Stamp Tax on Urban Properties in Total Ownership with Independent Units – CAAD Case 105/2016-T

ARBITRAL DECISION

I. REPORT

1. On 24 February 2016, the commercial company A…, Lda., NIPC..., with registered office at Avenue…, …, Lisbon, (hereinafter, the Claimant), filed a request for the constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2, no. 1, paragraph a), and 10, nos. 1, paragraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviatedly referred to as RJAT), seeking the declaration of illegality and the annulment of the assessments of Stamp Duty [Item 28.1 of the General Table of Stamp Duty (hereinafter, TGIS)] relating to the year 2013 and the urban property registered under article … in the urban property register of the parish of …, municipality and district of Lisbon, property of the Claimant – subject to collection notices numbered 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014… and 2014 … relating to the 1st installment, numbered 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014 … and 2014…, relating to the 2nd installment and numbered 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014 … and 2014 … relating to the 3rd installment –, in the total amount of € 12,399.36, following the dismissal of the administrative appeal no. …2015… .

The Claimant attached 13 (thirteen) documents and 3 (three) annexes, and did not request the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, the Respondent or AT).

1.1. In essence and in brief summary, the Claimant alleged the following:

• It is the owner of the property located at Avenue … no. … to … in Lisbon, with registration number …, property under a regime of full ownership, comprising 11 units capable of independent use;

• In 2012, the said units capable of independent use were subject to valuation under the terms of the IMI Code, which meant that the tax property value (VPT) of the said property amounted to € 1,454,840.00;

• Since, according to the information contained in the respective register, two of the units capable of independent use were dedicated to commercial activity (unit …AB and unit … CD), the AT assessed Stamp Duty under the provision of item 28.1 of the TGIS only with respect to the 9 units capable of independent use which, according to the AT's understanding, were dedicated to housing;

• In consequence, the AT issued assessment notices for Stamp Duty under the provision of item 28.1 of the TGIS, since the total VPT of these 9 units amounted to € 1,239,920.00;

• Contrary to the information available to the AT, 6 of the units capable of independent use of the property in question (and not just 2 as the AT considers) are not currently, nor have ever been, dedicated to housing, but rather to commercial or service activities, as is evident from the content of the utilization license issued by the Lisbon City Council (CML) on 12.04.1961;

• As appears from the property record issued by the AT, the 4th floor was divided into units capable of independent use, designated A, B and C;

• In this way, currently there are 8 units capable of independent use, considered by the CML as occupations, that is, dedicated/intended for services or commerce;

• Since these units are not dedicated to housing, the Claimant cannot agree that they are subject to Stamp Duty under the provision of item 28.1 of the TGIS;

• Since these units are not subject to Stamp Duty under the provision of item 28.1 of the TGIS, the respective VPT's should not be considered for the purpose of the AT assessing whether the remaining units, dedicated to housing (being only 3), will be subject to Stamp Duty under the said item;

• If we deduct from the total VPT of the property the value of the VPT's of the units dedicated to commercial/service activity, the total VPT of the units dedicated to housing becomes € 532,710.00;

• Since this value is manifestly lower than the value of € 1,000,000.00 provided for in item 28.1 of the TGIS, it is the Claimant's understanding that the AT could never subject these units to Stamp Duty under the said item, that is, if the VPT to be considered for the purposes of the tax event were that of the total VPT of those units dedicated to housing;

• On the other hand, the AT cannot assess Stamp Duty on the basis of item 28.1 of the TGIS with respect to the property in question, given that the VPT to be considered for the purposes of that legal provision is, in fact, the individual one for each fraction or independent unit and none of these fractions has a VPT exceeding € 1,000,000.00;

• Each of the independent floors has a tax property value autonomously assigned and determined in accordance with the provisions of the IMI Code, ranging between € 57,280.00 and € 178,730.00;

• The existence of a property under vertical or horizontal ownership cannot, by itself, be an indicator of tax capacity, and it follows from the law that both should receive the same tax treatment in obedience to the principles of justice, fiscal equality and material truth;

• The existence in each property of independent dwellings, under a regime of horizontal or vertical ownership, may be capable of triggering the incidence of the new tax, but only if the VPT of each part or fraction equals or exceeds the limit defined by law: € 1,000,000.00;

• In the view of the legislator, what matters is not the juridical-formal strictness of the concrete situation of the property, but rather its normal use, the purpose for which the property is intended;

• For the legislator the situation of the property under vertical or horizontal ownership was not relevant, since no reference or distinction is made between them, what is relevant being the material truth underlying its existence as an urban property and its utilization;

• Accordingly, the AT's understanding that the sum of the VPT's of the various fractions or units with independent use dedicated to housing, resulting in a total VPT equal to or exceeding € 1,000,000.00, legitimizes the incidence of Stamp Duty under item 28 of the TGIS is manifestly illegal;

• Since the assessments now in question aim at the taxation of units dedicated to commercial activity, they should be annulled as manifestly illegal and contrary to law;

• And, they should also be annulled, as illegal, the assessments relating to units dedicated to housing which, on the one hand, if it is considered that it would be on the basis of the overall VPT value of these that such item should apply, this does not amount to 1,000,000 Euros, and on the other, considering the value of individual or particular VPT of each fraction, part or floor with housing dedication, equally, none has a tax property value exceeding € 1,000,000.00;

• The stamp duty assessments now being challenged clearly violate the principle of equality, provided for constitutionally in article 13 of the Constitution of the Portuguese Republic;

• If the property were under a regime of horizontal ownership, none of its residential fractions would be subject to the incidence of the new tax, since the VPT that the AT would take into account for the purposes of taxation of this tax would be the VPT of each autonomous fraction in itself;

• This should be the principle to apply in the case of properties under vertical ownership, as a matter of equality;

• The AT cannot distinguish where the legislator itself chose not to, under penalty of violating the coherence of the fiscal system, as well as the principle of fiscal legality, provided for in article 103, no. 2 of the CRP, and also the principles of justice, equality and fiscal proportionality;

• Given that the Claimant was led to proceed with the payment of Stamp Duty relating to 2013 improperly, the AT should be condemned to pay indemnifying interest, from the date on which each of the installments was paid until full payment;

• Being manifest the illegality of the disputed assessment acts, attributable to the Tax Administration, which carried them out without legal support, there should be reimbursement of the tax paid, in the amount of € 12,399.66;

• The impugned acts incur in the following defects: violation of the provisions of article 1 of the CIS, combined with Item 28 of the TGIS, in the wording and amendments introduced by Law no. 55-A/2012, of 29 October, maintaining the AT's interpretation thereof, since it was not the legislator's intention to tax properties dedicated to commerce or services and properties dedicated to housing with VPT below € 1,000,000.00; violation of the provision of no. 3 of article 11 of the LGT which provides for the prevalence of the substance over form principle; maintaining the interpretation that the AT makes of the applicable legal norms, it is manifestly unconstitutional, by violation, inter alia, of the provisions of articles 13, 62, 103 and 104, all of the CRP.

The Claimant concludes its initial submission by requesting the following:

"Accordingly, and pursuant to the applicable law, the present arbitral action should be judged admissible and well-founded, by virtue of the proof, the decision dismissing the administrative appeal presented being revoked and, consequently, the Stamp Duty assessments being challenged, in the total amount of € 12,399.66 (twelve thousand three hundred and ninety-nine euros and sixty-six cents), being annulled, due to the defects identified above, all with the other legal consequences, in particular the payment of indemnifying interest with regard to the values that the Claimant paid, all in accordance with article 43 of the LGT."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the AT on 7 March 2016.

2. The Claimant did not proceed with the appointment of an arbitrator, therefore, pursuant to the provisions of no. 1 of article 6 and paragraph a) of no. 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable deadline.

3. On 20 April 2016, the parties were duly notified of this appointment and did not manifest any will to refuse the appointment of the arbitrator, in accordance with the combined terms of article 11, no. 1, paragraphs b) and c), of the RJAT and articles 6 and 7 of the CAAD Code of Ethics.

4. Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 6 May 2016.

5. On 20 May 2016, the Claimant requested the attachment to the case file of a document concerning the reassessment carried out by the AT of the floors or units capable of independent use of the property under full ownership over which the disputed Stamp Duty assessment acts fall, which was granted by order issued on the same date.

6. On 3 June 2016, the Respondent, duly notified for that purpose, presented its Response in which it specifically challenged the arguments put forward by the Claimant and concluded that this action was without merit, with its consequent absolution from the claim.

The Respondent did not attach documents or request the production of any other evidence.

On the same occasion, the Respondent attached to the case file its respective administrative file (hereinafter, abbreviatedly referred to as PA).

7.1. In essence and also in brief form, it is important to extract the most relevant arguments on which the Respondent based its Response:

• The property was valued on 2013.02.06, taking into account the residential and commercial destination, being described in the register under the regime of full ownership, consisting of 11 units, of which 2 are dedicated to commerce and 9 dedicated to housing;

• Since this is the information in the property register, in accordance with article 23, no. 7 of the CIS, the assessment of Stamp Duty in question was carried out by the Tax Administration, taking into account the nature of the urban property, namely its units dedicated to housing, at the date of the tax event, applying, with the necessary adaptations, the rules contained in the IMI Code;

• Accordingly, given the information in the property register, the Claimant fails, with the documents it attaches to the case, to prove that it contradicts the nature of the units with a residential character;

• The contested Stamp Duty assessments were issued in accordance with the information contained in the property record of the property, therefore, they are valid and do not suffer from any illegality;

• Although the assessment of Stamp Duty, in the situations provided for in item no. 28.1 of the TGIS, is processed in accordance with the rules of the IMI Code, the truth is that the legislator reserves the aspects that require the necessary adaptations, namely those in which, as is the case with properties under full ownership, although with floors or units capable of independent use (even though the IMI is assessed with respect to each part capable of independent use) for purposes of Stamp Duty the property as a whole is relevant since units capable of independent use are not considered as property, but only autonomous fractions under the regime of horizontal ownership, as provided in no. 4 of article 2 of the IMI Code;

• The defect of violation of law by error as to the legal presuppositions should be judged without merit, maintaining in the legal order the assessments impugned for constituting a correct application of the law to the facts;

• It is not apparent how the taxation in question could have violated the principle of equality, since it is the AT's understanding that the provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality, there being no discrimination in the taxation of properties constituted in horizontal ownership and properties under vertical ownership with floors or units capable of independent use, or between properties with residential dedication and properties with other dedications;

• Horizontal and vertical ownership are distinct legal institutions;

• The constitution of horizontal ownership implies, it is a fact, a mere juridical alteration of the property, there being no valuation (office – circular no. 40.025, of 11.08.200, of the DSCA), but the legislator can, however, submit to a distinct tax legal framework, therefore discriminatory, properties under a regime of horizontal and vertical ownership, in particular, benefiting the legally more evolved institute of horizontal ownership, without such discrimination having to be considered necessarily arbitrary;

• The norms on valuation procedures, the norms on property registration, and also the norms on the assessment of parts capable of independent use, do not allow one to affirm that there should be an equating of property under full ownership to the regime of vertical ownership, since this would be illegal and unconstitutional;

• In consequence of the tax event of Stamp Duty of item 28.1 consisting in the ownership of urban properties whose tax property value contained in the register, in accordance with the IMI Code, equals or exceeds € 1,000,000.00, the tax property value relevant for the purposes of the incidence of the tax is the total tax property value of the urban property and not the tax property value of each of the parts that compose it, even when capable of independent use;

• The constitution in horizontal ownership determines the scission/division of full ownership and the independence or autonomy of each of the fractions that compose it, for all legal purposes, in accordance with no. 2 of article 4 of the IMI Code and articles 1414 and following of the CC, being that a property in full ownership constitutes, for all purposes, a single legal-tax reality;

• For this reason, one cannot conclude in favor of an alleged discrimination in violation of the principle of equality when, in truth, we are faced with distinct realities, valued by the legislator differently;

• Raising the question of unconstitutionality of item 28 of the TGIS, added by Law no. 55-A/2012, of 29 October and its no. 1 (item 28.1 TGIS), added by Law no. 55-A/2012, of 29 October and, subsequently, altered by Law no. 83-C/2013, of 31 December), in particular the violation of the principles of tax equality, tax capacity and proportionality, the Constitutional Court understood that "the violation of the constitutionality parameters invoked by the appellant not being verified, nor of any others, the appeal is therefore without merit" (decision of 11 November 2015, rendered in case no. 542/14);

• The assessment being correct and the tax being due, indemnifying interest is not due, not least because there is no error attributable to the Services, which merely acted, as they should, in strict compliance with the legal norm.

The Respondent thus concludes its submission:

"Accordingly, and in other respects that Your Excellency will duly supply, the present request for arbitral pronouncement should be judged without merit, being unproven, maintaining in the legal order the tax assessment acts impugned, absolving, accordingly, the requested entity from the claim."

1. On 6 June 2016, an order was issued dispensing with the holding of the meeting referred to in article 18 of the RJAT, setting a deadline for the submission of submissions and setting 31 October 2016 as the deadline for the arbitral decision.

2. Both parties declared they did not intend to submit submissions, therefore these were dispensed with by order issued on 27 June 2016.

II. SANITATION

The Arbitral Tribunal was regularly constituted and is competent.

The case is not vitiated by any nullities.

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

The cumulation of claims is admitted – there are in question various Stamp Duty assessment acts, and the declaration of illegality and annulment of each of them being requested – by virtue of it being verified that the procedural success of the claims formulated by the Claimant depends essentially on the appraisal of the same factual circumstances – rooted in the Claimant's ownership of an urban property under vertical ownership with floors or units capable of independent use – and on the interpretation and application of the same legal principles or rules – in the case at hand, item 28.1 of the TGIS (cf. article 3, no. 1, of the RJAT).

There are no exceptions or other prior questions that prevent the consideration of the merits and which need to be addressed.

III. REASONING

III.1. ON THE FACTS

§1. PROVEN FACTS

With regard to factual matters, it is first and foremost important to point out that the Tribunal does not have to rule on everything that was alleged by the Parties, but rather its duty is to select the facts that are important for the decision and discriminate the proven matter from the unproven (cf. article 123, no. 2, of the CPPT and article 607, nos. 3 and 4, of the CPC, applicable ex vi article 29, no. 1, paragraphs a) and e), of the RJAT). In this way, the facts relevant for the judgment of the case are chosen and selected based on their legal relevance, which is established in view of the various plausible solutions of the question(s) of law.

Within this framework, the following facts are considered proven:

a) In the year 2013, the Claimant was the owner of an urban property under full ownership with floors or units capable of independent use, located at Avenue …, numbers … to …, parish …, municipality and district of Lisbon, registered in the respective property register under article … . [cf. Doc. no. 8 attached to the P. I.]

b) In that same year, the said urban property was thus described in the respective property register [cf. Doc. no. 8 attached to the P. I.]

c) Each of the floors or units capable of independent use comprising that same urban property has its own tax property value, determined in accordance with the IMI Code, the floors or units with independent use, described in the property register as dedicated to housing having, in 2013, the following individual tax property values [cf. Doc. no. 8 attached to the P. I.]:

d) On 17 March 2014, the AT assessed Stamp Duty in the total amount of € 12,399.20, relating to the year 2013 and concerning the floors or units capable of independent use dedicated to housing, in the respective property register, comprised in the urban property identified above in proven fact a). [cf. Docs. nos. 1, 2 and 3 attached to the P. I.]

e) The Stamp Duty assessments referred to in proven fact d) resulted from the application of item 28.1 of the TGIS to each and every floor or unit capable of independent use dedicated to housing, in the respective property register, comprised in the urban property identified in proven fact a). [cf. Docs. nos. 1, 2 and 3 attached to the P. I.]

f) As a consequence of the Stamp Duty assessments referred to in proven fact d), the Claimant was notified of the unified collection documents which are discriminated below, in the total amount of € 12,399.20 [cf. Docs. nos. 1, 2 and 3 attached to the P. I.]:

g) On 28 April 2014, the Claimant proceeded with the timely and complete payment of the amounts corresponding to the 1st installment of the said Stamp Duty assessments, in the total amount of € 4,133.12. [cf. Annex A attached to the P. I.].

h) On 18 July 2014, the Claimant proceeded with the timely and complete payment of the amounts corresponding to the 2nd installment of the said Stamp Duty assessments, in the total amount of € 4,133.04. [cf. Annex B attached to the P. I.].

i) On 28 October 2014, the Claimant proceeded with the timely and complete payment of the amounts corresponding to the 3rd installment of the said Stamp Duty assessments, in the total amount of € 4,133.04. [cf. Annex C attached to the P. I.].

j) The Claimant presented an administrative appeal – whose initial request is hereby fully reproduced – which concerned the Stamp Duty assessments referred to in proven fact d), and wherein the Claimant requested the following [cf. Doc. no. 4 attached to the P. I. and PA attached to the case]:

k) The said administrative appeal was filed under no. …2015… in the Finance Service of Lisbon -…, and upon it fell the following draft decision [cf. Doc. no. 5 attached to the P. I. and PA attached to the case]:

l) The Claimant was notified, through its esteemed Representative, by office no. …, dated 19.10.2015, of the Administrative Justice Division of the Finance Department of Lisbon, sent by registered mail (RD…PT), of that draft decision and to, if it wished, exercise the right of hearing. [cf. Doc. no. 5 attached to the P. I. and PA attached to the case]

m) The Claimant exercised that right of prior hearing, in accordance with the terms contained in document no. 6 attached to the P. I. and which is hereby fully reproduced.

n) The Claimant was notified, through its esteemed Representative, by office no. …, dated 26.11.2015, of the Administrative Justice Division of the Finance Department of Lisbon, sent by registered mail (RD…PT) with acknowledgment of receipt, of the order dismissing the administrative appeal, with the following reasoning [cf. Doc. no. 7 attached to the P. I. and PA attached to the case]:

o) In … of April 1961, the Lisbon City Council issued the Utilization License, no. …, for the urban property identified above in proven fact a), appearing therein, among other things, the following [cf. Doc. no. 9 attached to the P. I.]:

p) On 13 February 1975, in the … Notarial Office of Lisbon, a Lease Agreement was executed by public deed which concerned the 3rd floor of the urban property identified above in proven fact a), and it was there stated that the leased premises were intended for the office of the lessee company, no other purpose being able to be given to it without written authorization from the landlord. [cf. Doc. no. 12 attached to the P. I.]

q) In 2013, the 2nd floor of the urban property identified above in proven fact a) was leased for non-residential purposes. [cf. Doc. no. 13 attached to the P. I.]

r) On 24 February 2016, the Claimant presented the request for constitution of an arbitral tribunal which gave rise to the present case. [cf. information management system of CAAD]

§2. UNPROVEN FACTS

It was not proven that, currently, the units capable of independent use identified as 4ºA, 4ºB and 4ºC of the urban property identified above in proven fact a), are being used as offices of the Claimant.

§3. REASONING ON FACTUAL MATTERS

With regard to the proven factual matters, the Tribunal's conviction was based on the facts alleged by the parties, whose correspondence to reality was not called into question, on the documents attached to the case and on the administrative file.

Regarding the unproven factuality, this was thus considered as a result of the absence of any evidentiary elements capable of, unequivocally, proving it.

III.2. ON THE LAW

The essential question to be resolved on the merits of the dispute concerning the claim for declaration of illegality of the disputed Stamp Duty assessments concerns determining whether, for purposes of the incidence of item 28.1 of the TGIS, in cases of a property under full ownership with floors or units capable of independent use, one should take into account the total value of the property resulting from the sum of the tax property values of the various floors or units with housing dedication, as underlies the assessments in question, or whether instead one should give relevance to the tax property value of each floor or unit with housing dedication, with the consequent violation of law, by error in the presuppositions, of the disputed tax assessments.

Beyond the matter concerning this defect of violation of law, the Claimant also raises the question of unconstitutionality of item 28.1 of the TGIS, by violation of the principle of equality, enshrined in article 13 of the Constitution of the Portuguese Republic.

However, this question will only need to be appreciated if and insofar as the interpretation and concretization of the normative solution resulting from the said item involves the subsumption to its legal provision of the situation under examination; if this is not the case, the appraisal of the unconstitutionality of the norm in question does not assume procedural relevance for the resolution of the dispute.

Appreciating and deciding.

§1. ON THE INTERPRETATION AND DELIMITATION OF THE SCOPE OF OBJECTIVE INCIDENCE OF ITEM 28.1 OF THE TGIS

At the epicenter of the disagreement opposing the parties in this case is the norm of tax incidence contained in item 28.1 of the TGIS, therefore it is necessary to begin by proceeding with the interpretation of this norm, with a view to ascertaining its scope and, thereby, delimiting what is its field of application.

Law no. 55-A/2012, of 29 October, introduced various amendments to the Stamp Duty Code and added to the TGIS item 28, with the following wording (cf. art. 4) [wording applicable ratione temporis to the situation under examination]:

"28 — Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the register, in accordance with the Code of Municipal Property Tax (IMI Code), equals or exceeds € 1,000,000 — on the tax property value used for the purposes of the IMI:

28.1 — For property with residential dedication — 1%;

28.2 — For property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance — 7.5%."

Subsequently, Law no. 83-C/2013, of 31 December (State Budget 2014), altered the wording of item 28.1 of the TGIS (cf. art. 194), which then took on the following tenor:

"28.1 — For residential property or for land for construction whose building, authorized or planned, is for housing, in accordance with the provisions of the IMI Code — 1%"

The interpretation of the norm of incidence contained in item 28.1 of the TGIS cannot fail to be carried out on the basis of the hermeneutical guidelines emanating from article 11 of the LGT and article 9 of the Civil Code, norms that provide for the following:

Article 11 of the LGT, entitled "Interpretation":

"1. In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

1. Whenever in tax norms terms proper to other branches of law are employed, they must be interpreted in the same sense they have there, unless otherwise directly follows from the law.

2. If doubt persists about the meaning of the tax incidence norms to be applied, account should be taken of the economic substance of the tax facts.

3. Gaps resulting from tax norms covered by the reserve of law of the National Assembly are not susceptible to integration by analogy."

Article 9 of the Civil Code, entitled "Interpretation of law":

"1. The interpretation should not be confined to the letter of the law, but should reconstitute from the texts the legislative thought, having especially in account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.

1. However, the legislative thought that does not have in the letter of the law a minimum of verbal correspondence cannot be considered by the interpreter, even if imperfectly expressed.

2. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator enshrined the most correct solutions and knew how to express its thought in adequate terms."

On this interpretative task, with all due respect, we appropriate here the following considerations contained in the arbitral decision rendered in case no. 53/2013-T of CAAD[1]:

"The relevance of the text of the law is especially emphasized in the matter of interpretation of norms of incidence of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruent set of tributes of completely distinct natures (on income, on spending, on patrimony, on acts, etc.), which leaves no appreciable margin for application of the primary interpretative criterion, which is the unity of the legal system, which requires its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item no. 28.1, hastily included on the margin of the State Budget, by a fiscal legislator without perceptible overall fiscal orientation, that is implementing successive norms of fiscal aggravation in accordance with budgetary reverses, the impositions of international institutional creditors (represented by the 'troika') and the oversight of the Constitutional Court.

In fact, although in the 'Explanatory Memorandum' of the Draft Law no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the laudable concern of the Government to 'strengthen the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to comply with the adjustment program' and to its commitment 'to ensure that the distribution of these sacrifices will be made by all and not just by those who live on the income of their work', it is manifest, on one hand, that those reasons for equity, certainly existing, did not begin to count in mid-2012, already existing at the beginning of the year, when the State Budget entered into force and, on the other hand, that the reach of item no. 28.1, in taxing increasingly properties with residential dedication and not also properties that do not have it, gives to understand that the concerns of social equity and the proclaimed intention of distribution of sacrifices to all, affects far more some than properly all.

In this context, there being no safe interpretative elements that permit detecting legislative coherence in the solution adopted in the said item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in light of no. 3 of article 9 of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same no. 3 of article 9, that the legislator knew how to express its thought in adequate terms."

That said. Analyzed the wording – both the original and the current – of item 28.1 of the TGIS, we verify that this norm has a fundamentally referential character, since its respective relevant regulatory content depends on the normativity ad quam contained in the IMI Code.

In fact, both regarding objective incidence, with the reference to "urban properties" and to the "tax property value contained in the register, in accordance with the Code of Municipal Property Tax", and regarding the fixation of the taxable matter, with the reference to the "tax property value used for the purposes of the IMI", the regulatory tenor of this item 28 of the TGIS results from delegation – in accordance with a general referral – to the regulatory body that is found in the IMI Code.

Indeed, this aspect is reinforced by no. 2 of article 67 of the CIS, which determines that to matters not regulated in the CIS concerning item 28 of the TGIS, the provisions of the IMI Code shall apply, subsidiarily.

Within this framework, it is then necessary to collect the norms of the IMI Code that appear relevant for the understanding and, therefore, for the application of item 28.1 of the TGIS.

In the IMI Code, the concept of "property" is defined as follows (article 2):

"1. For the purposes of this Code, property is any fraction of territory, comprising waters, plantations, buildings and constructions of any nature incorporated or based therein, with a character of permanence, provided that it forms part of the patrimony of a natural or juridical person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although located in a fraction of territory that constitutes an integral part of a diverse patrimony or does not have patrimonial nature.

1. Buildings or constructions, even if movable by nature, are considered as having a character of permanence when dedicated to non-transitory purposes.

2. The character of permanence is presumed when buildings or constructions are based in the same location for a period exceeding one year.

3. For the purposes of this tax, each autonomous fraction, under the regime of horizontal ownership, is considered as constituting a property."

Following this, in articles 3 to 5 of the IMI Code, the species of properties in existence are enumerated, namely:

Rustic properties (article 3):

"Rustic properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, in accordance with no. 3 of article 6, provided that:

a) They are dedicated or, in the absence of concrete dedication, have as their normal destination use generating agricultural income, such as are considered for the purposes of income tax for natural persons (IRS);

b) Not having the dedication indicated in the previous paragraph, they are not constructed or only have buildings or constructions of an ancillary character, without economic autonomy and of reduced value.

2 – Rustic properties are also lands situated within an urban agglomeration, provided that, by virtue of legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact having this dedication.

3 – Also rustic properties are:

a) Buildings and constructions directly dedicated to the production of agricultural income, when located on the lands referred to in the previous numbers;

b) Waters and plantations in the situations to which no. 1 of article 2 refers.

4 – For the purposes of this Code, urban agglomerations are considered, in addition to those located within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public use streets, their perimeter being delimited by points distanced 50 m from the axis of the streets, in the transverse sense, and 20 m from the last building, in the sense of the streets."

Urban properties (article 4):

"Urban properties are all those that should not be classified as rustic, without prejudice to the provisions of the following article."

Mixed properties (article 5):

"1. Whenever a property has rustic and urban parts it is classified, in full, in accordance with the main part.

1. If neither of the parts can be classified as main, the property is considered mixed."

Subsequently, in article 6 of the IMI Code, the species of urban properties are indicated:

"1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others.

1. Residential, commercial, industrial or for services are buildings or constructions licensed as such or, in the absence of a license, that have as their normal destination each of these purposes.

2. Land for construction is considered land situated inside or outside an urban agglomeration for which a construction or subdivision license or authorization has been granted, prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been thus declared in the acquisition deed, excepting lands in which the competent entities prohibit any of those operations, in particular those located in green areas, protected areas or which, in accordance with municipal land use plans, are dedicated to spaces, infrastructure or public equipment.

3. Under the provision of paragraph d) of no. 1 are included lands situated within an urban agglomeration that are not land for construction nor are covered by the provisions of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of a license, that have as their normal destination other purposes than those referred to in no. 2 and also of the exception of no. 3."

On the "tax property value", article 7 of the IMI Code provides as follows:

"1. The tax property value of properties is determined in accordance with this Code.

1. The tax property value of urban properties with parts classifiable in more than one of the classifications of no. 1 of the previous article is determined:

a) If one of the parts is main and the other or others merely ancillary, by application of the valuation rules of the main part, taking into account the added value resulting from the existence of the ancillary parts;

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

1. The tax property value of mixed properties corresponds to the sum of the values of its rustic and urban parts determined by application of the corresponding rules of this Code."

Under the heading "concept of property registers", article 12 of the IMI Code provides as follows:

"1. Property registers are records in which the characterization of properties, the location and their tax property value, the identity of the owners and, if applicable, usufructuaries and superficiaries are contained.

1. There are two registers, one for rustic property and another for urban property.

2. Each floor or part of property capable of independent use is considered separately in the property registration, which also discriminates the respective tax property value.

3. The registers are updated annually with reference to 31 December.

4. Property registrations constitute only for tax purposes a presumption of ownership."

Still concerning property registers, it is important to take note of no. 1 of article 13 of the IMI Code, from which it follows that "[t]he registration of properties in the register and the updating thereof are carried out based on a statement presented by the taxable person".

With respect to the determination of tax property value, it is important here to call article 38 of the IMI Code, entitled "Determination of tax property value":

"1. The determination of the tax property value of urban properties for housing, commerce, industry and services results from the following expression:

Vt = Vc x A x Ca x Cl x Cq x Cv

where:

Vt = tax property value;

Vc = base value of constructed properties;

A = gross construction area plus the area exceeding the implantation area;

Ca = Dedication coefficient;

Cl = Location coefficient;

Cq = Quality and comfort coefficient;

Cv = Age coefficient.

1. The tax property value of urban properties determined is rounded to the nearest superior ten euros."

As densifying norms of the values and coefficients referred to in this legal provision, we have articles 39 ("Base value of constructed properties"), 40 ("Types of areas of constructed properties"), 40-A ("Area adjustment coefficient"), 41 ("Dedication coefficient"), 42 ("Location coefficient"), 43 ("Quality and comfort coefficient") and 44 ("Age coefficient") of the IMI Code.

In light of the literal tenor of item 28.1 of the TGIS (wording applicable ratione temporis to the situation under examination), urban properties with a tax property value equal to or exceeding € 1,000,000.00, which have residential dedication are subject to this norm of tax incidence.

In light of the norms of the IMI Code cited above, we have that residential are buildings or constructions licensed by the municipalities for that purpose or, in the absence of licensing, that have as their normal destination such use (article 6, no. 2, of the IMI Code); therefore, properties with residential dedication are the said buildings or constructions, and these are therefore those subject to item 28.1 of the TGIS.

The correctness of this interpretation, as to the scope of incidence of item 28.1 of the TGIS is confirmed by the perceptible ratio legis of the restriction of the field of application of the norm to residential properties – a restriction that was maintained as to the dedication (housing) in the subsequent legislative amendment that came to extend the scope of incidence to land for construction – in the context of the "circumstances in which the law was drafted and the specific conditions of the time in which it is applied", which article 9, no. 1, of the Civil Code also establishes as interpretative elements.

In fact, the limitation of the application of the tax to properties with residential dedication and, subsequently, to land for construction in which housing construction is planned or authorized, reveals the intention not to burden the productive sector and companies in general and, in that sense, it was not intended to encompass within the scope of incidence of the tax either properties dedicated to services, industry or commerce, that is, properties dedicated to economic activity, nor land for construction with respect to which building for these other purposes is planned or authorized. This is understandable in a context in which the economy was in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historic levels, with a cascade of business closures due to economic unsustainability. On the ratio legis of the introduction of item 28 of the TGIS, see, among others, the decisions rendered in cases nos. 50/2013-T, 132/2013-T 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/20114-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of CAAD.

Having in mind this situation and it being well-known and public that the revival of economic activity and the increase of exports are the ways out of the crisis, it is understandable that, despite the pressing need to increase tax revenues, no legislative measures were taken that would hinder economic activity, in particular the aggravation of the tax burden that hinders it and affects competitiveness in international terms.

For this reason, it is to be concluded that the interpretative elements available, including the "circumstances in which the law was drafted and the specific conditions of the time in which it is applied", point clearly in the direction that it was not intended to encompass within the scope of incidence of item 28.1 of the TGIS non-residential properties and, subsequently, also land for construction with respect to which building for purposes other than housing is authorized or planned.

To conclude this exegesis of item 28.1 of the TGIS, it is important to note that articles 38 to 46 of the IMI Code, already referred to above, have no relation to the classification of urban properties, since in those norms only the factors to be considered in the respective valuation are indicated (in this sense, see the decision rendered in case no. 53/2013-T of CAAD).

That said. It follows from the combined analysis of the cited provisions of the IMI Code that in this legal compendium no distinction is made between properties constituted under a regime of horizontal or full ownership. In fact, although no. 4 of article 2 expressly states that the autonomous fractions of properties constituted under a regime of horizontal ownership constitute, each one of them, a property, the truth is that it does not exclude from such classification the divisions with independent use of properties constituted under a regime of full or vertical ownership.

And, where the law did not distinguish, the interpreter cannot do so.

Having analyzed, therefore, the definition of property inherent in no. 1 of article 2 of the IMI Code, we do not see any reason to exclude from here the divisions with independent use of properties constituted under a regime of full ownership, since these constitute a fraction of territory that is an integral part of the patrimony of a natural or juridical person and that has economic value.

It should be noted that each of those divisions or fractions is assigned a tax property value.

Being settled that the classification of divisions with independent use of properties constituted under a regime of full ownership as properties, in accordance with and for the purposes of the IMI Code, it seems evident to us that each one of these divisions, when that is the purpose to which they are intended, are residential properties, which moreover is a matter on which diverse arbitral case law has already focused and to which reference will be made further on.

In the case at hand, each of the divisions of the urban property in question is capable of independent use, and some of these divisions are dedicated to housing.

Indeed, were it not for the divisions in the present case to be individually classified as "properties" it would have no sense or logic to carry out, in the case, a Stamp Duty assessment for each one of those units.

It is true that the subsidiary application of the IMI Code could give the idea that only autonomous fractions, under a regime of horizontal ownership, are considered as properties in light of the provisions of no. 4 of article 2 of the IMI Code.

However, if one pays attention to the wording of that legal norm, one will immediately verify that the prerequisite of the constitution of the regime of horizontal ownership is only necessary for the purposes of taxation in IMI.

It should also be noted that, in light of the provisions of article 12, no. 3, of the IMI Code, "each floor or part of property capable of independent use is considered separately in the property registration, which also discriminates the respective tax property value".

Furthermore, as already stated above, the introduction of item 28 in the TGIS aimed at the taxation of urban properties of high value with residential dedication, taxing the wealth, externalized in the ownership, usufruct or right of superficies, of luxury urban properties, or their autonomous fractions or divisions, with residential dedication.

Now, if the objective of the law was to adapt the taxation of Stamp Duty to the tax capacity of the taxpayers, it seems not to have any relevance the distinction between properties constituted under a regime of horizontal or vertical ownership.

Manifestly, this is not where the greater or lesser tax capacity is revealed, all the more so since, as is known, horizontal ownership is a relatively recent legal institution, and it is certain that a large part of old properties are not even constituted in this regime, despite in practice functioning as such.

Now, the principle of prevalence of substance over form requires that the AT value the material truth. And, in the case at hand, the material truth consists in the non-existence of any substantive difference between the divisions owned by the Claimant and the fractions of a property constituted in horizontal ownership.

Or, put another way, since the constitution of horizontal ownership is merely a legal and not a factual operation, no reasons are discerned for differences in taxation in this regard, since what will always be relevant is the individual value of each of the fractions, whether or not the property is constituted under a regime of horizontal ownership.

In light of all that has been set out, there is no doubt that the tax property value relevant for purposes of the incidence of Stamp Duty in cases of properties constituted under a regime of full ownership, composed of various divisions with independent use, some of which with residential dedication, is the tax property value of each one of the divisions of the property and not the total tax property value of the property, corresponding to the sum of all the tax property values of the divisions that compose it.

Thus, in conclusion, with respect to properties under full ownership with floors or units capable of independent use, one should take into account exclusively the proper tax property value of each floor or unit with residential dedication, contained in the register, for the purposes of the application of item 28.1 of the TGIS.

This interpretation proves to be "particularly peremptory in a case like the present in which the property in question has parts capable of independent use with residential dedication and parts capable of independent use with dedication to services and commerce (…).

For in such circumstances, there is not contained in the register nor is used for the purposes of IMI a 'tax property value' that corresponds to the sum of the tax property values of the divisions of independent use with residential dedication (…). In fact, what the IMI Code establishes, according to the cited art. 7, no. 2, al. b), and what appears in the register (…) is that the 'value of the property' is 'the sum of the values of its parts', therefore, of all its parts, whatever their dedication may be.

In consequence, the 'tax property value of the property – total subject to tax' (…) on which the impugned assessments are based does not have correspondence with the legal category enshrined in item 28 of the TGIS of the 'tax property value contained in the register, in accordance with the Code of Municipal Property Tax'.

Let it be insisted, in fact, that the IMI Code only refers, as results from art. 7, no. 2, al. b) cited above, to the 'value of the property' as the sum of all its parts subject to independent valuation, thus not legitimizing the configuration of partial values of the property by taking into account only certain economically independent parts of the property (those that have residential dedication), disregarding parts with other dedications (for commerce, industry or for services). In such context, there is not embodied the value of the property as provided in art. 7, no. 2, al. b) of the IMI Code, but rather the value of the set of certain parts of the property, a value which is not the subject of any provision in accordance with the Code of Municipal Property Tax (nor is it tax property value used for the purposes of IMI).

It is advanced, therefore, that it is considered that in the impugned assessments there is the adoption, for purposes of the fixing of the incidence of item 28.1 of the TGIS, of a tax property value that does not find support in the law." (arbitral decision rendered in case no. 518/2014-T).

§2. OF THE CASE UNDER EXAMINATION

As was proven, none of the floors or units capable of independent use, described in the property register as dedicated to housing, of the urban property in question, has a tax property value equal to or exceeding € 1,000,000.00 (cf. proven fact c)).

In that measure and considering what has been set out above, since the tax property value of each one of the indicated floors or units capable of independent use dedicated to housing is below that value to which item 28.1 of the TGIS refers, it follows that such floors or units do not fall within the scope of the norm of tax incidence contained in that item 28.1, whereby the disputed assessments suffer from the defect of violation of law, by error on the legal presuppositions as to the provisions of item 28.1 of the TGIS, which implies the declaration of its illegality and consequent annulment.

For the same reasons, the act dismissing the administrative appeal no. …2015… is illegal and, consequently, should be annulled.

Considering the success of the petitioned declaration of illegality of the disputed Stamp Duty assessments, due to a defect that prevents the renewal of the act, it becomes unnecessary, by being superfluous, the consideration of the remaining questions and defects invoked by the Claimant.

§3. ON THE REIMBURSEMENT OF AMOUNTS PAID AND THE PAYMENT OF INDEMNIFYING INTEREST

The Claimant further petitions the condemnation of the AT to reimburse the improperly paid tax, plus the respective indemnifying interest.

Article 24, no. 1, paragraph b), of the RJAT provides that the arbitral decision on the merits of the claim for which no appeal or challenge may be brought binds the tax administration from the end of the deadline provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxable person and until the end of the deadline provided for the voluntary execution of the decisions of tax judicial courts, restore the situation that would have existed by adopting the acts and operations necessary for that purpose, which must be understood, in accordance with the provisions of article 100 of the LGT, applicable ex vi paragraph a) of no. 1 of article 29 of the RJAT, as encompassing the payment of indemnifying interest, in consonance, moreover, with the provisions of no. 5 of the same article 24 of the RJAT.

Article 43, no. 1, of the LGT determines that "indemnifying interest is due when it is determined, in an administrative appeal or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount higher than that legally due", providing no. 5 of article 61 of the CPPT that interest is "counted from the date of the improper payment of the tax until the date of the processing of the respective credit note, in which they are included".

In the concrete case, it is verified that the illegality of the disputed assessments, due to error in the legal presuppositions, is attributable to the AT by, in those tax assessments, having proceeded with the incorrect interpretation and application of the provision contained in item 28.1 of the TGIS, whereby the Claimant is entitled, in accordance with the provisions of articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, to the reimbursement of the amount of improperly paid tax – € 12,399.20 – and to indemnifying interest, in accordance with the provisions of articles 43, no. 1, of the LGT and 61 of the CPPT, calculated from the dates of the payments of the respective installments – 28.04.2014, 18.07.2014 and 28.10.2014 (cf. proven facts g), h) and i)) –, at the rate resulting from no. 4 of article 43 of the LGT, until the date of the processing of the respective credit note, in which they are included.

IV. DECISION

In accordance with what has been set out, this Arbitral Tribunal decides:

a) To fully uphold the request for arbitral pronouncement and, consequently, due to the defect of violation of law, by error in the legal presuppositions, embodied in the erroneous interpretation and application of item 28.1 of the TGIS:

• to declare illegal and to annul the Stamp Duty assessments impugned in the present case, in the total amount of € 12,399.20 (twelve thousand three hundred and ninety-nine euros and twenty cents), relating to the year 2013 and the urban property registered under article … in the urban property register of the parish …, municipality and district of Lisbon;

• to declare illegal the act dismissing the administrative appeal no. …2015…, with its consequent annulment;

b) To uphold the request for condemnation of the Tax and Customs Authority to reimburse to the Claimant the total amount of improperly paid Stamp Duty – € 12,399.20 (twelve thousand three hundred and ninety-nine euros and twenty cents) – plus indemnifying interest, calculated at the legal rate, from the dates on which the payments of the corresponding installments were made – 28.04.2014, 18.07.2014 and 28.10.2014 – until the date of the processing of the respective credit note, in which they are included;

c) To condemn the Tax and Customs Authority to pay the costs of the case.

VALUE OF THE CASE

In accordance with the provisions of arts. 306, no. 2, of the CPC, 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulations of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 12,399.20 (twelve thousand three hundred and ninety-nine euros and twenty cents).

COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of the costs is fixed at € 918.00 (nine hundred and eighteen euros), in accordance with Table I attached to the Regulations of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 1 July 2016.

The Arbitrator,

(Ricardo Rodrigues Pereira)

[1] All arbitral decisions cited are available at www.caad.org.pt/tributario/decisoes.