Stamp Tax on Total Ownership Property (Verba 28.1 TGIS): Untimely Arbitral Request Ruling

Arbitral Decision

I – REPORT

A) The Parties and Constitution of the Arbitral Tribunal

1. A…, Lda, taxpayer no.…, with registered office at Rua…, no.…, … - … Lisbon, hereinafter referred to as "Claimant", submitted a request for constitution of an Arbitral Tribunal, pursuant to article 2, no. 1, paragraph a) and 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT" and Ordinance no. 112 – A/2011, of 22 March, for the challenge and declaration of illegality of 41 Stamp Tax (IS) assessments issued in application of the provisions of item 28.1 of the General Stamp Tax Table (TGIS). The challenged assessments, relating to the year 2014, correspond to a total amount of €12,493.10 and concern urban real property, held in full ownership, composed of a ground floor and 3 upper floors, with 16 units susceptible to independent use.

2. In the present arbitral request, in summary, the Claimant challenges, jointly, the 41 Stamp Tax assessments, duly identified in the arbitral petition (AP), which is deemed fully reproduced herein, corresponding to the 1st, 2nd and 3rd installment of the tax, all with payment due dates, respectively, until the end of March, July 2016 and November 2016.

From the total amount in question, valued at €12,493.10, the Claimant paid the 1st and 2nd installments. It did not pay the assessments contained in documents numbered 28 to 43 attached to the AP, which are deemed fully reproduced herein, with said amount being held in escrow in the account of the Claimant company. It seeks the annulment of all challenged assessments which it considers to be illegal, based on the grounds set forth in the arbitral petition.

1. The request for constitution of the Arbitral Tribunal was submitted by the Claimant on 28-02-2016, was accepted by the Esteemed President of CAAD on 29-02-2016 and subsequently notified to the Tax and Customs Authority. The Claimant opted not to appoint an arbitrator, whereby, pursuant to no. 1, article 6 of the RJAT, was designated by the Deontological Council of the Centre for Administrative Arbitration, on 27-04-2016, the undersigned as arbitrator to constitute the sole Arbitral Tribunal. Thus, in compliance with the provisions of paragraph c), no. 1, article 11 of the RJAT, the Arbitral Tribunal was constituted on 13-05-2016.

On 17-05-2016 an arbitral order was issued, requiring the Tax and Customs Authority (TA) to submit its response within the legal timeframe, pursuant to nos. 1 and 2 of article 17 of the RJAT.

On 16-06-2016 the Defendant submitted its response and the respective Administrative Process (AP), which are deemed fully reproduced herein. In its response the Defendant invokes the untimeliness of the arbitral petition submitted, refutes the grounds of illegality pointed out regarding the assessments and considers that the issues under discussion in the proceedings are merely of law and that therefore the holding of the meeting referred to in article 18 of the RJAT may be dispensed with.

On 27-06-2016 an arbitral order was issued requesting the parties to comment on the possibility of dispensing with the meeting provided for in article 18 of the RJAT, proceeding to written arguments, giving them the opportunity, if they so wished, to respond to the exception raised by the TA. Both commented favorably on the proposal for dispensation. Thus, by arbitral order issued on 12-07-2016, pursuant to articles 16, paragraph c), 19 and 29, no. 2 of the RJAT, the holding of said meeting was dispensed with, a period of equal and successive 10 days was set for the parties, if they so wished, to present their written arguments and a date was fixed for the issuance of the arbitral decision until 30-09-2016, which was subsequently extended by a further 15 days. The Claimant was also notified to effect payment of the subsequent arbitration fee.

The parties did not submit arguments.

B) Basis of the REQUEST FORMULATED BY THE CLAIMANT:

1. The Claimant formulates the present request for arbitral pronouncement, with accumulation of claims, seeking the illegality of the IS assessments, determined pursuant to item 28.1 of the TGIS, as stated in the arbitral petition, here fully reproduced. The Claimant does not conform to the terms in which the TA applies the provisions of item 28.1 of the TGIS, considering the total VPT of the property, calculated on the basis of the sum of the VPTs attributed to each part or independent division. The criterion used by the TA has the purpose of applying item 28.1 of the TGIS, applicable to properties whose VPT has a value exceeding €1,000,000.00. In accordance with this understanding, based on the sum of the VPTs attributed to each of the parts or independent divisions, the total VPT of the property in question is €1,249,310.00 and the IS owed is €12,493.10. This understanding is, from the point of view of the claimant, illegal and this constitutes the basis of the present arbitral petition. It considers that the IS incidence provided for in item 28.1 of the TGIS should be assessed according to – and only according to – each division susceptible to independent use and not the property in which they are integrated, taking exclusively into account their use and VPT. It invokes in support of its thesis the provisions of article 12, no. 3 of the Property Tax Code, article 67, no. 2 of the IS Code and item 28.1 of the TGIS itself, as extensively set forth in its arbitral petition which is deemed fully reproduced herein.

It concludes by requesting the annulment of all the impugned tax assessments, the condemnation to reimburse the amount paid plus compensatory interest.

C – THE POSITION OF THE DEFENDANT SET FORTH IN ITS RESPONSE

1. The Defendant TA, duly notified for that purpose, timely submitted its response in which:

a) by exception, it alleged the untimeliness of the submission of the arbitral petition;

b) and, by way of challenge, alleged that the impugned assessments should be maintained as legal, since they correspond to compliance with the provisions of article 6, no. 2 of Law no. 55-A/2012, of 29/10, which added item no. 28 to the TGIS, with the amendment made by Law no. 83-C/2013 of 31/12 and whose respective incidence rule refers to urban properties, valued in accordance with the Property Tax Code (CIMI), with VPT equal to or exceeding €1,000,000.00 and, pursuant to its no. 28.1, with residential use.

It alleges that article 44, no. 5, of the IS Code (CIS), in the wording given to it by Law no. 55-A/2012, of 29/10, established that, where tax is assessed, the tax referred to in item 28 of the TGIS is paid, within the timeframes, terms and conditions defined in article 120 of the CIMI. It further considers that what is at issue is an assessment resulting from direct application of the legal norm, which translates into objective elements.

The concept of property is defined in article 2, no. 1 of the CIMI, with it being provided in its no. 4 that, in the horizontal property regime, each autonomous fraction constitutes a property. The Defendant finally considers that "property held in full ownership with floors or divisions susceptible to independent use" is, unequivocally, different from real property in the horizontal property regime, constituted by autonomous fractions, that is to say, by several properties. It concludes that the IS assessments impugned are legal and that the arbitral petition is unfounded.

II - PROCEDURAL REQUIREMENTS

1. The Arbitral Tribunal is duly constituted. It is materially competent, pursuant to article 2, no. 1, paragraph a) of the RJAT. The Parties have legal personality and capacity, are legitimate and are duly represented (see articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112/2011, of 22 March).

The proceedings are not affected by vices that would invalidate it.

Having regard to all the elements in the file and the documentary evidence submitted by the parties, it is necessary to determine the factual matter relevant for the decision.

III – Factual Matter

A) Proven Facts

1. As relevant factual matter, this tribunal deems the following facts to be established:

a. The Claimant is a civil society for housing with limited liability, with registered office at Rua…, no.…, …-… Lisbon;

b. The Claimant is the owner of property held in full ownership composed of a ground floor and three upper floors, with 16 independent units, susceptible to independent use, as shown in the certificate attached to the file as document no. 2 attached to the AP;

c. Stamp tax was assessed on this property, pursuant to item 28.1 of the TGIS, with reference to the year 2014, with 41 tax assessments being issued, all attached to the file and deemed fully reproduced herein;

d. The stamp tax value was calculated using as reference the total value of the property, corresponding to the sum of the VPTs attributed to each part or independent division with residential use, reaching a total VPT of €1,249,310.00;

e. All 16 independent parts that constitute this property are intended for residential use and have an individual VPT, attributed to each, substantially below €1,000,000.00;

f. For purposes of Property Tax, each part or division susceptible to independent use has an individual VPT attributed, as shown in the respective property record attached to the file as document no. 2 attached to the AP;

g. The value of stamp tax assessed to the Claimant, in the amount of €12,493.10, was processed in three installments, the first with a payment due date until the end of March 2015, the second until the end of July 2015 and, finally, the third and last installment with a payment due date until the end of November 2015, as shown in documents nos. 3 to 43 attached to the AP;

h. On 31 July 2015 the Claimant submitted a request for administrative reconsideration to challenge the assessed tax;

i. The request for reconsideration was denied, by order dated 25-09-2015;

j. For payment of the 1st and 2nd installments of the tax the Claimant used credits held against the TA, arising from amounts assessed in respect of stamp tax for the years 2012 and 2013, which the TA was ordered to return to the claimant;

k. The 3rd installment was not paid at the time of submission of the arbitral petition, but the Claimant had amounts held in escrow in its own account, since the respective tax enforcement proceedings were initiated and amounts to the credit of the Claimant were placed in escrow.

l. The present arbitral petition was submitted on 28-02-2016.

B) UNPROVEN FACTS

1. With relevance for the decision, there are no facts that should be considered as unproven.

C) BASIS FOR THE PROVEN FACTS

1. The facts described above were deemed proven based on the documentary evidence which the parties submitted to the present proceedings. Regarding the factual matter the Tribunal does not have to pronounce on everything that was alleged by the parties, it being its duty, rather, to select the facts that matter for the decision and to distinguish proven from unproven facts [see article 123, no. 2, of the Tax Procedure Code and article 607, no. 3 of the Civil Procedure Code (CPC), applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT]. In this manner, the facts pertinent to the adjudication of the case are selected and delineated based on their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (see article 596 CPC, applicable by virtue of article 29, no. 1, paragraph e), of the RJAT).

Having regard to the positions assumed by the parties, the documentary evidence and the AP attached to the file, the facts listed above were deemed proven, with relevance for the decision, moreover consensually recognized and accepted by the parties.

IV – DECISION

1. With the factual matter determined as stated above, it is necessary to address the question of law raised by the Claimant, which consists in assessing the terms of the configuration of the subjective scope of the IS provided for in item 28 of the TGIS, in the specific case of properties in full (or vertical) ownership regime, composed of various floors, with divisions or parts susceptible to independent use.

The questions to be decided are:

A) Exception of untimeliness of submission of the arbitral petition;

B) Illegality of the impugned assessments.

A) Regarding the exception of untimeliness of submission of the arbitral petition:

1. The TA alleges the untimeliness of the present arbitral petition on the grounds that, considering that the 1st and 2nd installments were not paid voluntarily, the following became due, by force of article 120, no. 4 of the CIMI, applicable by referral of the CIS and, thus, the deadline for challenging or submitting the AP is counted from the payment due date of the 1st installment. On the other hand, even if this were not so understood, it would still be untimely since the Claimant submitted a request for administrative reconsideration, which was denied on 25-09-2015, whereby the 90-day deadline for submitting the arbitral petition would long have expired, given that the petition was only submitted on 28-02-2016.

The TA does not appear to be correct, since, having the Claimant been notified to pay the third installment of the stamp tax, in the proper period and with a payment due date until the end of November 2015, the TA itself cannot claim that, the Defendant not having paid the 1st installment of the tax, the remaining installments became due immediately. On one hand, if that were the case, it would not have issued the 3rd installment for payment. But, to this argument is added another, which is that the Claimant did pay said installments, although using for that purpose the credit balance it had in its favor, by virtue of prior judicial decisions that obligated the TA to return to the Claimant the values of IS assessed on this same property in the years 2012 and 2013. Thus, it cannot be stated that the Claimant did not pay said installments. Offset or settlement of accounts is an appropriate and proper means to proceed with payment of the tax obligation, as well as for its collection, frequently used by the TA.

Article 120, no. 4 of the CIMI provides:

"4 - In the case provided for in nos. 1 and 3, failure to pay an installment or annuity within the established deadline results in the immediate maturity of the remaining installments."

But, if that is so, non-payment of the first installment of Stamp Tax, by application of article 120, no. 4 of the CIMI, should have as a consequence the immediate demand for the remaining Stamp Tax installments, which did not occur, since all were notified to the taxpayer, in the proper periods, as shown in the attached documents. The TA itself appears to have recognized the payment through offset of the credit in the current account balance, and cannot now claim the opposite, to try to demonstrate the untimeliness of the petition.

1. As to the argument derived from the denial of the request for administrative reconsideration, submitted on 31-07-2015 and denied by order dated 25-09-2015 and notified on 28-09-2015, there is no doubt that, accepting the TA's argument and considering the 90-day deadline for challenging the denial of the request for administrative reconsideration, the date of submission of the Arbitral Petition (28-02-2016) greatly exceeded such deadline. But, despite this, the TA is also not correct on this point. In the first place because the Claimant did not come to challenge the denial of that reclamation, as is evident from analysis of the petition. What the Claimant came to challenge, without doubt, was the Stamp Tax, for the year 2014, and the respective tax assessments, considering as the date for the beginning of the deadline for submitting the AP the payment due date of the last installment, that is, 30 November 2015.

The counting of the 90-day deadline follows the rules provided for in article 20 of the General Tax Law and article 279 of the Civil Code, whereby it began on 1 December 2015 and ended on 28 February 2016, the day of submission in court of the present arbitral petition. In light of this rule the conclusion is that the arbitral petition is not untimely.

But, in any event, let us see whether the Claimant would be obliged to challenge the act denying the request for administrative reconsideration.

In principle it would be so if the tax assessment itself did not permit it a broader period to react. The law itself (article 102, no. 1 a) of the Tax Procedure Code) provides as the first criterion for counting the deadline for challenging the tax assessment act the tax payment due date. In the case of IS, as with Property Tax, when, under legal terms its value is divided into installments to be paid, the payment due date that should serve as reference is that of the last installment, although the taxpayer may react against the act before that, if it so chooses. But, whether it does so with reference to the 1st installment or the last, what it challenges is not the installment itself, but the underlying tax act: the act of determination of the tax base that leads to the assessment of the annual stamp tax. Its division into installments is merely a collection procedure, in itself not subject to challenge.

Arbitral case law has pronounced itself in this sense. Let us see:

"This is an indivisible act of a Stamp Tax assessment, pursuant to the joint provisions of articles 120 and 113, no. 1, both of the Property Tax Code, applicable by referral of no. 7 of article 23 of the Stamp Tax Code, in the wording given to it by Law no. 55-A/2012, of 29 October, whereby, in the situations referred to in item 28 of the TGIS, an annual assessment is effected, with payment in installments being nothing more than a collection technique for the tax and not a partial payment thereof." (see Arbitral Decision 260/2013 T – underlines ours)

Given this, the petition for annulment of the Stamp Tax assessment act, if submitted with reference to any one of the three installments, has as its scope the challengeability of the act of determination of the tax base which determined the annual tax assessment and not that of the tax to be paid in that installment. Thus the petition for annulment of the act may be requested at any time counting from the date of notification of any one of the installments or from the denial of the request for administrative reconsideration or hierarchical appeal. In the specific case, it is true that it submitted a request for administrative reconsideration in July 2015 (when the 1st and 2nd installments had already been notified), which was subsequently denied in September 2015, but that circumstance does not deprive the Claimant of the right to challenge the Tax, with the deadline for submitting such challenge being counted from the payment due date of the 3rd installment (end of November 2015).

Thus, the Stamp Tax assessment act that may be subject to annulment and challenge is the act of determination of the tax base, which cannot be divisible and subject to autonomous challenge. Its annulment necessarily refers to an act of annual IS assessment, whose payment modality and collection may be divided into three installments. The annulment of the act is what entails the annulment of the payment acts, respectively, the three installments. Therefore, the Claimant may challenge by way of arbitration, up to 90 days counting from the expiration of the deadline for voluntary payment of the tax of any one of the installments, being able to do so after the payment due date of the last installment. (In this sense see, further, Arbitral Decision no. 108/2016-T of 26 June)

In these terms, this Arbitral Tribunal considers the alleged exception of untimeliness invoked by the Defendant TA to be unfounded.

B) Regarding the illegality of the tax

1. At issue in the proceedings is, in the first place, the question of whether the owner(s) of property held in full (or vertical) ownership, constituted by divisions susceptible to independent use, whose VPT was determined separately, pursuant to article 7, no. 2, paragraph b) of the CIMI, is (are) subject to the incidence of IS, by virtue of the provision of item 28.1 of the TGIS, on the sum of the VPTs of those divisions, when none of said divisions possesses a VPT exceeding €1,000,000.00, but the sum of their respective VPTs exceeds this amount.

2. From the argumentative framework presented by the parties, it is concluded that for the TA, the criterion for determining the incidence of IS, provided for in item 28.1 of the TGIS, of properties in full (or vertical) ownership, with floors and divisions with independent use with residential use, corresponds to the sum of the respective VPTs attributed to the parts or divisions. It was this understanding that led to the IS assessments here challenged and which the Claimant contests, as it considers such judgment to be illegal, which motivated the submission of the present petition for constitution of an Arbitral Tribunal.

This issue has already been the subject of recurrent review in arbitral proceedings, with consistent jurisprudence in the sense of a negative answer, as may be seen, by way of example, in the decisions rendered in cases no. 48/2013-T, 49/2013-T, 50/2013-T, 53/2013-T, 132/2013-T, 181/2013, 183/2013-T 248/2013-T and 280/2013-T, 30/2014-T, 497/2014-T, 575/2014-T, among others, including the recent arbitral decision above mentioned rendered in Case no. 108/2016-T.

To the same effect the Supreme Administrative Court (STA) pronounced itself, in Judgment of 09-09-2015, with Judge Counselor Francisco Rothes as Rapporteur, in which it was decided:

"I - With respect to properties in vertical ownership, for purposes of the incidence of Stamp Tax (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), subjection is determined by the combination of two factors: residential use and the VPT shown in the registry equal to or exceeding €1,000,000.

II - In the case of property constituted in vertical ownership, the incidence of IS should be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors susceptible to independent use (individualized in the property registry), but by the VPT attributed to each of those floors or divisions intended for residential use." [1]

1. Notwithstanding the foregoing, the Defendant TA has maintained the understanding set forth in the present file, arguing for an interpretation based on formal concepts, namely with respect to the concept of property for purposes of the incidence of IS.

On the fundamental question at issue, it may be said that the first limit of interpretation is the letter of the law, although not the only one. The interpretive task requires something more, that is to say, from the text of the rule it is necessary to discover the underlying ratio legis, "a task of interconnection and assessment that escapes the literal domain" [2]. In other words "the jurist must always keep before his eyes the purpose of the law, that is to say, the practical result which it proposes to achieve".[3] The question centers on the interpretation of the incidence rule, as expressed in the legal provision of items 28 and 28.1 of the TGIS, referring to "ownership, usufruct or right of superficies of urban properties, with residential use (28.1) whose tax value shown in the registry, pursuant to the CIMI is equal to or exceeding €1,000,000.00 – on the tax value used for purposes of Property Tax".

Now, the legal provision does not adopt the understanding followed by the TA, according to which properties with residential use in vertical ownership, with floors or divisions susceptible to independent use, the VPT on which IS should be levied should be the total VPT, corresponding to the sum of the VPTs individually attributed to each fraction, part or independent division. Such understanding is, from the outset, contradicted by the letter of the law itself, when it unequivocally refers to the application of the principles in force under Property Tax. Law 55-A/2012 says nothing regarding the qualification of the concepts in question. But article 67, no. 2 of the CIS, added by said Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table, the CIMI shall apply subsidiarily." (underlined ours)

1. Furthermore, when the provisions of IS and CIMI on this matter are analyzed, it is easily concluded that for the legislator the situation of property in vertical or horizontal ownership did not matter, since no reference or distinction is made between them. A conclusion which is necessarily imposed, by force of the referral which the legislator introduced in IS matters to the CIMI, since this tax establishes as criterion for properties in vertical ownership the attribution of a VPT to each of the parts or independent divisions. What matters is, therefore, the material truth underlying its existence as an urban property and its use or residential use.

Using, thus, the criterion which the law itself introduced in article 67, no. 2 of the CIS, "to matters not regulated in the present code relating to item 28 of the General Table, the CIMI shall apply subsidiarily." From the provision in no. 4 of article 2 of the CIMI, it follows that "For purposes of this tax, each autonomous fraction, in the horizontal property regime, shall be deemed to constitute a property." Adding further that no. 3 of article 12 of the CIMI states that "Each floor or part of property susceptible to independent use shall be considered separately in the property registration which also determines its respective tax value".

This referral leaves no doubt as to the purpose of the legislator, that is to say, it can only mean that incidence for purposes of IS – items 28 and 28.1 of the TGIS – takes effect on each floor or division susceptible to independent use, similarly to what occurs under Property Tax. For all purposes, namely for the incidence of IS or Property Tax, the parts of a property in total ownership regime have the same treatment as the fractions of properties in horizontal ownership regime. The legislator so dictated when, precisely for that purpose, it requires the fixing of a VPT for each part or fraction susceptible to independent use, without distinction as to the form of constitution of the ownership regime (total or horizontal). For Property Tax purposes, each part or division susceptible to independent use is, therefore, taxed individually, based on the individual VPT attributed for that purpose. The referral to the CIMI, which the legislator introduced, expressly and unequivocally, in the letter of the law (items 28 and 28.1 of the TGIS) can only mean that it is that same individual VPT, of each part or independent division, that serves as the reference for purposes of the IS incidence enshrined in items 28 and 28.1 of the TGIS.

In this regard, recall the reasoning contained in arbitral decisions already rendered on this issue, highlighting decision 50/2013 T and Arbitral Decision no. 280/2013-T, to which adherence is given.

1. As to the concept of property, regard should be had to the provisions of article 2 and following of the CIMI, from which it follows that the legislator, using criteria of use and location, established the concept of rural properties, and then, in a classification by negation, in its article 4, established that urban properties shall be all those that should not be classified as rural. Already in no. 2, article 5, the legislator establishes the concept of mixed properties which shall be those in which there exist distinct rural and urban economic realities and there is no subordination of one to the other. In article 6 of the cited CIMI, the legislator divides urban properties into: residential, commercial, industrial or service, land for construction and others. In none of the referenced provisions does it make distinction between properties in vertical or horizontal ownership, nor did it have to, given that such distinction has strictly to do with the applicable legal regime and not with the intrinsic nature of the property. Now, for taxation purposes, taking into account the principles of contributive capacity, fiscal justice and legality, what matters is the intrinsic nature of the property, its level of construction quality, whether or not it is a luxury property, all expressed in the determination of its VPT.

In the specific case we are dealing with an urban property with parts or divisions susceptible to independent use with residential use and others with commercial use, it is a property with parts falling within the residential division of paragraph a) of no. 1 of article 6 and with parts falling within paragraph b) of the same no. and article, but in no way shall it be a mixed property in the concept established in the already cited article 5 of the CIMI. Each of the parts or divisions susceptible to independent use which compose the real property in question meets the concept of property established in article 2 of the CIMI, they are physically and economically independent.

Indeed, when the TA purges the VPT of parts or divisions with use other than residential, for purposes of IS incidence, as is so often necessary to do, it resorts to and applies the criterion defined in no. 4 of article 2 of the CIMI for properties in the horizontal ownership regime. It could not fail to do so. But, then, it considers that the parts or divisions susceptible to independent use are true autonomous parts of property in vertical ownership meeting the concept of property. Now, it cannot consider in some cases what it disregards in others, by mere criterion of convenience.

The same applies when it uses that same criterion under Property Tax taxation, taxing separately the VPT of each of the parts or divisions susceptible to independent use.

Finally, in fact, the TA used that same criterion in taxation under IS, in making its calculation on the VPT of each of the parts or divisions with independent use with residential use, except that it then proceeded to the sum of such values (something which the law does not provide for), to determine total VPT (once again, something which the law does not provide for), only and solely in order to be able to reach a value exceeding €1,000,000.00 and from there operationalize the incidence of the Tax, in a manner totally different from what the law requires, without any legal support, either in the letter or in the spirit of the law.

Such a pretension of taxation, under IS, considering the total VPT of the property, as the defendant seeks, finds no support in the CIMI, as per the referral of no. 2 of article 67 of the CIS;

1. As is well stated in various arbitral decisions, "it should not be said that there is a different valuation and taxation of a property in total ownership with parts or divisions susceptible to independent use, as opposed to a property in horizontal ownership. In truth it does not exist under Property Tax just as it cannot exist under IS, since, as has already been said, the applicable legislation is the same". See Decision 230/2013 – T, among many others which we could cite)

Considering that, in the case under review, none of the parts or divisions susceptible to independent use with destination or residential use has a VPT equal to or exceeding €1,000,000.00, it is unavoidable to conclude that the acts of IS assessment are illegal, by error regarding the factual and legal requirements defined in item 28 of the TGIS and in the CIMI, by referral, in the manner already explained above.

Identical understanding results from the STA Judgment of 09-09-2015, already mentioned above. The thesis defended by the TA cannot prevail. An adequate reading of the scope of the provision of the incidence rule of items 28 and 28.1 of the TGIS, in light of what no. 7 of article 23 of the CIS allows to conclude regarding the determination of the taxable base and subsequent tax assessment operation. As is well stated in this Judgment:

"Where the tax is due in the situations provided for in item no. 28 of the General Table, the tax shall be assessed annually, in relation to each urban property, by the central departments of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI."

1. Finally, no. 3 of article 11 of the General Tax Law further provides: "where doubt persists regarding the meaning of the incidence rules to be applied, the economic substance of the tax facts should be considered". In the case at hand, the correct interpretation of the legal provisions in question requires that attention be paid to the "economic substance of the tax facts". This is what follows from the legislator's will, objectively and rationally expressed in the letter of the law and, furthermore, from respect for "unity of the legal system", which is required, from the outset, by the coherence in values or axiology of the legal order.

The legislator expressed his thoughts on this matter coherently, when introducing a comprehensive referral to the principles contained in the CIMI. The delimitation of the scope of the incidence rule of this new tax should follow the orientation of the letter and spirit of the law. In the first place, regard should be had, therefore, to what is expressly provided in items 28 and 28.1 of the TGIS, with the "necessary adaptations of the rules contained in the CIMI", as follows from the provisions of no. 7, article 23 of the CIS.

Thus, the understanding adopted by the TA appears to be at variance with the letter and spirit of the rule, and therefore does not appear to comply with the law, nor with the principle of fiscal legality, whereby the impugned assessments are tainted by the vice of violation of law, by manifest error regarding the factual and legal requirements.

Moreover, its practical result would lead, for example, to taxation of a property in vertical ownership by force of the sum of the individual values of its parts or independent divisions (as occurs in the case at hand) whereas, if it were constituted in the horizontal ownership regime, none of its fractions would be taxed. Furthermore, by the TA's understanding we would be led to tax floors or divisions (fractions) susceptible to independent use with modest values (as in the case at hand) knowing that the same legislator excluded from taxation fractions of properties constituted in the horizontal ownership regime, even if each fraction had a VPT of €999,999.00. Such interpretation, besides being absurd, is totally contrary to the purpose that led the legislator to insert item 28 into the TGIS, justified by the purpose of taxing "luxury homes". In other words, the historical element also leads us to an understanding different from that defended by the TA.

Furthermore, by the TA's criterion, many of the urban properties existing in vertical ownership, despite being older, could easily reach the reference value for the incidence of IS, while properties of recent and sometimes luxury construction, in the horizontal ownership regime, but whose VPT per fraction does not equal or exceed €1,000,000.00 are not subject to the tax. Now, such an interpretation and application of the legal rule that would lead to such a solution offends the sensitivity and fundamental minimum ethics.

Recourse to the ratio legis and the interpretation principles set forth above point in the direction opposite to that defended by the Defendant. If the properties in question in the present file were in the horizontal ownership regime, none of its residential fractions would be subject to the tax that seeks to tax luxury properties or homes.[4] And, as has already been said, the legislator's thinking expressed in the incidence rule, when referring to the application of the CIMI, was clear and unequivocal, following the principle of the prevalence of material truth over formal legal reality and the uniformity of the legal system.

Finally, it shall be added only this: even if, hypothetically, it were concedible that in cases of properties in total (or vertical) ownership, constituted by divisions susceptible to independent use, IS could be required for the entire property, if the value set forth in item 28.1 of the TGIS were reached, such value would still have to be fixed autonomously, through its own assessment, and not through the sum of the values in which each of the parts susceptible to independent use was, autonomously assessed. Effectively, and as it is clear, the "market value" of the whole will not necessarily – and will not, as a rule – equal the sum of the parts, it being well known that sale "in parts" is easier and more profitable (which may even constitute part of the economic foundation of the horizontal property institute) than the overall sale of the whole, starting with the market expansion, which the substantially lower price of the parts in relation to the whole brings. Indeed, it will be this increase in economic value resulting from division that will justify an independent assessment of each autonomous part of the property in total ownership, so as to ensure that there is no lesser tax revenue, under Property Tax and Property Transfer Tax, due to the fact that the division of the property has no legal correspondence in the form of horizontal property. In other words, partition of the property always entails an increase in the value of the whole, since the "market value" of the whole shall be, (at least) as a rule, lower than the "market value" of the parts, separately. Whereby, at most, if the TA intended, legitimately, to apply item 28.1 of the TGIS to a property in total (or vertical) ownership, constituted by divisions susceptible to independent use, it would still be obliged to make an assessment of the same as a whole (that was a credible approximation to its "market value" by "wholesale") and not as mere sum of the parts (the "retail"), starting with the fact that these are not susceptible to being, validly, placed on the "market" separately.

Returning to the case at hand, the properties in question are in vertical ownership and contain floors and divisions with independent use, intended for residential use, as was proven above. Given that none of the floors intended for residential use has a tax value equal to or exceeding €1,000,000.00, as follows from the documents attached to the file, it is concluded that the legal requirement for the incidence of IS provided for in item 28.1 of the TGIS is not met and that all the assessments impugned in the present file are illegal.

In these terms, it is decided to find the arbitral petition well-founded and to annul all the IS assessments impugned.

V – Regarding the claim for compensatory interest

1. The Claimant combines with the petition for annulment of the tax acts that are the subject of the present file, a petition for condemnation of the TA to payment of compensatory interest. Given that the petition for annulment is well-founded, the values verified to have been paid should be returned to the Claimant, regarding the tax acts that have been annulled. In the case at hand, it is manifest that the illegality of the assessment acts, whose amount the Claimant paid by offset with credits that it held receivable from the TA, is imputable to the TA, which, on its own initiative, persisted in such practice without legal support.

Consequently, the Claimant is entitled to compensatory interest, pursuant to articles 43, no. 1, of the General Tax Law and 61 of the Tax Procedure Code. Compensatory interest is owed, from the date of the payments shown to have been made (in the case that requires an accounting between the requesting entity and the requested party, by force of the credits which the Claimant holds receivable and by force of the necessary offset of credits) calculated on the basis of the respective amount, until its full return to the Claimant, at the legal rate, pursuant to articles, articles 43, nos. 1 and 4, and 35, no. 10, of the General Tax Law, 61 of the Tax Procedure Code and 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (without prejudice to any subsequent changes to the legal rate).

In accordance with the provision in paragraph b) of art. 24 of the RJAT the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the tax administration from the end of the deadline set for appeal or challenge, and the latter shall, in the exact terms of the merits of the arbitral decision in favor of the taxpayer and until the end of the deadline set for spontaneous execution of the decisions of the tax courts, "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose", which is in line with what is prescribed in art. 100 of the General Tax Law [applicable by force of the provisions in paragraph a) of no. 1 of art. 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of reconsideration, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the subject of the litigation, comprising the payment of compensatory interest, if applicable, from the end of the deadline of execution of the decision".

Although art. 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals that function in CAAD, not making reference to condemnatory decisions, it should be understood that the competences include the powers which in judicial challenge proceedings are attributed to the tax courts, and that is the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the RJAT and in which it is proclaimed, as a first directive, that "the tax arbitral process should constitute an alternative procedural means to judicial challenge proceedings and to the action for recognition of a right or legitimate interest in tax matters".

Judicial challenge proceedings, despite being essentially a process of annulment of tax acts, admit condemnation of the TA to payment of compensatory interest, as is inferred from art. 43, no. 1, of the General Tax Law, which establishes that "compensatory interest is owed when it is determined, in reconsideration or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally owed" and from art. 61, no. 4 of the Tax Procedure Code (in the wording given to it by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the original wording), which states that "if the decision that recognized the right to compensatory interest is judicial, the deadline for payment is counted from the beginning of the deadline for its spontaneous execution".

Thus, no. 5 of art. 24 of the RJAT when it states that "payment of interest, regardless of its nature, is owed, in the terms provided for in the general tax law and in the Tax Procedure and Process Code" should be understood as permitting recognition of the right to compensatory interest in arbitral proceedings.

In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the impugned assessment acts, reimbursement of the tax is warranted, by force of the aforesaid arts. 24, no. 1, paragraph b), of the RJAT and 100 of the General Tax Law, since such is essential to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed". In the present case the payment of compensatory interest is further warranted, by force of the repeated conduct by the TA, of non-compliance with the law, regarding the same question of law, already sufficiently examined in numerous arbitral decisions and in the jurisprudence emanating from the Supreme Administrative Court.

Thus, the TA shall give effect to the present arbitral decision, pursuant to art. 24, no. 1, of the RJAT, and shall return to the Claimant the amounts verified to have been paid by offset or by any other means, plus the respective compensatory interest, at the legal rate supplementary to civil debts, pursuant to arts. 35, no. 10, and 43, nos. 1 and 5, of the General Tax Law, 61 of the Tax Procedure Code, 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or diploma or diplomas that succeed it).

Compensatory interest is owed from the dates of the payments made (or respective offset of credits) until the date of processing of the credit note, in which they are included (art. 61, no. 5, of the Tax Procedure Code).

VI - DECISION

In these terms, this Arbitral Tribunal decides:

a) To find the exception of untimeliness of the arbitral petition, invoked by the TA, to be unfounded;

b) To find the arbitral petition submitted by the Claimant to be entirely well-founded and, in consequence, to annul all the tax acts that are the subject of the present file;

c) To condemn the TA to return to the Claimant the values of stamp tax paid, plus compensatory interest, counting from the date on which payment was made (or offset) until full return;

d) To condemn the TA to pay the costs of the proceedings, in the amount of €918.00.

VALUE OF THE CASE

The value of the case is fixed at €12,493.10, pursuant to article 97-A, no. 1, a), of the Tax Procedure Code, applicable by force of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

COSTS

The value of the arbitration fee is fixed at €918.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Defendant, since the petition was entirely well-founded, pursuant to articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the said Regulation.

Let notification be made.

Lisbon, 10 October 2016

The Arbitral Tribunal,

(Maria do Rosário Anjos)

[1] See STA Judgment of 09-09-2015, rendered in case no. 047/15, available at www.dgsi.pt)

[2] In this sense, see BAPTISTA MACHADO (1983) Introduction to Law and the Legitimizing Discourse, Almedina Coimbra, pp. 181 et seq.

[3] In this sense, see FRANCESCO FERRARA, Interpretation and Application of Laws – translated by Manuel A. Domingues de Andrade (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, p. 137 et seq. Or likewise, in the same sense, see Manuel A. Domingues de Andrade, in Essay on the Theory of Interpretation of Laws. Collection STVDIVM, Philosophical, Legal and Social Themes (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, p. 23 et seq.

[4] This same conclusion follows from the analysis of the discussion of draft law no. 96/XII in the Assembly of the Republic, available for consultation in the Record of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012. The basis for the measure designated as "special tax on urban residential properties of higher value" rests on the invocation of the principles of social equity and fiscal justice, calling upon holders of high-value properties intended for residential use to contribute in a more intensive manner, with the new special tax taking effect on "houses with a value equal to or exceeding 1 million euros."