of 29 October) as urban properties with residential use.

This is case law that is also received here, as we fully agree with it and in light of the provisions of paragraph 3 of article 8 of the Civil Code (CC) (...)."

1. Thus, a point unequivocally common to all these decisions, and which we follow, is the understanding that land for construction, even if intended for residential construction, are not properties with residential use. We consider that the application of item no. 28.1 of the General Table of Stamp Tax, in the wording amended by Law no. 55-A/2012, requires, at least, the actuality of the allocation of the property for habitation, it not being sufficient the mere potentiality of building for residential purposes.

In truth, we understand that, regardless of the reasons that may have led Law no. 55-A/2012 to use the expression "property with residential use", in place of "residential property" contained in article 6, paragraph 1, letter a) of CIMI, for the subsumption to item 28.1 of the Stamp Tax Code there cannot fail to be required, at least, the real and actual potentiality (relative to the taxable event) of the property in question being used for habitation.

Land for construction cannot, therefore, be considered a property with "residential use", since it consists of a reality not apt for human habitation. To achieve that aptitude it is necessary for an external reality to occur – the construction of the building apt for habitation – and, with such event the land for construction ceases to exist and a new reality comes to exist: the building. And it is this that can have residential use.

Accordingly, land for construction do not come within the concept of "property with residential use", and item 28.1 of the General Table of Stamp Tax does not apply to them.

1. Having regard to the foregoing, since item 28.1 of the Stamp Tax Code is inapplicable to the Petitioner's property, the Petitioner's request for annulment cannot fail to succeed, since the tax act is tainted with the defect of violation of law due to error in the legal prerequisites.

2. The Petitioner has also sought the entitlement to compensatory interest, default interest, costs and expenses of constitution of suitable guarantee for suspension of tax enforcement.

As to compensatory interest, this claim must also be assessed in light of article 43 of the General Tax Law.

Paragraph 1 of that article provides that "Compensatory interest is due when it is determined, in an administrative claim or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount higher than legally due".

We follow the understanding of Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa when they write that "The error attributable to the services that effected the assessment is demonstrated when they proceed with an administrative claim or a judicial challenge of that same assessment and the error is not attributable to the taxpayer" (General Tax Law, Developments in Writing, 4th Edition, 2012, page 342).

In the case "sub judice", the error that gave rise to the assessment not being attributable to the Petitioner, the request for condemnation of the Respondent to pay compensatory interest to the Petitioner could not fail to succeed, had the Petitioner made proof of having effected payment of the contested assessment or any of its instalments. However, such proof was not made, whereby, in this respect, the claim in question cannot fail to be unsuccessful, without prejudice to the duty incumbent upon the Tax and Customs Authority to execute the present decision, pursuant to article 24, paragraph 1, of LRAT.

1. Regarding the Petitioner's request to be compensated for the costs of constitution of suitable guarantee for suspension of tax enforcement, this claim also fails in that no proof was made regarding the facts comprising the cause of action inherent to this claim and, in truth, the Petitioner did not even allege the same in her petition, limiting itself to formulating the request.

The same applies with respect to default interest and costs of a hypothetical tax enforcement proceeding, and with respect to this claim, the Petitioner's claim would not succeed, in any case.

In fact, the payment of costs by the Respondent does not result directly from the practice of illegal assessment acts, but from the absence of voluntary payment of the tax instalments. Knowing that in tax procedure and proceedings the principle of "solve et repete" applies, according to which it is required of the taxpayer, in the words of Saldanha Sanches, "(...) the prior payment of the tax, with subsequent reimbursement of the amount unduly paid if they come to win the dispute they have with the tax administration, acquiring, in this case, the right to receive compensatory interest"[6]. On the other hand, as is well known, the taxpayer may avoid the institution of enforcement, by providing guarantee pursuant to article 169 of the Code of Tax Procedure and Proceedings (with the consequent right to compensation should it come to be considered undue in accordance with article 53 of the General Tax Law) or obtaining its dispensation should they meet the requirements for that, pursuant to articles 52, paragraph 4 of the General Tax Law and 170 of the Code of Tax Procedure and Proceedings.

In these terms, this claim of the Petitioner fails.

IV – Decision

Thus, the Court decides:

a) To declare the non-application of item 28.1 of the General Table of Stamp Tax to the property in question, of which the Petitioner is the registered owner in the urban property register.

b) To declare the illegality and consequent annulment of the tax act sub judice.

c) To judge unsuccessful the request for condemnation of the Respondent to pay compensatory interest to the Petitioner.

d) To judge unsuccessful the request of the Petitioner to be compensated for costs of constitution of suitable guarantee for suspension of tax enforcement.

e) To judge unsuccessful the request for condemnation of the Respondent to pay costs borne by the Respondent concerning tax enforcement proceedings, as well as default interest.

Value of the action: Amount: 20,248.99 € (twenty thousand, two hundred and forty-eight euros and ninety-nine cents) pursuant to the provisions of article 315, paragraph 2, of the Code of Civil Procedure and article 97-A, paragraph 1, letter a), of the Code of Tax Procedure and Proceedings and article 3, paragraph 2, of the Regulation of Costs in Arbitration Proceedings.

Costs by the Respondent, in the amount of 1,224.00 € (one thousand two hundred and twenty-four euros) pursuant to paragraph 4 of article 22 of LRAT.

Notify.

Lisbon, CAAD, 29 June 2015.

The Arbitrator

Marcolino Pisão Pedreiro

[1] This rule was amended upon the entry into force of the State Budget Law for 2014 Law no. 83-C/2013, of 31 December, expressly broadening the tax base, now including land for construction.

[2] Which can be consulted on the website "https://caad.org.pt/tributario/decisoes/"

[3] Article 67, paragraph 2, of the Stamp Tax Code provides that "To matters not regulated in this Code concerning item no. 28 of the General Table, the provisions of CIMI apply on a subsidiary basis." In turn, CIMI uses the concept of urban residential property, being considered as such buildings/constructions licensed for such purposes or those that have as their normal destination each of these purposes, pursuant to article 6, paragraph 1, letter a) and paragraph 2. This same article clearly differentiates the concept of land for construction, in its paragraph 1, letter c) and in paragraph 3.

[4] Available at http://www.dgsi.pt/.

[5] Also available at http://www.dgsi.pt/.

[6] MANUAL OF TAX LAW, Coimbra Publisher, 3rd Edition, 2007, page 485.