CAAD 108/2016-T: Stamp Tax on Vertical Property – Tribunal Competence and Time Limits Under Verba 28 TGIS

ARBITRAL DECISION

REPORT

A - PARTIES

REAL ESTATE COMPANY …A…, with domicile at Av…, no…, …, …-… Lisbon, holder of the tax identification number for legal entities…, hereinafter designated as Claimant or taxpayer.

TAX AND CUSTOMS AUTHORITY, hereinafter designated as Respondent or TA.

The petition for establishment of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly constituted on 05-06-2016, to examine and decide the subject matter of the present case, and was automatically notified to the Tax and Customs Authority on 05-06-2016, as evidenced by the respective minutes.

The Claimant did not proceed with the appointment of an arbitrator, wherefore, pursuant to Article 6(1) and Article 11(1)(b) of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed arbitrator Paulo Ferreira Alves, with the appointment having been accepted pursuant to legally prescribed terms.

On 20-04-2016 both parties were duly notified of such appointment and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with Article 11(1)(a) and (b) of the RJAT and Articles 6 and 7 of the Deontological Code.

In accordance with Article 11(1)(c) of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the single arbitral tribunal is duly constituted on 05-06-2016.

Both parties agree to waive the meeting provided for in Article 18 of the RJAT.

The Claimant was granted a period to respond to the exceptions raised by the respondent in its response to the petition for arbitral pronouncement.

The Claimant did not present a response to the exceptions within the granted period.

The arbitral tribunal is duly constituted. It is materially competent, pursuant to Articles 2(1)(a) and 30(1) of Decree-Law no. 10/2011, of 20 January.

The parties possess legal personality and capacity, are legitimate, and are legally represented (Articles 4 and 10(2) of the same statute and Article 1 of Ordinance no. 112-A/2011, of 22 March).

The case is not affected by defects that would invalidate it.

B - CLAIM

1. The Claimant now seeks the declaration of illegality of the tax assessment acts for Stamp Duty: no. 2015…; no. 2015…; no. 2015…; no. 2015…; no. 2015…; no. 2015…, which established a total tax payable of €15,582.56 (fifteen thousand five hundred eighty-two euros and fifty-two cents).

C - CAUSE OF ACTION

1. To substantiate its petition for arbitral pronouncement, the Claimant alleged, in order to obtain the declaration of illegality of the tax assessment acts for Stamp Duty, already described in point 1 of this Decision, in summary, the following:

2. It is the owner of the urban property located on Avenue…, no…, in Lisbon, described in the Land Registry Office of Lisbon, under folio no…, registered in the urban property register under article … - ….

3. This urban property comprises 10 (ten) floors and divisions with independent uses, whose tax property value (TPV) was determined separately, in accordance with Article 7(b) of the Municipal Property Tax Code.

4. The Property, although constituted by various floors with completely independent use, was never established under the horizontal property regime.

5. Each of the independent floors has a tax property value assigned, calculated in accordance with the Municipal Property Tax Code, ranging between €37,010.00 and €257,670.00.

6. The property is in vertical ownership and comprises a total of 7 floors with independent use, all dedicated to housing, and its total TPV amounts to €1,558,250.00.

7. The subjection to stamp duty contained in item no. 28.1 of the TGIS is determined by the combination of two criteria: residential use and the TPV shown in the register equal to or exceeding €1,000,000.00.

8. The criterion intended by the TA lacks legal foundation and is contrary to the criterion adopted for IMI purposes, applicable to stamp duty cases not otherwise regulated.

9. Furthermore, it is illegal to consider the sum of the tax property values assigned to each floor as the reference value, insofar as it constitutes a clear violation of the principle of equality and fiscal proportionality.

10. The Claimant concludes by arguing for the illegality and voidability of the stamp duty assessment acts due to violation of the incidence norm of item 28.1 of the TGIS.

D - RESPONDENT'S REPLY

1. The Respondent, duly notified for this purpose, presented its response in a timely manner in which, in abbreviated summary, alleged the following:

2. With reference to the year 2014, in compliance with and pursuant to Article 6(2) of Law no. 55-A/2012, of 29/10, which added item no. 28 to the TGIS, as amended by Law no. 83-C/2013 of 31/12, and whose respective incidence norm refers to urban properties, valued in accordance with IMI, with TP equal to or exceeding €1,000,000.00 and, pursuant to its item 28.1, residential use.

3. It further argues that Article 44(5) of the CIS, as amended by Law no. 55-A/2012, of 29/10, provides that when assessment occurs, the tax referred to in item 28 of the TGIS is paid according to the periods, terms, and conditions defined in Article 120 of IMI, in three installments in the months of April, July, and November, in accordance with Article 120(1)(c) of the said code.

4. Thus the Respondent argues that what is at issue here is an assessment resulting from direct application of the legal norm, which translates into objective elements, without any subjective or discretionary consideration.

5. The concept of property is defined in Article 2(1) of IMI, with it being provided in its section 4 that in the horizontal property regime, each autonomous fraction is deemed to constitute a property.

6. In compliance with Article 119(1) of IMI, the collection document is sent to the taxpayer with an itemization of the parts susceptible to independent use, their respective tax property value, and the collection imputable to each municipality where the properties are located.

7. It argues that subjection to stamp duty of item 28.1 of the General Table attached to CIS results from the combination of two facts: residential use and the tax property value of the urban property registered in the matrix being equal to or exceeding €1,000,000.00.

8. It argues that insofar as the property is in total ownership regime, not possessing autonomous fractions to which fiscal law attributes the qualification of property, because from the notion of property in Article 2 of IMI, only autonomous fractions of property in the horizontal ownership regime are deemed to be properties—section 4 of the aforementioned Article 2 of IMI.

9. From the foregoing, the Respondent argues, the defect of violation of law by error as to the legal presuppositions should be judged as unfounded, with the challenged assessments remaining in the legal order as they constitute a correct application of law to the facts.

E - FACTUAL FOUNDATION

1. Before proceeding to the examination of these matters, it is necessary to present the factual matter relevant for its understanding and decision, which was conducted on the basis of documentary evidence and taking into account the alleged facts.

2. With respect to relevant factual matter, the present tribunal finds established the following facts:

3. It is the owner of the urban property located at Avenue…, no…, in Lisbon, described in the Land Registry Office of Lisbon, under folio no…, registered in the urban property register under article…-….

4. The Claimant is the owner of an urban property corresponding to a property in total or vertical ownership (not horizontal).

5. The aforementioned property comprises 10 floors, intended for offices, composed of Subbasement, basement, ground floor and seven floors, the last being setback and with a residence, to which correspond 11 (eleven) units of independent use, of which 7 (seven) divisions with independent use and residential use.

6. The tax property value of the property is €2,207,410.00, and the value of the fractions of independent use with residential use of the property is €1,558,250.00.

7. The assessment notices of the respective property concern the following floors and divisions, whose tax property value of the said divisions with independent use that comprise the urban property was determined separately, in accordance with Article 7(2)(b) of the Municipal Property Tax Code (IMI), resulting in the issuance of the following assessment acts, here challenged:

(i) Assessment Act no. 2015…, with a tax collection to be assessed of €2,477.60, and with a TPV of €247,760.00, relating to the 1st floor;

(ii) Assessment Act no. 2015…, with a tax collection to be assessed of €2,477.60, and with a TPV of €247,760.00, relating to the 2nd floor;

(iii) Assessment Act no. 2015…, with a tax collection to be assessed of €2,551.90, and with a TPV of €255,190.00, relating to the 3rd floor;

(iv) Assessment Act no. 2015…, with a tax collection to be assessed of €2,551.90, and with a TPV of €255,190.00, relating to the 4th floor;

(v) Assessment Act no. 2015…, with a tax collection to be assessed of €2,576.70, and with a TPV of €257,670.00, relating to the 5th floor;

(vi) Assessment Act no. 2015…, with a tax collection to be assessed of €2,576.70, and with a TPV of €257,670.00, relating to the 6th floor;

(vii) Assessment Act no. 2015…, with a tax collection to be assessed of €370.10, and with a TPV of €37,010.00, relating to the 7th floor;

1. The tax property value of the fractions of independent use with residential use of the property on the date of the assessments is €1,558,250.00, with none of the parties or floors with residential use and independent use having a tax property value exceeding €1,000,000.00.

2. The TA assessed the stamp duty provided for in items no. 28 and 28.1 of the General Table of Stamp Duty (TGIS), as amended by Article 4 of Law no. 55-A/2012, of 29/10, at the rate of 0.5% and 1%, considering as "TPV – total subject to tax," with the stamp duty assessments resulting in a collection of tax payable totaling €15,582.56.

3. The respondent was notified for payment of stamp duty, calculated on the total value of the seven fractions with residential use and individually taxed on each fraction.

F - UNPROVEN FACTS

1. With respect to the facts of interest for the decision of the case, contained in the challenge, all objects of concrete analysis, those not included in the factuality described above were not proven.

G - ISSUES TO BE DECIDED

1. In light of the positions taken by the parties in the arguments presented, the following central matters to be resolved are those which must be examined and decided:

(a) The preliminary matter alleged by the respondent regarding the exceptions raised;

(b) The matter alleged by the Claimant:

(i) The matter alleged by the Claimant regarding the declaration of illegality of the tax assessment acts for Stamp Duty for the year 2014, no. 2015…; no. 2015…; no. 2015…; no. 2015…; no. 2015…; no. 2015…, which established a total tax payable of €15,582.56 (fifteen thousand five hundred eighty-two euros and fifty-two cents).

REGARDING PRELIMINARY MATTERS

1. Three exceptions are raised by the Respondent that could prevent the tribunal from hearing the claim, basing its position on the following:

2. First, the Respondent argues that the present petition for arbitral pronouncement is manifestly time-barred because:

3. The assessment of the tax, according to the date appearing on all 8 collection notices attached to the case by the Claimant, is 20.03.2015, and the first voluntary payment period occurred in April 2015, in accordance with Article 120 of IMI, applicable ex vi Article 3 of Law no. 55/2012, of 29 October.

4. Now, pursuant to Article 10(1)(a) of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration, and Article 102(1)(a) of CPPT, the period for presentation of the petition to establish an arbitral tribunal is 90 days counted from the end of the period for voluntary payment of the tax, that is, the period for requesting the establishment of an arbitral tribunal to examine the legality of the stamp duty assessments has already expired.

5. Therefore, having this petition been presented on 25.02.2016, it is manifestly time-barred.

6. Second, the petition would also be time-barred for another reason: pursuant to section 4 of Article 120 of IMI, applicable here as we noted above, the non-payment of an installment of the tax within the established period implies the immediate maturity of the remaining installments.

7. Third: the Respondent raises the exception of lack of jurisdiction of the arbitral tribunal, on the ground that the Claimant does not challenge the tax assessment act but rather the assessment act contained in a document that is a collection notice, that is, payment of an installment of the tax, with the object of the case being the annulment not of a tax act (or of 1/3 of a tax act, which would not be legally possible), but rather of collection notices for payment of the 3rd installment of a tax.

8. The respondent alleges that this matter is not contained in any way within the set of norms that delimits the jurisdiction of tax arbitral tribunals, contained in Article 2 of the RJAT.

9. It further argues that the Respondent, not having—to its knowledge and at least before CAAD—questioned the assessment of the tax when duly notified thereof, for payment of the 1st and 2nd installment of the tax, cannot later come, when it receives the 3rd collection notice, and with the respective period and jurisdiction of the arbitral tribunal having been exceeded, come to question that assessment, which thus became definitive.

10. The Claimant, duly notified to respond to the exception raised by the Respondent, did not present a response to the exceptions.

I - EXCEPTION OF TIME-BARRING OF THE PETITION

1. The present tribunal regarding the time-barring of the petition invoked by the Respondent decides as follows:

2. Having the Claimant been notified of the third installment payment of the stamp duty, the TA cannot come to argue that the Respondent, having not proven it proceeded with payment of the 1st installment of the tax, the remaining installments of the tax matured.

3. It is further noted that the TA does not argue that the taxpayer did not proceed with payment of the 1st installment of the tax, but only that it did not prove having paid the tax.

4. Being within the knowledge of the Tax Administration whether or not payment occurred of any one of the taxes collected by it, it does not appear logical to argue that the taxpayer did not prove payment of the tax.

5. Moreover, as results from Article 74(2) of the LGT: "When the evidence of the facts is in the possession of the tax administration, the burden referred to in the preceding number is considered satisfied."

6. Furthermore, as the TA is responsible for the assessment and collection of Stamp Duty, to which IMI is subsidiarily applicable, and as results from Article 120(4) of IMI: "4 - In the cases provided for in sections 1 and 3, non-payment of an installment or annuity within the established period implies the immediate maturity of the remaining installments," and there is no doubt that in accordance with this provision, non-payment of one of the installments immediately implies maturity of the remaining installments.

7. Given that there is some question raised regarding non-payment of the first Stamp Duty installment, the application of Article 120(4) of IMI would result in the non-issuance of the remaining Stamp Duty installments, which did not occur, since they were notified and paid by the taxpayer, as evidenced by the documents attached.

8. It is not logical that the Claimant was notified by the TA for payment of the 3rd Stamp Duty installment, and at the same time be argued that payment of the overall Stamp Duty for the year 2014, due to lack of payment of one of the installments, has already matured, and consequently its arbitral challenge is time-barred.

9. As to the argument raised by the respondent that the period for presentation of the petition to establish an arbitral tribunal is 90 days counted from the end of the period for voluntary payment of the tax, respectively 20.03.2015, and the first voluntary payment period occurred in April 2015.

10. The Respondent has no legal foundation for the argument raised, as follows.

11. Regarding the challenge of Stamp Duty assessment acts when issued in installments, the following is stated:

12. This is an indivisible act of a Stamp Duty assessment, pursuant to the combined provisions of Articles 120 and 113(1), both of the IMI Code, applicable by reference from section 7 of Article 23 of the Stamp Duty Code, as amended by Law no. 55-A/2012, of 29 October, with the result that in situations covered by item 28 of the TGIS, an annual assessment is conducted, with payment in installments being nothing more than a collection technique for the tax and not a partial payment thereof.

13. Since this is not a divisible tax act in the sense that "if annulment of part of a tax act is requested, the tribunal cannot, in principle, annul it entirely," the petition for annulment of the Stamp Duty assessment act from any of the three installments shall be challengeable exclusively as to the act determining the collection and not as to the tax payable in that installment.

14. Thus the petition for annulment of the act may be requested at any time counted from the date of notification of one of the installments or rejection of the administrative reclamation or hierarchical appeal.

15. Since the Stamp Duty assessment act that may be voidable and challengeable is the act determining the collection, the same cannot be divisible and challengeable independently; its annulment implies annulment of the payment acts, respectively the three installments.

16. Therefore the Claimant may challenge by arbitral means, up to 90 days from the end of the period for voluntary payment of any one of the installments of the tax.

17. In these terms, the two exceptions of time-barring raised by the Respondent are not upheld.

II - EXCEPTION OF LACK OF JURISDICTION OF THE ARBITRAL TRIBUNAL

1. Faced with the formulation of the Claimant's petition, it seeks annulment of the stamp duty assessment acts determined within the scope of item 28, year 2014, regarding the 7 fractions with independent use with residential use of the sole property in question, already identified.

2. The Respondent raises the exception of lack of jurisdiction of the arbitral tribunal, on the ground that the Claimant does not challenge the tax assessment act but rather the assessment act contained in a document that is a collection notice, that is, payment of an installment of the tax, with the object of the case being the annulment not of a tax act (or of 1/3 of a tax act, which would not be legally possible), but rather of collection notices for payment of the 3rd installment of a tax.

3. The respondent alleges that this matter is not contained in any way within the set of norms that delimits the jurisdiction of tax arbitral tribunals, contained in Article 2 of the RJAT.

4. It further argues that the Claimant, not having—to the respondent's knowledge and at least before CAAD—questioned the assessment of the tax when duly notified thereof for payment of the 1st and 2nd installment of the tax, cannot later come, when it receives the 3rd collection notice, and with the respective period and jurisdiction of the arbitral tribunal having been exceeded, come to question that assessment, which thus became definitive.

5. The Claimant, duly notified to respond to the exception raised by the Respondent, did not present responses.

6. Faced with the positions taken by the parties in light of the exception raised and the request for expansion of the petition for arbitral pronouncement, it falls to the present tribunal to decide as follows.

7. It clearly results from the Claimant's petition, albeit subsidiary but valid, as it proceeded with correct payment of the court fee, which is transcribed as: "should judge as proven and upheld the challenge of all tax assessment acts for the year 2014 respecting the property identified above, all with the legal consequences thereof."

8. It is further noted that the value of the case is €15,582.56 (fifteen thousand five hundred eighty-two euros and fifty-two cents), which is the value of the collections and respective tax payable from the 3rd installments for Stamp Duty purposes.

9. Faced with the petition and the value thereof, and the arbitration fee paid, the exception raised by the respondent has no foundation whatsoever, since the Claimant does not challenge the payment of an installment but rather the tax act that defined the collection.

10. However, the present tribunal regarding the jurisdiction of arbitral tribunals sets forth the following:

11. It results from the Urban Land Register of the property that there are 13 fractions with independent use with residential use, the claimant initially attached the 13 assessment notices respecting each of the fractions with independent use with residential use of the property, referring to the 1st Stamp Duty installment.

12. The value of the collection of the assessment acts here challenged is €15,582.56 (thirteen thousand three hundred fifty-three euros).

13. Regarding the challenge of stamp duty assessment acts when issued in installments, the following is stated:

14. This is an indivisible act of a Stamp Duty assessment, pursuant to the combined provisions of Articles 120 and 113(1), both of the IMI Code, applicable by reference from section 7 of Article 23 of the Stamp Duty Code, as amended by Law no. 55-A/2012, of 29 October, with the result that in situations covered by item 28 of the TGIS, an annual assessment is conducted, with payment in installments being nothing more than a collection technique for the tax and not a partial payment thereof.

15. Since this is not a divisible tax act in the sense that "if annulment of part of a tax act is requested, the tribunal cannot, in principle, annul it entirely," the petition for annulment of the Stamp Duty assessment act from any of the three installments shall be challengeable exclusively as to the act determining the collection and not as to the tax payable in that installment.

16. Thus the petition for annulment of the act may be requested at any time counted from the date of notification of one of the installments or rejection of the administrative reclamation.

17. Since the Stamp Duty assessment act that may be voidable and challengeable is the act determining the collection, the same cannot be divisible and challengeable independently; its annulment implies annulment of the payment acts, respectively the three installments.

18. Regarding the matter of indivisibility of a Stamp Duty assessment (item 28 of the TGIS), CAAD has already ruled in case no. 205/2013-T (available at https://caad.org.pt/tributario/decisoes/), in accordance with the extract transcribed:

"11. The Respondent further challenges the value of the case considering it to be €8,940.94 and not €28,822.80 as indicated by the claimant. The claimant argues that 'the act challenged herein is the assessment act no. ...of 22/02/2013, relating to the first stamp duty installment of the year 2012, in the amount of €8,940.94, attached by the claimant to the petition for arbitral pronouncement as Doc. 1.' However, the value of the assessment no. ...of 22/02/2013, as shown in the said document, is in fact €26,822.00 and not €8,940.94.'

Note that there is no assessment of €8,940.94. This value is merely the first installment of an assessment that was made immediately in the value indicated by the Claimant. From the fact that the assessment value can be paid in various installments, it does not follow that there are three assessments. Rather, it is an assessment that can be paid in various installments (emphasis ours), with the taxpayer not being prevented from challenging it due to the fact that only the payment period for one of them has elapsed."

1. The payment installments of a Stamp Duty assessment under item 28 of the TGIS are not autonomously challengeable, as they stem from a single annual obligation, in accordance with the teaching of Braz Teixeira: "It is necessary not to confuse periodic installments that, although occurring through successive acts at different moments, have origin in the same obligation and constitute the various portions of the same performance that was divided, with the performances that must be effected periodically, not due to a division of the overall performance, but rather to the birth, also periodic, of new obligations due to the persistence of the factual presuppositions of taxation."

2. Now, in cases where the tax must be paid in installments, the assessment is notified to the taxpayer together with notification for payment of each installment, being able to be challenged only in its entirety and not installment by installment.

3. Regarding the lack of jurisdiction of the arbitral tribunal to annul an installment of a Stamp Duty assessment, the Collective Arbitral Tribunal constituted in case no. 442/2014-T recently ruled, in accordance with the excerpt transcribed (decision available at https://caad.org.pt/):

"(…) the Claimant is correct in arguing that the value of the case should be that of the assessments whose declaration of illegality it requests and not the value of the 1st installment of each of the properties mentioned, as it is the illegality of the annual assessments that the Claimant seeks. Moreover, the jurisdiction of the arbitral tribunals operating at CAAD encompasses petitions for declaration of illegality of assessment acts and not the installments through which the collection of the assessed amounts is made."

1. It is the illegality of the annual assessment that the Claimant seeks annulment of.

2. As we verify, the present tax is indivisible, therefore its challenge means annulment of the three installments, and not the contrary; the decision must address the act in its entirety; its annulment implies its total annulment.

3. As the three installments are not issued simultaneously, and as the act to be annulled is not divisible, one cannot consider that failure to challenge one of the installments through administrative channels means that the taxpayer lost its right to defend itself regarding the same.

4. Faced with the formulation of the claimant's petition, it seeks annulment of the stamp duty assessment act determined within the scope of item 28, year 2014, which determined a collection payable of €15,582.56, not limiting and not arguing its position with annulment of the 1st Stamp Duty installment.

5. There is no expansion of the petition, since as the acts are indivisible, the challenge of one benefits the others; however, the value initially attributed by the Claimant to the arbitral petition does not correspond to its petition.

6. Since the tax act in question here is the stamp duty assessment act determined within the scope of item 28, year 2014, the value of the arbitral case must be the value corresponding to the tax challenged, or in this case the Stamp Duty collection, respectively €15,582.56.

7. Given that the Claimant proceeded with payment of the arbitration fee for the procedural value of €15,582.56, corresponding to the collection, and in compliance with the principles of procedural economy, there is no lack of jurisdiction of the tribunal regarding the value of the case, not thereby exceeding its jurisdiction.

H - MATTERS OF LAW

1. In light of the positions taken by the parties in the pleadings submitted, the central matter to be resolved by the present arbitral tribunal consists of examining the legality of the stamp duty assessment acts that affected the claimant's residential fractions in the urban property described above, for violation of law, through erroneous interpretation and application of item 28.1 of the TGIS as amended by Article 4 of Law no. 55-A/2012, of 29 October.

2. In the case sub judice, it is necessary to determine whether the fractions subject to tax are covered by the incidence criteria of stamp duty, pursuant to item no. 28 of the TGIS, as amended by Article 4 of Law no. 55-A/2012, of 29 October.

3. It is necessary to first verify whether the fractions are of residential use, and second whether the TPV of the fractions shown in the register is equal to or exceeding €1,000,000.00. For this it is necessary to examine the fundamental question of what TPV of a property in vertical ownership (that is, not horizontal) should be considered for purposes of the said item. Whether the TPV corresponding to each part of the property with residential use individually, or instead whether it is determined by the overall TPV of the property, which would correspond to the sum of all TPVs of the residential fractions composing it.

4. The factual matter is fixed and proven; for this reason we will now determine the law applicable to the contested facts, giving priority, in compliance with Article 124(2)(a) of CPPT, to the defects whose establishment determines more stable and effective protection of the Claimant's interests, regarding the defect of law due to error regarding the presuppositions of the right of assessment, regarding the matter of classification of urban properties under the total or vertical ownership regime within the scope of the incidence of Article 28(1) of the TGIS, introduced by Law no. 55-A/2012, of 29 October.

5. The change in the regime regarding subjection to stamp duty of properties with residential use through the addition of item 28 to the General Table of Stamp Duty, made by Article 4 of Law 55-A/2012, of 29/10 and amended by Law no. 83-C/2013, of 31 December, now typified the following tax facts through the following wording:

"28 – Ownership, usufruct or right of surface of urban properties whose tax property value shown in the register, in accordance with the Municipal Property Tax Code (IMI), is equal to or exceeding (euro) 1,000,000 – on the tax property value used for IMI purposes:

28.1 – For residential property or for land for construction whose authorized or envisaged construction is for housing, in accordance with the provisions of the IMI Code - 1%;

28.2 – For property, where the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, shown on the list approved by order of the Minister of Finance – 7.5%."

1. Contained in Article 6 of Law no. 55-A/2012 are transitional provisions which established the rules relating to the assessment of the tax provided for in that item:

"1 – In 2012, the following rules must be observed with reference to the assessment of stamp duty provided for in item no. 28 of the respective General Table:

(a) The tax fact occurs on 31 October 2012;

(b) The taxpayer of the tax is the one mentioned in section 4 of Article 2 of the Stamp Duty Code on the date referred to in the preceding subsection;

(c) The tax property value to be used in the assessment of the tax corresponds to what results from the rules provided in the Municipal Property Tax Code by reference to the year 2011;

(d) The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

(e) The tax must be paid in a single installment by taxpayers by 20 December 2012;

(f) The applicable rates are as follows:

(i) Properties with residential use valued in accordance with the IMI Code: 0.5%;

(ii) Properties with residential use not yet valued in accordance with the IMI Code: 0.8%;

(iii) Urban properties where taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, shown on the list approved by order of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of stamp duty provided for in item no. 28 of the respective General Table must be based on the same tax property value used for the purposes of assessing municipal property tax in that year.

3 – Failure to deliver in whole or in part within the indicated period the amounts assessed as stamp duty constitutes a tax violation, punished in accordance with law."

1. CAAD has already ruled on the interpretation of this statute through decision 53/2013-T, which states:

"A concept was used in the said item 28.1 and in sub-items (i) and (ii) of subsection (f) of section 1 of Article 6 of Law no. 55-A/2012 that is not used in any other tax legislation in these precise terms, which is the concept of 'property with residential use.' Namely in IMI, which in various norms of the CIS in resources introduced by that Law is indicated as the statute of subsidiary application with respect to the tax provided for in the said item no. 28 [Articles 2(4), 3(3)(u), 5(u), 23(7), and 46 and 67 of CIS], a concept defined in those terms is not used."

1. Regarding the concept of properties, it is necessary for this purpose to resort to the concepts of properties used in IMI, which enumerate the types of properties in its Articles 2 to 6, which is transcribed:

Article 2

Concept of Property

1– For purposes of this Code, property is any parcel of land, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are situated, although located on a parcel of land that constitutes an integral part of a patrimony of a different nature or does not have patrimonial character.

2 – Buildings or constructions, although movable by nature, are deemed to have a character of permanence when dedicated to non-transitory purposes.

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

4 – For purposes of this tax, each autonomous fraction in the horizontal ownership regime is deemed to constitute a property.

Article 3

Rural Properties

1 – Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, in accordance with section 3 of Article 6, provided that:

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

Not having the dedication indicated in the preceding subsection, they are not constructed or have only buildings or constructions of ancillary character without economic autonomy and of reduced value.

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

3 – Rural properties also include:

Buildings and constructions directly dedicated to the production of agricultural income when situated on the lands referred to in the preceding sections;

Waters and plantations in the situations referred to in section 1 of Article 2.

4 – For purposes of this Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 units served by public streets, with their perimeter 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 direction of the streets.

Article 4

Urban Properties

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

Article 5

Mixed Properties

1. Whenever a property has rural and urban parts it is classified in its entirety in accordance with the principal part.

2. If neither of the parts can be classified as principal, the property is deemed to be mixed.

Article 6

Types of Urban Properties

1 - Urban properties are divided into:

(a) Residential;

(b) Commercial, industrial or for services;

(c) Land for construction;

(d) Other.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of license, that have as their normal purpose each of these uses.

3 – Land for construction is deemed to be land situated within or outside an urban agglomeration for which license or authorization has been granted, prior notice admitted or favorable preliminary information issued for a subdivision or construction operation, and also those that have been declared so in the acquisitive title, excepting lands in which the competent entities prohibit any of those operations, namely those located in green zones, protected areas or that, in accordance with municipal territorial planning plans, are dedicated to public spaces, infrastructure or equipment. (As amended by Law no. 64-A/08, of 31-12)

4 – The provision of subsection (d) of section 1 encompasses land situated within an urban agglomeration that are not land for construction nor are covered by the provisions of section 2 of Article 3 and also buildings and constructions licensed or, in the absence of license, that have as their normal purpose other uses than those referred to in section 2 and also those excepted in section 3.

1. Regarding the interpretation of Tax Norms, for the case sub judice, Article 11 of the General Tax Law tells us, which establishes the essential rules for interpreting tax laws, doing so in the following terms:

Article 11

Interpretation

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.

Whenever tax norms employ terms peculiar to other branches of law, the same must be interpreted in the same sense that they have therein, unless otherwise directly results from law.

When doubt persists regarding the meaning of the incidence norms to be applied, attention must be given to the economic substance of the tax facts.

Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration.

1. For this provision, it is also necessary to resort to the general principles of interpretation of laws, to which section 1 of Article 11 of the LGT refers, which are established in Article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of Law

1- The interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into 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.

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

3- In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most accurate solutions and knew how to express his thought in adequate terms.

1. In light of the legal foundation already presented, and in consideration of the articles transcribed and set forth, the following hypotheses emerge for interpretation of the concept of "property with residential use," as regards the Concept of "property with residential use" as referring to residential properties, and as regards the Concept of "property with residential use" as a concept distinct from "residential properties."

2. It results from Articles 2 to 6 of IMI transcribed above that the concept of "property with residential use" is not used by the legislator in the classification of properties; furthermore, this concept, with this terminology, is not found in any other statute.

3. The lack of exact terminological correspondence of the concept of "property with residential use" with any other used in other statutes may give rise to various interpretative hypotheses.

4. The text of the law, being the starting point for the interpretation of the expression "properties with residential use," being on the basis of which the "legislative thought" must be reconstructed, as imposed by section 1 of Article 9 of the Civil Code, applicable by virtue of Article 11(1) of the LGT, already transcribed.

5. Regarding the interpretation of the concept of "property with residential use," it is important to cite decision 53/2013-T which has already ruled on this matter. A decision that equally sustains two interpretative hypotheses to the concept of "property with residential use," respectively in the same sense as the present decision, regarding the concept of "property with residential use" as referring to residential properties, and as to the Concept of "property with residential use" as a concept distinct from "residential properties"

6. Decision 53/2013-T states regarding the concept of "property with residential use" as referring to residential properties:

"The concept most nearly corresponding to the literal tenor of this expression used is manifestly that of 'residential properties,' defined in section 2 of Article 6 of IMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of license, that have as their normal purpose residential purposes.

If understood that the expression 'property with residential use' coincides with that of 'residential properties,' it is manifest that the assessments will be affected by error regarding the factual and legal presuppositions, as all properties regarding which Stamp Duty was assessed under the aforementioned item no. 28.1 are land for construction without any building or construction required to meet that concept of 'residential properties.'

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

However, the non-coincidence of the terms of the expression used in item no. 28.1 of the TGIS with that extracted from section 2 of Article 6 of IMI points toward not having been intended to use the same concept."

1. Regarding the interpretation of the second hypothesis: Concept of "property with residential use" as a concept distinct from "residential properties," we cite again decision 53/2013-T, in which it states:

"The word 'dedication,' in this context of use of a property, has the meaning of 'action of directing something to a particular use.' ([5])

'When, as is usually the case, norms (legislative formulas) bear more than one meaning, then the positive function of the text translates into giving stronger support to or more strongly suggesting one of the possible meanings. For among the possible meanings, some will correspond to the most natural and direct meaning of the expressions used, while others will only fit within the verbal framework of the norm in a forced, artificial way. Now, in the absence of other elements that induce the choice of the less immediate meaning of the text, the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely to its technical-legal meaning, in the presumption (not always accurate) that the legislator knew how to express with correctness his thought.' ([6])

The relevance of the text of the law is especially emphasized in the matter of interpretation of incidence norms of Stamp Duty, which are reduced to an amalgam under a common denomination of an incongruous set of taxes of completely distinct natures (on income, on expenditure, 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 global coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item no. 28.1, hastily included outside the General State Budget, by a fiscal legislator without perceptible global fiscal orientation, successively implementing norms of fiscal aggravation as the reversals of budgetary execution occur, the impositions of international institutional creditors (represented by the 'troika') and the scrutiny of the Constitutional Court.

In truth, although in the 'Explanatory Statement' of Draft Law no. 96/XII/2nd ( [7] ), 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, ensuring an effective distribution of the necessary sacrifices to comply with the adjustment program' and to its commitment 'to ensuring that the distribution of these sacrifices will be made by all and not only by those who live from income from their work,' it is manifest, on the one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year when the General State Budget entered into force, and on the other hand, that the scope of item no. 28.1, in taxing additionally properties with residential use and not also properties that do not have it, reveals that the concerns of social equity and the proclaimed intention of distribution of the sacrifices by all attains far more some than properly all.

In this context, with no sure 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 section 3 of Article 9 of the Civil Code), the tenor of the legal text must be the primordial element of interpretation, in accordance with the presumption imposed by the same section 3 of Article 9, that the legislator knew how to express his thought in adequate terms.

In light of those meanings of the words 'dedication' and 'dedicate,' which are 'to give purpose' or 'to apply,' the formula used in that item no. 28.1 of the TGIS manifestly encompasses properties that are already applied to residential purposes, so it is important to inquire whether it will also encompass properties that, despite not yet being applied to residential purposes, are intended for these purposes and those whose purpose is unknown. (…)

For this reason, it will be necessary to clarify when it can be understood that a property is dedicated to a residential purpose, namely whether it is when such purpose is fixed for it in a licensing act or similar, or only when the actual assignment of that purpose is concretized.

Immediately, the confrontation of item no. 28.1 of the TGIS with section 2 of Article 6 of IMI, which defines the concept of residential properties, manifestly points toward the necessity of actual dedication.

In truth, a building or construction licensed for housing or, even without license, but having housing as its normal purpose, is, in light of section 2 of that Article 6, a residential property.

For this reason, on the premise that the legislator of Law no. 55-A/2012 knew how to express his thought in adequate terms (as imposed by Article 9, section 3 of the Civil Code that it be presumed), if it intended to refer to those properties already licensed for housing or having housing as their normal purpose, it would certainly have used the concept of 'residential properties,' which would express perfectly and clearly his thought in light of the definition given by that section 2 of Article 6 of IMI.

Consequently, it should be presumed that the use of a different expression aims at a distinct reality, so in good hermeneutics, 'property with residential use' cannot be a property merely licensed for housing or intended for that purpose (that is, it will not suffice that it be a 'residential property'), having to be a property that already has actual dedication to that purpose.

That this is the meaning of the expression 'dedication,' in the same context of classification of properties made by IMI, is confirmed by Article 3 in which, regarding rural properties, reference is made to those that 'are dedicated or, in the absence of concrete dedication, have as their normal purpose a use generating agricultural income,' which shows that dedication is concrete, actual. In truth, as is seen from the final part of this text, a property may have as purpose a particular use and be or not be dedicated to it, which shows that dedication is at the level of the connection of a property to a particular use something more intense than mere purpose and that may or may not occur, downstream of this and not upstream. ([8])

The correctness of this interpretation in the sense that only properties that are actually dedicated to housing fall within the scope of incidence of item no. 28.1 of the TGIS is also confirmed by the ratio legis perceptible from the restriction of the scope of application of the norm to properties with residential dedication, 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, section 1 of the Civil Code also elevates to interpretative elements. ([9]).

Immediately, the limitation of taxation in Stamp Duty to 'properties with residential use' allows one to perceive that it was not intended to encompass within the scope of incidence of the tax properties with dedication to services, industry or commerce, that is, properties dedicated to economic activity, which is understood in a context in which, as is notorious, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching maximum historical levels, with an avalanche of business closures derived from economic unsustainability. (emphasis ours)

Having in mind this situation and being known and public that the revival of economic activity and the increase of exports are the exits from the crisis, it is understood that legislative measures were not taken that would hinder economic activity, namely the aggravation of the fiscal 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 toward not having been intended to encompass within the scope of incidence of item no. 28.1 the situations of properties that are not yet dedicated to housing, namely land for construction held by enterprises. ([10])"

1. In light of the foregoing, it is verified that the 39 fractions intended for housing are encompassed by the incidence norm of item 28.1, as they are urban properties and properties with residential dedication, the concept of which results from Article 2 of IMI.

2. However, it now remains to decide for purposes of application of item no. 28 of the TGIS which TPV to consider in properties under vertical regime (that is, not horizontal) if individually determined by the TPV corresponding to each part of the property with residential use, or if determined by the overall TPV of the property, which would correspond to the sum of all TPVs of the residential fractions composing it.

3. On this matter, the Arbitral Tribunal of CAAD has already decided through decision no. 50/2013-T and 132/2013-T.

4. For purposes of the case sub-judice, regarding decision 50/2013-T, which tells us regarding the treatment to be given for purposes of item 28.1 of the TGIS to properties in vertical ownership and cumulatively which TPV (individual or overall) to consider:

"From this we can conclude that, in the legislator's view, the legal-formal rigor of the concrete situation of the property does not matter but rather its normal use, the purpose to which the property is dedicated. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between one and the other. What matters is the material truth underlying its existence as an urban property and its use."

1. It is further important to note from the respective decision:

"Using the criterion that the law itself introduced in Article 67(2) of the Stamp Duty Code, 'to matters not regulated in this code relating to item 28 of the General Table applies subsidiarily.' (...)

Thus, being so, considering that the registration in the real estate register of properties in vertical ownership, consisting of different parts, floors or divisions with independent use, in accordance with IMI, follows the same registration rules as those of properties constituted in horizontal ownership, with the respective IMI being, as well as the new Stamp Duty, assessed individually in relation to each part, it offers no doubt that the legal criterion for defining the incidence of the new tax must be the same. (…)

Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for defining the rule of incidence of the new tax.

Thus there would only be place for the incidence of the new stamp duty if one of the parts, floors or divisions with independent use presented a TPV exceeding €1,000,000.00.

The TA cannot thus consider as the reference value for the incidence of the new tax the total value of the property when the legislator itself established a different rule under IMI, and this is the code applicable to matters not regulated with respect to item 28 of the TGIS.

The criterion intended by the TA of considering the value of the sum of the TPVs attributed to the parts, floors or divisions with independent use, with the argument that the property is not constituted in the horizontal ownership regime, finds no legal support and is contrary to the criterion applicable under IMI and, by reference, under Stamp Duty.

To which must be added the fact that the law itself expressly establishes, in the final part of item 28 of the TGIS, that Stamp Duty to be incurred on urban properties with a value equal to or exceeding €1,000,000.00 – 'on the tax property value used for IMI purposes.' .

Thus the adoption of the criterion advocated by the TA violates the principles of legality and tax equality, as well as the principle of prevalence of material truth over legal-formal reality.

The fiscal legislator in Article 12(3) of IMI states that 'each floor or part of a property susceptible to independent use is considered separately in the real estate registration which also itemizes the respective tax property value,' makes no distinction regarding the regime of properties that are in horizontal or vertical ownership; if the property were in the horizontal ownership regime, none of its residential fractions would be subject to the incidence of the new tax, so the TA cannot treat equal situations differently."

1. In the same sense the arbitral tribunal of CAAD decided in decision no. 132/2013-T:

"Furthermore, admitting differentiation of treatment could produce results incomprehensible from a legal point of view and contrary to the objectives that the legislator said it had for adding item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now respondent: a citizen who is owner of a property constituted in total ownership intended for housing, with the total value of the autonomous units equal to or exceeding €1,000,000.00 and the TPV of each one less than €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); already another citizen who holds a property with the exact same characteristics as the former but that has been constituted in horizontal ownership, being equally the total value of the autonomous fractions equal to or exceeding €1,000,000.00 and the TPV of each one less than €1,000,000.00, will not be subject to taxation under the mentioned item no. 28...

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for taxation purposes, the respective TPVs? The answer can be illustrated by means of another hypothesis: a citizen who is owner of a property in horizontal ownership in which each of its 20 fractions has a TPV less than €1,000,000.00 would be subject to taxation if – should such aggregation be admitted – the total TPV exceeded that value; already another citizen with identical 20 fractions distributed across 5, 10 or 20 properties would not be subject to any taxation under the aforementioned item no. 28...

If this line of reasoning makes sense – justifying therefore the non-aggregation of the TPVs of fractions of properties in horizontal ownership – there is no plausible reason why the same should not be applied to the autonomous units of properties in total ownership.

Observing now the case under analysis, it is noted that the TPVs of the floors (autonomous units) of the property with residential use vary between €104,140.00 and €113,780.00, so each of them is less than €1,000,000.00. From this it is concluded, as a result of what was mentioned, that stamp duty referred to in item no. 28 of the TGIS cannot be incurred upon them, with the assessment acts challenged by the claimant therefore being illegal."

1. In light of the foregoing, and applying what the aforementioned decisions tell us to the present case, it results that for purposes of application of item 28 of the TGIS to properties in vertical ownership, the same rules of IMI apply as to properties in horizontal ownership, and in the same sense the TPV for purposes of application of the item is the individual TPV of each independent residential fraction, with none of the fractions in the present case exceeding the incidence criterion of €1,000,000.00.

2. Material truth is the criterion that imposes itself as determinative of contributory capacity and not mere legal-formal reality of the property, given that constitution of horizontal ownership implies a mere legal alteration of the property not even imposing a new evaluation, which now such finding is not coherent with the decision of the TA to tax the residential parts of a property in vertical ownership based on the overall TPV of the property and not on that actually attributed to each part.

3. The current legal regime does not impose the obligation to constitute horizontal ownership, so the action of the TA translates into arbitrary and illegal discrimination. The TA cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of fiscal legality provided for in Article 103(1) of the CRP, and also the principles of justice, equality and fiscal proportionality.

4. As none of the fractions dedicated to housing has a tax property value equal to or exceeding €1,000,000.00 as results from the documents attached to the case, it is concluded that the legal presupposition of incidence of Stamp Duty provided for in Item 28 of the TGIS is not met.

5. In this manner the present tribunal concludes for the declaration of illegality of the assessments sub judice, as they are affected by the defect of violation of item no. 28.1 thereof due to error regarding the legal presuppositions, which justifies the declaration of its illegality and annulment (Article 135 of the CPA).

I - DECISION

Therefore, in light of all the foregoing, the present Arbitral Tribunal decides as follows:

(a) Judge the petition for declaration of illegality of the tax assessment acts for Stamp Duty, no. 2015…; no. 2015…; no. 2015…; no. 2015…; no. 2015…; no. 2015…, which established a total tax payable of €15,582.56 (fifteen thousand five hundred eighty-two euros and fifty-two cents) as upheld due to defect of violation of law regarding the provision contained in item 28(1), due to error regarding the legal presuppositions, which justifies the declaration of its illegality and annulment.

(b) Condemn the Respondent to refund to the Claimant such amount improperly assessed and paid.

The value of the case is fixed at €15,582.56 of the assessment value taking into account the economic value of the case measured by the value of the stamp duty assessments challenged, and in accordance therewith the costs are fixed in the respective amount of €918.00 (nine hundred eighteen euros), to be borne by the respondent in accordance with Article 12(2) of the Tax Arbitration Regime, Article 4 of the RCPAT and Table I attached hereto—section 10 of Article 35, and sections 1, 4 and 5 of Article 43 of the LGT, Articles 5(1)(a) of the RCPT, 97-A(1)(a) of the CPPT and 559 of the CPC).

Notify accordingly.

Lisbon, 23 June 2016

The Arbitrator

Paulo Ferreira Alves