Stamp Tax on Vertical Property: Independent Units VPT vs Total VPT Under Clause 28.1 TGIS (CAAD 10/2016-T)

ARBITRAL DECISION

1. REPORT

THE UNDIVIDED ESTATE OPENED BY THE DEATH OF A..., taxable person with TIN..., represented by B..., TIN..., resident at ..., ...–..., ...-..., Lisbon, in the capacity of head of household (hereinafter referred to as the Petitioner), hereby, pursuant to the combined provisions of Articles 2, paragraph 1, subparagraph a) and 10, paragraph 1, subparagraph a), of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (LRAT), requests the constitution of an Arbitral Tribunal, with the intervention of a sole arbitrator, in which the Tax and Customs Authority (TA) is the Respondent, with a view to the declaration of illegality and consequent annulment of the assessments of Stamp Duty (Item 28.1, of the GSDT) for the year 2014, relating to the divisions of independent use intended for housing of the urban property located at ..., Nos. ... to..., registered in the cadastral roll under article ... of the parish of ..., in Lisbon, in the global amount of €5,192.07, as well as the restitution of amounts paid.

The Petitioner invokes, in summary, the following grounds:

a. The total taxable property value (TPV) of the real estate is €1,830,063.81, corresponding to the sum of the TPV of the various floors with independent use;

b. The TA assessed Stamp Duty (SD) on the floors or divisions of independent use with residential allocation (basement, attic, 1st, 2nd, 3rd, 4th and 5th floors), whose taxable property values total the sum of €1,565,733.81;

c. Item 28.1 of the General Table of Stamp Duty (GSDT) determines the subjection to that tax, at the rate of 1%, of the ownership of urban properties devoted to housing, with TPV equal to or greater than €1,000,000.00;

d. It is necessary to determine whether, for the application of the 1% rate provided for in item 28.1 of the GSDT, the TPV of the property corresponds to the sum of the various divisions of independent use, as the TA understands, or only to the value of each of those divisions;

e. It is the Petitioner's understanding that consideration should be given to the TPV attributed to each of the divisions of independent use, since, in the final segment of item 28 of the GSDT, it is expressly stated that consideration is given to the TPV used for the purposes of IMI;

f. In the case at hand, since none of the divisions of independent use has a TPV equal to or greater than €1,000,000.00, the Stamp Duty assessed is not due;

g. Article 12, paragraph 3, of the IMI Code, applicable by virtue of Article 67, paragraph 2, of the Stamp Duty Code, determines that each floor or part of independent use of the property not constituted as condominium ownership is considered separately in the cadastral roll, which also discriminates its respective TPV;

h. Thus, the Petitioner understands that the taxable matter, for the purposes of item 28 of the GSDT, is the TPV of each division of independent use, used for the purposes of IMI.

The Petitioner concludes by requesting that the annulment of the Stamp Duty assessments notified to it be decreed, as well as the restitution of amounts paid.

Notified in accordance with the terms and purposes set out in Article 17 of the LRAT, the TA submitted a response, defending, by way of objection, that the acts of assessment subject to the present request for arbitral pronouncement should be maintained, doing so with the following grounds:

a. "The subjection to stamp duty of item 28.1 of the General Table annexed to the Stamp Duty Code results from the combination of two facts, namely: the residential allocation and the taxable property value of each urban property registered in the cadastral roll being equal to or greater than €1,000,000.00";

b. The TA understands that if the building is constituted in full ownership, with parts susceptible to independent use, it constitutes a single unit and its TPV is determined by the sum of the parts with residential allocation;

c. Paragraph 4 of Article 2 of the IMI Code, except autonomous fractions of properties constituted in condominium ownership, which exceptionally considers them as properties, which does not happen with parts of independent use of properties in full ownership, in which the property as a whole is relevant;

d. However, this does not preclude the separation in the cadastral roll and the attribution of differentiated TPV for the floors or divisions of independent use (Article 12, paragraph 3, of the IMI Code), justified to highlight the autonomy of use of each of them and the fact that they are or are not leased, determining in relation to the fiscal assessment rules under the IMI Code;

e. Condominium ownership and full ownership are distinct legal institutes, which deserve, according to the TA, differentiated tax treatment; likewise it is concluded that the now Petitioner, for the purposes of IMI and Stamp Duty, is not the owner of autonomous fractions, but rather of a single property;

f. No error is therefore recognized in the factual or legal presuppositions in the issuance of the tax assessment acts of the tax impugned, which did not violate any legal (or constitutional) provision, and should be maintained;

g. As the Constitutional Court decided (Decision of 11 November 2015, in case No. 542/2014), "(…) It does not declare unconstitutional the provision of items 28 and 28.1 of the General Table of Stamp Duty, added by Article 4 of Law No. 55-A/2012, of 29 October, insofar as it imposes equal taxation on the ownership of urban properties with residential allocation, whose taxable property value is equal to or greater than €1,000,000.00";

The TA concludes by requesting a waiver of the meeting referred to in Article 18 of the LRAT, as well as written arguments, given that the matter in dispute is exclusively one of law and is extensively set out in the procedural documents.

The request for constitution of the Arbitral Tribunal was filed with CAAD on 13 January 2016, having been accepted by the Distinguished President of CAAD and automatically notified to the TA on 28 January 2016.

The Petitioner chose not to appoint an arbitrator, therefore, pursuant to paragraph 1 of Article 6 of the LRAT, the signatory was appointed arbitrator by the Distinguished President of the Deontological Council of CAAD, an office which she accepted within the legally prescribed period, without objection from the Parties.

The Sole Arbitral Tribunal was regularly constituted on 29 March 2016 and is materially competent to hear and decide the dispute that is the subject matter of the present case.

The Parties have legal personality and capacity, are legitimately represented (Articles 4 and 10, paragraph 2, of the LRAT and Article 1 of Order No. 112-A/2011, of 22 March).

The proceeding does not suffer from nullities and no exceptions were raised.

By order of 6 April 2016, following the response transmitted by the TA, the holding of the meeting alluded to in Article 18 of the LRAT was waived; however, doubts subsisting as to the identification of the acts impugned – whether the Stamp Duty assessments for 2014, or only the third instalment of each of those assessments – the continuation of the proceeding was determined with successive written arguments for a period of 10 days, commencing with the Petitioner, inviting her to, within the same period, clarify the object of the case.

By petition of 19 April 2016, the Petitioner came to request the expansion of the claim, as well as the correction of the value of the case, clarifying that it relates to the annulment of the Stamp Duty assessments (item 28.1 of the GSDT) for the year 2014, relating to the property identified in the initial petition and attaching copies of the collection notes relating to the 1st and 2nd instalments of the same assessments.

Notified to pronounce on the petition mentioned in the preceding paragraph, the TA presented final arguments in which it reiterated the legal position assumed in its response, pleading for the maintenance of the impugned acts and consequent dismissal of the claim, without pronouncing itself on the contents of the Petitioner's petition.

1. FACTUAL MATTER

2.1. Facts considered to be proved:

2.1.1. Whether at the date of the occurrence of the taxable event (31 December 2014), or at the date of the request for constitution of the arbitral tribunal, the Petitioner was the owner of the urban property registered under article ... of the parish of ..., municipality of Lisbon, corresponding to the former article ... of the extinct parish of ..., consisting of 8 floors or divisions susceptible to independent use, with a total taxable property value of €1,830,063.81, 7 of the said floors being intended for residential purposes;

2.1.2. The sum of the TPV attributed to the floors or divisions susceptible to independent use and residential allocation is the amount of €1,565,733.81, this being the value indicated in each of the collection notes as "Taxable property value of the property – total subject to tax";

2.1.3. The TPV attributed to each floor or division susceptible to separate lease and residential allocation, as shown in the collection notes issued, varies between €159,561.13 and €240,410.20;

2.1.4. In the name of the Petitioner, on 20 March 2015, Stamp Duty assessments for the year 2014 were issued, payable in three annual instalments, the first instalments of which are contained in the collection notes identified in the table below, based on the TPV of each of the divisions susceptible to independent use and the rate of 1%:

2.2. Substantiation of the factual matter proved:

The Tribunal's conviction as to the factual matter given as proved resulted from the analysis of documentary evidence attached to the request for arbitral pronouncement (copies of the collection notes for each of the instalments into which the impugned assessments were subdivided, the property record and the certificate of the property register), not contested by the Respondent.

2.3. Facts not proved

There are no facts relevant to the decision of the case that should be considered as not proved.

1. LEGAL MATTER – REASONING

3.1. Preliminary Issue: expansion of the claim

The claim or pretension, which corresponds to the legal effect sought by the challenger, must be formulated in the initial petition, in which the act whose annulment is petitioned is identified, the facts supporting the claim are indicated, as well as the defects that determine the annulment of the impugned act, requirements which, as regards tax arbitral proceedings, are listed in paragraph 2 of Article 10 of the LRAT.

In judicial challenge, as a rule, there is no place for expansion of the claim (principle of stability of the instance), except in the cases provided for in Article 63 of the ACPA and in paragraph 2 of Article 265 of the CPC, subsidiarily applicable to tax arbitral proceedings, pursuant to Article 29, paragraph 1, subparagraphs c) and e), respectively, that is, on the basis of supervening facts, and must take place by the end of the discussion of the case in first instance.

This does not, however, prevent that, except in cases of ineptness of the initial petition, the challenger be invited to remedy, within the time designated, any deficiency or irregularity (Article 110, paragraph 2, of the TCPT, of subsidiary application, by virtue of Article 29, paragraph 1, subparagraph a), of the LRAT), provided that, of course, the other party is given the opportunity to exercise the right of reply.

In the case at hand, the initial claim did not contain unambiguous identification of the impugned acts; however, the TA submitted a response in which it defended, by way of objection, the legality of the Stamp Duty assessments for 2014, without raising any exception that would prevent knowledge of the merits of the case.

The Petitioner admits to having referred, in the initial petition, to the third instalment of the Stamp Duty assessments for 2014, the voluntary payment period for which elapsed in November 2015, which is why it came to request expansion of the claim, in order to cover the three instalments into which that assessment was subdivided, assigning to the case the economic value of €15,630.33.

The petition containing expansion of the claim and of the value of the case was subject to notification to the Respondent, which did not pronounce itself thereon, notwithstanding the fact that it had produced written arguments, in which it reiterated the position assumed in its response.

The irregularity of the initial petition being considered remedied, nothing prevents the pronouncement of a decision on the merits.

3.2. On the merits of the Stamp Duty assessments / item 28.1 of the GSDT, impugned:

The main question brought to the case by the Petitioner is whether subjection to Stamp Duty, under item No. 28 of the GSDT, of an urban property not constituted as condominium ownership, is determined by the Taxable Property Value (TPV) that corresponds to each of the parts of the property, with residential allocation, or whether it is determined by the global TPV of the property, which would correspond to the sum of the TPV of all floors or divisions of independent use and with residential allocation that compose it, as per the interpretation given by the TA to the rule of incidence.

This must be examined and decided.

Item 28 of the GSDT, added by Law No. 55-A/2012, of 29 October establishes, in its current wording, in force at the date of the occurrence of the taxable event, the subjection to Stamp Duty of the following situations:

"28 — Ownership, usufruct or right of surface of urban properties whose taxable property value contained in the cadastral roll, pursuant to the Real Estate Tax Code (RETC), is equal to or greater than €1,000,000 — on the taxable property value used for the purposes of IMI:

28.1 — For residential property or for land for construction whose building, authorised or provided for, is for housing, pursuant to the provisions of the Real Estate Tax Code (Amended by Law No. 83-C/2013 of 31 December);

28.2 — For property, when the taxable persons who are not natural persons are residents 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%."

Thus, the cumulative requirements for the application of the rule of incidence contained in item 28.1 of the GSDT are that the real estate to be taxed be an urban property intended for housing (or land for construction whose building, authorised or provided for, is for housing), whose taxable property value, for the purpose of IMI, is equal to or greater than €1,000,000.00.

The concept of residential urban property is not defined in the Stamp Duty Code, but rather in the provisions of the Real Estate Tax Code, for whose subsidiary application it makes a blanket reference, in paragraph 2 of Article 67 of the Stamp Duty Code, added by the same Law No. 55-A/2012, of 29 October, by stating that "2 - To matters not regulated in this Code relating to item No. 28 of the General Table, the provisions of the RETC shall apply, subsidiarily."

Indeed, Article 6 of the Real Estate Tax Code, inserted in Chapter I, under the heading "Scope", classifies urban properties as being: a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others, with paragraphs 2, 3 and 4 of the same article delimiting what should be understood by each of those designations.

Thus, residential urban properties are, pursuant to paragraph 2 of Article 6 of the Real Estate Tax Code, buildings or structures licensed for housing or that, in the absence of a license, have housing as their normal purpose (residential purposes).

However, the law does not exclude that there may be urban properties with more than one allocation (namely allocation to housing and to commerce, industry or services), as frequently happens in the case of urban properties not constituted under the condominium ownership regime, as is the case of the property of which the Petitioner is the owner, which comprises eight floors or divisions susceptible to independent use, one of them intended for services and the remaining seven intended for housing.

It is to this reality of mixed allocation that subparagraph b) of paragraph 2 of Article 7 of the Real Estate Tax Code refers, by stating that,

"2 - The taxable property value of urban properties with parts classifiable in more than one of the classifications in paragraph 1 of the previous article is determined:

a)(…);

b) If the different parts are economically independent, each part is valued by applying the corresponding rules, and the value of the property is the sum of the values of its parts."

Thus, if, in accordance with subparagraph b) of paragraph 2 of Article 7 of the Real Estate Tax Code, the property not constituted as condominium ownership comprises floors or divisions susceptible to independent use, with more than one of the classifications referred to in paragraph 1 of Article 6 of the same Code, its value (taxable property value) shall be equivalent to the sum of the values of the parts, valued by applying the corresponding rules, taking into account, in particular, the allocation coefficient provided for in Article 41 of the cited Code.

However, if the value (taxable property value) of the overall urban property in full ownership is relevant, for example, for the purposes of Municipal Tax on Onerous Transactions of Real Estate (see Article 12 of the IMT Code) or of Stamp Duty on gratuitous transfers (see Article 13 of the Stamp Duty Code), because it is not possible to transfer autonomously each of the parts of independent use, this is not the case with regard to IMI and Stamp Duty of Item 28.1 of the GSDT.

In fact, beyond paragraph 2 of Article 7 of the Real Estate Tax Code, other provisions of the same Code refer to urban properties in full or vertical ownership, of which the following stand out: Article 12, paragraph 3 ("3 - Each floor or part of a property susceptible to independent use is considered separately in the cadastral entry, which also discriminates its respective taxable property value") and Article 119, paragraph 1 ("1 - The services of the Directorate-General of Taxes send to each taxable person, by the end of the month prior to that of payment, the corresponding collection document, with discrimination of the properties, their parts susceptible to independent use, their respective taxable property value and the collection allocated to each municipality of the location of the properties").

From the combination of the provisions referred to above, the conclusion is drawn that, in the case of properties not constituted as condominium ownership, the taxable property value relevant for the purposes of IMI and, consequently, for the purposes of the incidence of Stamp Duty of item 28 of the GSDT, is the taxable property value attributed to each floor or division susceptible to independent use and not its (global) taxable property value.

On the other hand, where a property has mixed allocation, composed of divisions or floors intended for housing and at least one of them intended for services, it cannot be classified as residential property, or whose purpose is exclusively housing, nor does it appear that the floors or divisions devoted to housing that compose it can be segregated from the whole, in order to, as a group, be integrated into the notion of residential property provided for in the rule of incidence of item 28.1 of the GSDT.

Indeed, using the wording of item 28.1 of the GSDT, the expression "residential property", it does not appear legitimate that the TA should seek to include therein the floors or divisions of independent use of urban properties not constituted as condominium ownership which, as the TA itself recognizes, are not properties, and therefore cannot be integrated into the provision of the rule.

As it does not appear that this is the legislative intention, it cannot be accepted that the TA formulates a rule of incidence ex novo, different from that created by the legislator, seeking to tax parts of properties, even though economically and functionally independent and, as such, separately registered in the cadastral roll, because the law is clear in subjecting to stamp duty of item 28.1 of the GSDT urban properties with residential allocation, whose TPV, for the purposes of IMI, is greater than €1,000,000.00.

For the reasons stated above, having found the defect of violation of law, due to error in the application of the law, resulting from the incorrect interpretation of the provisions provided for in item No. 28.1 of the GSDT and in Articles 6, paragraph 1, subparagraph a) and paragraph 2, 7, paragraph 2, subparagraph b), 12, paragraph 3 and 119, paragraph 1 of the Real Estate Tax Code, applicable by virtue of Article 67, paragraph 2, of the Stamp Duty Code, the impugned assessments cannot be maintained in the legal order.

1. DECISION

Based on the factual and legal grounds stated above and, pursuant to Article 2 of the LRAT, the decision is made in, finding the present request for arbitral pronouncement entirely well-founded:

4.1. Declare the illegality of the impugned Stamp Duty assessments, due to error in the legal presuppositions, determining their annulment;

4.2. Condemn the TA to the restitution of the amounts unduly paid by the Petitioner as Stamp Duty for 2014.

CASE VALUE: In accordance with the provisions of Article 306, paragraphs 1 and 2, of the CPC, 97-A, paragraph 1, subparagraph a), of the TCPT and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €15,657.33 (fifteen thousand, six hundred and fifty-seven euros and thirty-three cents), equivalent to the global value of the impugned assessments.

COSTS: Calculated in accordance with Article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of €918.00 (nine hundred and eighteen euros), to be borne by the Tax and Customs Authority.

Lisbon, 11 May 2016.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, pursuant to paragraph 5 of Article 131 of the CPC, applicable by virtue of subparagraph e) of paragraph 1 of Article 29 of Decree-Law 10/2011, of 20 January.

The wording of this decision is governed by the spelling agreement of 1990.