Stamp Tax Verba 28.1 TGIS: Independent Property Units and Expiry of Right of Action (CAAD 124/2017-T)

ARBITRAL DECISION

I – REPORT

On 16 February 2017, A…, S.A. with registered office at Rua …, no. … in Lisbon, legal entity number … (hereinafter Claimant), filed a request for constitution of a sole arbitral tribunal, pursuant to and for the purposes of articles 2 and 10 of the Legal Regime for Arbitration in Tax Matters, approved by Decree-Law 10/2011, of 20 January (LRAT).

Through the request for constitution of the arbitral tribunal and request for arbitral ruling, the Claimant seeks the annulment of the Stamp Duty assessment acts, carried out under item 28.1 of the General Table of Stamp Duty (GTSD), relating to the year 2015, to which the first, second and third instalments relate, in the total amount of € 17,752.46 (seventeen thousand, seven hundred and fifty-two euros and forty-six cents).

Indeed, not accepting the Stamp Duty assessments identified above, the Claimant requested the constitution of this arbitral tribunal, formulating the following claims:

- Declaration of illegality and consequent annulment of the Stamp Duty assessment acts, allegedly on the grounds of a violation of law due to error regarding the legal conditions upon which the application of Item 28.1 of the General Table of Stamp Duty (GTSD) depends;

- Reimbursement of the amount of € 17,752.46 paid unduly;

- Condemnation of the tax authority to payment of compensatory interest, pursuant to article 43, no. 1, of the General Tax Law.

With the petition, 42 documents were attached.

As the Claimant opted for non-appointment of an arbitrator, pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the LRAT, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Board appointed Dr. Carla Castelo Trindade as arbitrator of the sole arbitral tribunal, who communicated acceptance of the appointment within the applicable time limit.

The parties were notified of this appointment, and no request for challenge of the appointment as arbitrator was submitted by Dr. Carla Castelo Trindade.

Thus, in accordance with paragraph c) of no. 1 of article 11 of the LRAT, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 27 April 2017.

On 1 June 2017, the Tax and Customs Authority (hereinafter "Respondent") filed a reply in which it defended itself only by exception, having alleged the tardiness of the request for constitution of the arbitral tribunal and total lack of merit of the request for arbitral ruling. The Respondent did not attach the administrative procedure file.

Given that in this case none of the purposes legally assigned to the meeting referred to in article 18 of the LRAT were present, and taking into account the position taken by the parties in their pleadings, pursuant to articles 16, paragraph c) and 19 of the LRAT, as well as the principles of procedural economy and prohibition of useless acts, the holding of this meeting was dispensed with, and the parties were notified to submit arguments.

The Claimant submitted arguments, in which it replied to the exception of lapse of rights invoked by the Respondent.

On 20 August 2017, an order was issued inviting the parties to provide clarifications and evidence regarding notification for payment of the first instalments of the Stamp Duty in question and regarding the dates of notification to the Claimant of the collection notes for the first, second and third instalments of the Stamp Duty. All pursuant to the principle of discovery of material truth, provided for in article 99 of the General Tax Law, applicable by virtue of article 29, no. 1, paragraph a) of the LRAT, as well as pursuant to the principle of contradiction, in the form of prohibition of surprise decisions and cooperation of the parties with the tribunal, provided for in paragraphs a) and f) of article 16 of the LRAT.

The Respondent replied on 11 September 2017, attaching documents relating to notification to the Claimant of the first instalments of the Stamp Duty.

The Claimant did not reply.

II. CASE MANAGEMENT

The arbitral tribunal was regularly constituted and is materially competent.

The proceedings do not suffer from nullities and no questions have been raised that may prevent the tribunal from determining the merits of the case.

The parties have legal standing and capacity and are legitimately parties.

All considered, it is necessary to decide.

III. FACTUAL MATTERS

III.1. PROVEN FACTS

With respect to factual matters, it is important to note first and foremost that the tribunal does not have to pronounce upon everything alleged by the parties; rather, it is incumbent on the tribunal to select the facts that matter for the decision and to distinguish the proven from the unproven. All in accordance with article 123, no. 2 of the Code of Tax Procedure and Tax Process and article 607, nos. 2, 3 and 4 of the Code of Civil Procedure, applicable by virtue of article 29, no. 1, paragraphs a) and e) of the LRAT. In this way, the facts relevant for the determination of the case are selected and delineated on the basis of their legal relevance, which is established in view of the various plausible solutions of the legal question(s) (cf. article 596 Code of Civil Procedure applicable by virtue of article 29, no. 1, paragraph e) of the LRAT).

Now, taking into account the positions assumed by the parties and the documentary evidence, the following facts with relevance for the decision are considered proven:

- The Claimant is the owner of a property located at … no. … at …, … no. … at …, Rua do … nos. …-…-…-…-…-…ª-…-…, …-… Lisbon, registered in the urban property register of the parish of …, municipality of Lisbon, under article …, currently corresponding to article … of the same parish, as a result of the presentation of Model I of the Property Tax of 12-05-2016.

- The property consists of four storeys, having a total of fifteen divisions capable of independent use (cf. Doc. 41 of the request for constitution of the arbitral tribunal).

- The property is held in vertical ownership and has a tax property value of € 2,030,012.44 (two million, thirty thousand and twelve euros and forty-four cents) (cf. Doc. 41 of the request for constitution of the arbitral tribunal).

- The storeys or divisions capable of independent use that make up the property are the following, with the uses indicated below:

| Storey/division | Use |
|---|---|
| Shop 3 | Warehouses and industrial activity |
| Shop 3A | Warehouses and industrial activity |
| Shop 50 | Housing |
| Shop 52 | Housing |
| Shop 54 | Housing |
| Shop 56 | Housing |
| Shop 58 | Warehouses and industrial activity |
| Shop 63 | Commerce |
| Shop 64 | Commerce |
| Shop 65 | Commerce |
| Ground floor D 62 | Housing |
| Ground floor E 62 | Housing |
| Ground floor F 62 | Housing |
| Ground floor 1 | Housing |

- Thus, there are eight divisions capable of independent use for residential purposes, and with relevance for the determination of the case.

- In accordance with the assessment carried out, each of the divisions capable of independent use for residential purposes was assigned the following tax property value (cf. Doc. 41 of the Request for Constitution of Arbitral Tribunal):

| Storey/division | TPV |
|---|---|
| Shop 50 | € 36,482.80 |
| Shop 52 | € 42,771.18 |
| Shop 54 | € 39,938.85 |
| Shop 56 | € 21,830.38 |
| Ground floor D 62 | € 60,532.00 |
| Ground floor E 62 | € 79,744.78 |
| Ground floor F 62 | € 80,450.30 |
| Ground floor 1 | € 1,391,152.15 |

- In 2015 the Respondent assessed Stamp Duty provided for in Item 28.1 of the GTSD, at the rate of 1%, on the tax property value of each division of the property capable of independent use and allocated to housing.

- The Claimant was notified to proceed with the payment of the first instalments of the Stamp Duty assessment act, relating to the year 2015, carried out under item no. 28.1 of the General Table of Stamp Duty, corresponding to the following amounts and collection notes:

| Storey/division | Collection note (1st Instalment) | Amount to pay |
|---|---|---|
| Shop 50 | 2016 … | € 182.42 |
| Shop 52 | 2016 … | € 213.86 |
| Shop 54 | 2016 … | € 199.70 |
| Shop 56 | 2016 … (Single Instalment) | € 218.30 |
| Ground floor D 62 | 2016 … | € 201.78 |
| Ground floor E 62 | 2016 … | € 265.83 |
| Ground floor F 62 | 2016 … | € 268.18 |
| Ground floor 1 | 2016 … | € 4,637.18 |
| Total: | | € 4,541.08 |

(as per documents submitted by the Respondent on 11-09-2017)

- The notifications were carried out electronically through the ViaCTT service on 08-04-2017.

- The Claimant accessed the electronic mailbox of the ViaCTT service only on 21-06-2017.

- The Claimant was cited for tax enforcement proceedings nos. …2016…; …2016…; …2016…; …2016…; …2016…; …2016…; …2016… (relating to the first instalment identified above) and …2016… (relating to the single instalment identified above), with unique collection documents being issued for full voluntary payment of the tax in tax enforcement proceedings.

- The Claimant proceeded with voluntary payment in tax enforcement proceedings of the first instalments identified above on 23-06-2016 (Cf. Docs. 22 to 29 of the Request for Constitution of Arbitral Tribunal).

- The Claimant proceeded with voluntary payment in tax enforcement proceedings of the single instalment identified above, relating to Shop 56, on 29-07-2016 (Cf. Doc. 34 of the Request for Constitution of the Arbitral Tribunal).

- The Claimant was notified to proceed with the payment of the second instalments of the Stamp Duty assessment act, relating to the year 2015, carried out under item no. 28.1 of the General Table of Stamp Duty, corresponding to the following amounts and collection notes:

| Storey/division | Collection note (2nd Instalment) | Amount to pay |
|---|---|---|
| Shop 50 | 2016 … | € 182.41 |
| Shop 52 | 2016 … | € 213.85 |
| Shop 54 | 2016 … | € 199.69 |
| Shop 56 | N/A | N/A |
| Ground floor D 62 | 2016 … | € 201.77 |
| Ground floor E 62 | 2016 … | € 265.81 |
| Ground floor F 62 | 2016 … | € 268.16 |
| Ground floor 1 | 2016 … | € 4,637.17 |
| Total: | | € 4,541.08 |

(as per Docs. 10 to 16 of the Request for Constitution of Arbitral Tribunal)

- On 28-07-2016 the Claimant proceeded with payment of the second instalments identified above relating to the divisions Ground floor D62; Ground floor E62, Ground floor F62 and Ground floor 1 (cf. Docs. 30, 31, 32, 33 of the Request for Constitution of the Arbitral Tribunal).

- On 14-11-2016 the Claimant proceeded with payment of the second instalments identified above relating to the divisions Shop 50, Shop 52 and Shop 54 (cf. Docs. 35, 36 and 38 of the Request for Constitution of Arbitral Tribunal).

- The Claimant was also notified to proceed with the payment of the third instalments of the Stamp Duty assessment act, relating to the year 2015, carried out under item no. 28.1 of the General Table of Stamp Duty, corresponding to the following amounts and collection notes:

| Storey/division | Collection note (3rd Instalment) | Amount to pay |
|---|---|---|
| Shop 50 | N/A | N/A |
| Shop 52 | N/A | N/A |
| Shop 54 | N/A | N/A |
| Shop 56 | N/A | N/A |
| Ground floor D 62 | 2016 … | € 201.77 |
| Ground floor E 62 | 2016 … | € 265.81 |
| Ground floor F 62 | 2016 … | € 268.16 |
| Ground floor 1 | 2016 … | € 4,637.17 |
| Total: | | € 4,541.08 |

(as per Docs. 17 to 20 of the Request for Constitution of Arbitral Tribunal)

- On 14-11-2017 the Claimant proceeded with payment of the third instalments identified above (cf. Docs. 37, 39, 40 and 41 of the Request for Constitution of the Arbitral Tribunal).

III.2. UNPROVEN FACTS

As mentioned, with respect to the factual matters taken as established, the tribunal does not have to pronounce upon everything alleged by the parties; rather, it is incumbent on the tribunal to select the facts that matter for the decision and to discriminate the proven from the unproven, as provided for in article 123, no. 2 of the Code of Tax Procedure and Tax Process applicable by virtue of article 29, no. 1, paragraphs a) and e) of the LRAT. In this way, the facts relevant for the determination of the case were, as mentioned above, selected and delineated on the basis of their legal relevance, and there is no other factual matter alleged that is relevant for the correct resolution of the procedural dispute.

IV. LEGAL MATTERS

In view of the positions of the parties assumed in the pleadings presented, the questions to be resolved are, in the following order:

- Lapse of the right of action of the Claimant (exception invoked by the Respondent in its Reply);

- Legality of the Stamp Duty assessment acts relating to the year 2015.

On the lapse of the right of action of the Claimant

The Respondent invoked, in its reply, the peremptory exception of lapse of the right of action of the Claimant with respect to the Stamp Duty assessment acts relating to the year 2015, "since the 90-day period following voluntary payment of the first instalments was far exceeded".

The Respondent understands that, given that the deadline for payment of the first instalments of the Stamp Duty identified above ended on 30-04-2016, and the Claimant did not proceed with payment of the same, pursuant to article 120, no. 4 of the Property Tax Code, this implied the immediate maturity of the remaining instalments. In these terms, the request for constitution of the arbitral tribunal, because presented within 90 days from 30-11-2016 (end of the deadline for payment of the second and third instalments, depending on whether the collection of the Stamp Duty was divided into two or three instalments) would be untimely, since such instalments would have already been due.

Such understanding might even prevail if (i) the Respondent had, in the tax enforcement proceedings, promoted the coercive collection of the entire tax and (ii) the Claimant had not, nonetheless, continued to be notified for payment of the remaining instalments.

Now, in the tax enforcement proceedings, the Respondent demanded only payment of the first instalments of the assessment acts identified above (Cf. Docs. 1 to 7 of the Request for Constitution of Arbitral Tribunal). The Claimant then proceeded with full voluntary payment, pursuant to the respective Unique Collection Documents. The Respondent did not require of the Claimant the payment of the total tax, in accordance with the immediate maturity of the instalments.

Furthermore, subsequently, the Claimant was again notified to proceed with payment of the second instalments and even the third (depending on whether the collection of the tax was divided into two or three instalments in accordance with legal provisions), as evidenced by the documents attached to the request for constitution of the arbitral tribunal identified above.

Thus, contrary to what the Respondent alleges in article 20 of its Reply, the request for constitution of the arbitral tribunal cannot be considered untimely.

In fact, since the assessment acts are individual, although for purposes of collection they are divided into two or three instalments (which, in any case, the Respondent does not contest) and the failure to contest the first instalment does not imply the preclusion of the right to contest the second or third, given that the Claimant proceeded with timely payment of the second and third instalments (in the cases where the latter existed), the deadline for constitution of the arbitral tribunal is counted from the end of the deadline for voluntary payment of the last instalment that is due. This understanding has, moreover, been widely followed both by the jurisprudence of the CAAD and by that of the administrative and tax courts.

However, this understanding applied to the concrete case will, nonetheless, lead to the partial acceptance of the exception of lapse invoked by the Respondent with respect to one of the assessment acts.

All because, pursuant to article 120, no. 1, paragraph a) of the Property Tax Code, by virtue of article 44, no. 5 of the Stamp Duty Code, the collection of Stamp Duty assessed with respect to the storey/division capable of independent use designated Shop 56, which had a TPV of € 21,830.38, from which resulted a tax payable of € 218.30 (i.e., below € 250.00), is carried out through a single instalment, with a voluntary payment deadline of 30 April.

Now, the Claimant did not proceed with voluntary payment of this instalment, and tax enforcement proceedings were instituted against it, as seen above, within which a unique collection document was issued for full payment, with a payment deadline of 31-07-2016. The Claimant proceeded with the respective payment on 29-07-2016. The collection of this assessment act was thus carried out through a single instalment, so that, with respect to this assessment act, the lapse of the right of action of the Claimant occurred, pursuant to the combined provisions of articles 10, no. 1, paragraph a) of the LRAT and 102, no. 1 of the Code of Tax Procedure and Tax Process.

For the foregoing, the exception of lapse invoked by the Respondent is ruled partially well-founded, with respect to the Stamp Duty assessment act relating to the year 2015, in the amount of € 218.30 which related to the storey/division capable of independent use designated Shop 56, whose collection was carried out through the document with no. 2016….

In the remainder, the exception of lapse is ruled without merit, for the reasons indicated above.

On the legality of the Stamp Duty assessment acts

Given the partial acceptance of the exception of lapse invoked, the examination of legality relates only to the Stamp Duty assessment acts relating to the year 2015 which related to the following storeys/divisions capable of independent use: Shop 50, Shop 52, Shop 54, Ground floor D62, Ground floor E62, Ground floor F62 and Ground floor 1, identified above.

Now, the Claimant understands that the Stamp Duty assessment acts which related to the storeys/divisions capable of independent use of the property described above are illegal, due to a violation of law, due to the erroneous interpretation and application of Item 28.1 of the GTSD, with the Respondent fictitiously assuming that the property was held in horizontal ownership for purposes of taxation of the residential portion of the property.

Thus, it should first be noted that it was Law no. 55-A, of 29 October that amended article 1 of the Stamp Duty Code, adding to the GTSD Item 28, which provides that:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value recorded in the register, pursuant to the Property Tax Code, is equal to or greater than € 1,000,000 – on the tax property value used for purposes of the Property Tax Code:

28-1 – For property with residential use – 1%;

28-2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, recorded in the list approved by ordinance of the Minister of Finance – 7.5%."

Thus, with the entry into force of Item 28.1, properties with residential use with a tax property value equal to or greater than € 1,000,000.00 became subject to Stamp Duty, at the rate of 1%.

It may be said, then, that there are three conditions of applicability of Item 28.1 of the GTSD, namely (1) that the property is a property; (2) that this property has residential use; and (3) that the taxable property value (TPV) recorded in the register and used for purposes of calculation of the Property Tax Code is equal to or greater than € 1,000,000.00.

For the fulfilment of the first two conditions, it is important to pay attention to the concept of property with residential use.

Now, the Stamp Duty Code does not define the concept of "property", nor does it define "property with residential use". Indeed, it is article 1, no. 6 itself of the Stamp Duty Code that determines that "For purposes of this Code, the concept of property is that defined in the Property Tax Code".

According to article 2, no. 1 of the Property Tax Code, a property is:

"any portion of territory, comprising waters, plantations, buildings and constructions of any nature incorporated or situated thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions in the circumstances above mentioned, endowed with economic autonomy in relation to the land on which they are situated, although located on a portion of territory that constitutes an integral part of other assets or does not have a property character."

In turn, those with residential use shall be urban properties "(…) which have as their normal destination each of these purposes", pursuant to the provisions of articles 4 and 6, no. 2, of the Property Tax Code.

In the concrete case, we are faced with an urban property held in total or vertical ownership. Taking into account the concept of property established by the legislator – cited above – there is no doubt that the property now under analysis, owned by the Claimant, is literally covered by item 28.1 of the GTSD.

Notwithstanding, it is a property composed of storeys or divisions capable of independent use, also with residential use, as emerges from the Urban Property Records, attached as Doc. 1 to the Request for Constitution of Arbitral Tribunal.

It should be noted, however, that the law does not distinguish, at any point, between property held in vertical ownership and property held in horizontal ownership. In fact, article 2, no. 4 of the Property Tax Code merely provides that "for purposes of this tax, each autonomous fraction, under a regime of horizontal ownership, is considered as constituting a property". What the provision establishes is that autonomous fractions are considered as properties. This does not, however, imply that only autonomous fractions are to be considered as residential properties whose tax property value, for purposes of Item 28.1, is equal to or greater than € 1,000,000.00.

It will therefore be necessary to determine whether the relevant TPV in this case, for purposes of applicability of Item 28.1 of the GTSD, shall be the "global" TPV of the property, or the TPV of each of the storeys or divisions capable of independent use, individually considered.

Now, as emerges from Item 28.1 of the GTSD itself and also from no. 1 of article 6 of Law no. 55-A/2012, of 29 October, Stamp Duty shall apply to the TPV used for purposes of the Property Tax Code.

Articles 38 and following of the Property Tax Code define the method of determining the TPV for purposes of that tax, in accordance with the provisions of no. 1 of article 7 of that same Code.

Furthermore, no. 3 of article 12 of the Property Tax Code provides that:

"Each storey or part of a property capable of independent use is considered separately in the property register, which also discriminates the respective tax property value."

Thus, for purposes of calculation of Property Tax, each part of the property capable of independent use is assigned an individual TPV, being discriminated in the property register of the property in total or vertical ownership. It is therefore on that TPV separately considered that the Property Tax will be calculated and assessed, that is, in relation to each storey, part or division of the property with independent use.

In this respect, it should be noted what was decided in the context of arbitral proceedings no. 194/2014-T, where it was stated that:

"the Property Tax Code establishes, both with respect to the property register and discrimination of the respective tax property value, and with respect to the assessment of the tax, the autonomization of parts of urban property capable of independent use and the segregation/individualization of the TPV relating to each storey or part of property capable of independent use.

Thus, each property, in the terms conceptually defined by article 2 of the Property Tax Code, corresponds to a single article in the register (…) but, according to no. 3 of article 12 of the same Code, relating to the concept of property register (…) 'each storey or part of property capable of independent use is considered separately in the property register, which also discriminates the respective tax property value' (…).

That is, the rule is autonomization, the characterization as a "property" of each part of a building, provided that it is functionally and economically independent, capable of independent use, in accordance with the concept of property defined in no. 1 of article 2 of the Property Tax Code (…)".

In sum, for purposes of Property Tax, the TPV to be considered shall be the TPV of each of the storeys, parts or divisions of the property capable of independent use.

And thus, if Item 28 of the GTSD itself refers to the terms of the Property Tax Code, the same rules and principles shall necessarily be applicable in the context of Stamp Duty. The same conclusion would be reached by virtue of the provisions of no. 2 of article 67 of the Stamp Duty Code, pursuant to which "To matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the Property Tax Code apply, subsidiarily."

Thus, if pursuant to article 11 of the General Tax Law the interpretation of tax laws should be effected taking into account the general principles of interpretation; and if one should proceed from the assumption that the legislator "established the most correct solutions and knew how to express his intention in adequate terms" (cf. article 9 of the Civil Code), only the storeys or divisions capable of independent use with residential use, whose TPV is below € 1,000,000.00, are covered by the rule of applicability of Item 28.1 of the GTSD.

The material truth is thus the determining criterion of taxable capacity, and the mere legal-formal reality of the property is irrelevant. Indeed, as stated above, the legislator did not distinguish between properties held in horizontal ownership and properties held in vertical ownership. Consequently, the Respondent cannot distinguish where the legislator itself saw fit not to do so, under penalty of violating the principle of tax legality, provided for in article 103 of the Constitution of the Portuguese Republic, and also the principles of tax justice, equality and proportionality.

Recalling what was stated by the arbitral tribunal constituted in the context of proceedings no. 50/2013-T:

"(…) considering that the registration in the property register of properties in vertical ownership, consisting of different parts, storeys or divisions with independent use, pursuant to the Property Tax Code, follows the same registration rules as properties consisting of horizontal ownership, and the respective Property Tax, as well as the new Stamp Duty, is assessed individually in relation to each of the parts, there is no doubt whatsoever that the legal criterion for defining the applicability of the new tax must be the same. (…)

Therefore, if the legal criterion requires 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 has clearly established the criterion, which must be unique and unequivocal, for defining the rule of applicability of the new tax.

Thus, the new stamp duty tax would apply only if one of the parts, storeys or divisions with independent use presented a TPV greater than € 1,000,000.00.

The criterion sought by the Tax Authority, of considering the value of the sum of the TPVs attributed to the parts, storeys or divisions with independent use, with the argument that the property is not held under a regime of horizontal ownership, finds no legal support and is contrary to the criterion applicable in the context of the Property Tax Code and, by referral, in the context of Stamp Duty.

(…)

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

The tax legislator (…) does not make any distinction as to the regime of properties held in horizontal or vertical ownership; if the property were held under a regime of horizontal ownership, none of its residential fractions would be subject to the applicability of the new tax, so the Tax Authority cannot treat equal situations differently."

The interpretation being defended here – that the TPV relevant for purposes of Item 28.1 of the GTSD is that which is attributed to each of the storeys or divisions capable of independent use and not the sum of all those values – is the interpretation that results, moreover, from the ratio of Item 28.1 and, consequently, from the reasons that determined the taxation, under Stamp Duty, of urban residential properties with a value equal to or greater than € 1,000,000.00.

Indeed, in the explanatory memorandum of bill no. 96/XII (2nd) which gave rise to Law no. 55-A/2012, of 29/10 which in turn introduced item 28 to the GTSD, it is stated that:

"these measures are fundamental to strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary for compliance with the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices is made by all and not just by those who live on the income of their work. In accordance with this objective, this decree expands the taxation of capital and property, embracing equitably a broad set of sectors of Portuguese society".

In turn, in the presentation and discussion of the said bill in Parliament, in his intervention, the Secretary of State for Tax Affairs stated the following:

"The Government has chosen as a priority principle of its tax policy social equity. This is even more important in times of austerity as a way to ensure fair distribution of fiscal effort.

In the demanding period that the country is going through, during which it is obliged to comply with the economic and financial assistance program, it becomes even more pressing to assert the principle of equity. It cannot always be the same people – the employees and retirees – bearing the tax burdens.

For the tax system to be more just, it is critical to promote the expansion of the tax base, requiring an increased effort from taxpayers with higher incomes and thereby protecting Portuguese families with lower incomes.

For the tax system to promote more equality, it is fundamental that the budgetary consolidation effort is shared by all types of incomes, covering with special emphasis incomes of capital and high-value properties. This matter, it should be recalled, was extensively addressed in the Constitutional Court judgment.

Finally, for the tax system to be more equitable, it is crucial that everyone be called upon to contribute according to their taxable capacity, conferring on the tax administration reinforced powers to control and monitor situations of tax fraud and evasion.

In this sense the Government presents today a set of measures that effectively strengthen a fair and equitable distribution of the adjustment effort across a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties with a value exceeding 1 million euros; the increase in taxation on capital income and capital gains and the reinforcement of rules to combat tax fraud and evasion.

First, the Government proposes the creation of a special tax on urban residential properties of higher value. It is the first time in Portugal that special taxation has been created on high-value properties intended for housing. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros. With the creation of this additional tax, the fiscal effort required of these owners will be significantly increased in 2012 and 2013".

In its interventions in the discussion of such a bill, deputies Pedro Filipe Soares of the Left Bloc and Paulo Sá of the Communist Party speak about the taxation of luxury real estate property, even making references to previous bills on the same subject that were not approved." (highlighted)

The legislative intent was thus to create a tax that would apply to, in the words of the Secretary of State, "houses with a value equal to or greater than 1 million euros".

Thus, only the storeys, parts or divisions of the property with independent use, with a tax property value equal to or greater than € 1,000,000.00, may have Item 28 of the GTSD applied to them.

Now, in the concrete case, only one of the storeys/divisions capable of independent use has a tax property value greater than € 1,000,000.00.

In fact, the division identified as Ground floor 1 was assigned a TPV of 1,391,152.15 (one million, three hundred and ninety-one thousand one hundred and fifty-two euros and fifteen cents), as per the property records attached to the file.

Pursuant to the exposition above, the application of Item 28 of the GTSD to this division was carried out in accordance with the applicable legal norms, so that the Claimant's request is only partially without merit in the part relating to the Stamp Duty assessment act which related to this division, to which correspond the collection notes: 2016 …, 2016 … and 2016 ….

With respect to the remaining storeys/divisions of the property with independent use and residential purpose (with the exception of the division identified as Shop 56 whose examination was prejudiced by the acceptance of the exception of lapse, pursuant to the exposition above), to the extent that the TPV of all of them is below € 1,000,000.00 (cf. as results from the documents attached to the file), it is concluded that the legal condition of applicability of the Stamp Duty provided for in Item 28 of the GTSD is not met. With respect to these, there is thus a violation of law, and the taxation in question is undue, demonstrating the illegality of the Stamp Duty assessment acts in question.

In summary, it is concluded that the Stamp Duty assessments as carried out are illegal due to a violation of law, due to an error regarding the legal conditions, which justifies their annulment pursuant to article 135 of the Administrative Procedure Code, applicable pursuant to article 29, no. 1, paragraph d) of the Legal Regime for Arbitration in Tax Matters and 2, paragraph c) of the General Tax Law.

The request for arbitral ruling thus partially succeeds.

On the restitution of the tax unduly paid and the payment of compensatory interest

The Claimant further requests that restitution of the tax unduly paid be determined and the payment of compensatory interest be determined, pursuant to article 43, no. 1 of the General Tax Law, with respect to the amount of € 17,752.46, relating to the instalments already paid.

In accordance with the provisions of paragraph b) of article 24 of the Legal Regime for Arbitration in Tax Matters, the arbitral decision on the merits of the claim for which no appeal or challenge may be available binds the tax administration from the end of the period provided for an appeal or challenge, with the latter being obliged to, in the exact terms of the acceptance of the arbitral decision in favour of the taxpayer and up to the end of the period provided for the voluntary execution of judgments of the tax courts, "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is consistent with what is provided in article 100 of the General Tax Law, applicable by virtue of the provision in paragraph a) of no. 1 of article 29 of the Legal Regime for Arbitration in Tax Matters[1].

Now, the restoration of the situation that would have existed if the tax acts which are the subject of this arbitral decision had not been performed necessarily implies the restitution of the tax unduly paid. In these terms, the Claimant's request partially succeeds, with respect to the tax acts whose illegality was declared herein, i.e., excluding the Stamp Duty assessment acts relating to the divisions designated Shop 56, to which correspond the collection note 2016…, in the amount of € 218.30, and Ground floor 1, to which correspond the collection notes 2016…, 2016… and 2016….

In turn, pursuant to no. 5 of article 24 of the Legal Regime for Arbitration in Tax Matters, when it states that "interest is due, regardless of its nature, pursuant to the terms provided in the General Tax Law and the Code of Tax Procedure and Tax Process", it establishes nothing more than the recognition of the right to compensatory interest in the arbitral proceedings.

Legal doctrine has also held that it falls within the scope of the competences of arbitral tribunals to determine the effects of their decisions, in the same terms provided for judicial challenge, namely, with respect to condemnation to pay compensatory interest or condemnation for indemnification for improper guarantee (Cf. Carla Castelo Trindade (2016), "Legal Regime for Arbitration in Tax Matters Annotated", 121 and Jorge Lopes de Sousa (2013), "Commentary on the Legal Regime for Arbitration in Tax Matters", 116).

This was also the understanding of the arbitral tribunal constituted in the context of proceedings no. 66/2013-T, where requests for reimbursement and condemnation to payment of compensatory interest were also at issue. That tribunal concluded that:

"Thus, similarly to what occurs in the tax courts in the judicial challenge process, this Tribunal is competent to consider the requests for reimbursement of the amount paid and for payment of compensatory interest.

In the case at hand, it is clear that these requests must succeed, since the assessments are annulled and the error from which they suffer is imputable to the Tax Administration, so the right to compensatory interest and (sic) recognized by article 43, no. 1 of the General Tax Law."

The request for arbitral ruling with respect to the right to compensatory interest concerns, then, the first, second and third instalments of the Stamp Duty assessment acts paid as of the date of filing the request in the CAAD information system.

Indeed, it is so to the extent that the illegality of the tax assessment act implies the illegality of all collection notes relating to all instalments of Stamp Duty.

In conclusion, in the case at hand, it is manifest that, following the declaration of illegality of the Stamp Duty assessment acts, compensatory interest is due, since the illegality of those acts is imputable to the tax administration, which, on its own initiative, performed them without legal support.

Legal doctrine and jurisprudence have questioned whether the legislator, in using the term error and not defect in no. 1 of article 43 of the General Tax Law where it recognizes the right to compensatory interest, intended to restrict this right to the defects of the act annulled with respect to which that designation is appropriate, that is, error regarding factual conditions and error regarding legal conditions, excluding formal defects such as incompetence or violation of procedural rights.

This is how the Supreme Administrative Court has understood it, stating namely in the judgment of 3-02-2010, delivered in appeal no. 01091/09 that when "the defect leading to the annulment of the act relates to a rule governing the activity of the Administration, the latter reveals nothing about the tax legal relationship and the character of the improper payment, in the face of the substantive tax norms. In these cases, the annulment of the act does not imply that there has been a violation of the substantive legal situation and, consequently, from the annulment one cannot conclude that there was a prejudice that deserves reparation."

Similarly, this superior court understood in the judgment of 22-05-2013, delivered in the context of proceedings no. 0245/13, that the "annulment of a tax assessment act based on violation of the principle of participation, because the Tax Administration did not take into account the new elements supplied by the taxpayer in the exercise of the right to a hearing, does not imply the existence of any error regarding the factual or legal conditions of the assessment act, so there is no right to compensatory interest in favour of the taxpayer, provided for in that no. 1 of article 43 of the General Tax Law".

The jurisprudence of the Supreme Administrative Court has thus understood that the right to compensatory interest does not arise when the invalid act due to a formal defect could still be replaced by a valid act that complies with all legal formalities, that is, when the tax paid could still be legally required, requiring that there be an error regarding factual or legal conditions.

In our case, we are faced with violation of substantive law, embodied in an error regarding legal conditions, imputable to the tax administration.

Consequently, there is no doubt that the Claimant has the right to compensatory interest, pursuant to article 43, no. 1 of the General Tax Law and article 61 of the Code of Tax Procedure and Tax Process, calculated on the amount it paid unduly on the date of filing the request for constitution of the arbitral tribunal, at the rate of legal interest provided for in article 559 of the Civil Code and, currently, in Ordinance no. 291/2003, of 8 April (articles 43, no. 4, and 35, no. 10 of the General Tax Law).

It should be noted, however, that in view of the partial acceptance of the request, compensatory interest will not be calculated on € 17,752.46 of the Claimant, but rather on the amounts paid unduly, whose unduly payment was declared by this tribunal, i.e., excluding the amounts paid for the Stamp Duty assessment acts relating to the divisions designated Shop 56, to which correspond the collection note 2016…, in the amount of € 218.30, and Ground floor 1, to which correspond the collection notes 2016…, 2016… and 2016…, in the total amount of € 13,911.52.

V. DECISION

For these reasons, this arbitral tribunal decides:

a) To rule partially well-founded the exception of lapse of the right of action with respect to the Stamp Duty assessment act which related to the division with independent use designated Shop 56, to which correspond the collection note 2016…;

b) To rule partially without merit the request for arbitral ruling in the part relating to the Stamp Duty assessment act which related to the division with independent use designated Ground floor 1, to which correspond the collection notes 2016…, 2016… and 2016…;

c) To rule well-founded the request for arbitral ruling with respect to the remaining assessment acts challenged;

d) To declare the illegality of the assessment acts to which correspond the collection notes nos. 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, and 2016…;

e) To annul the Stamp Duty assessments referred to above in d);

f) To condemn the Tax and Customs Authority to pay to the Claimant compensatory interest, pursuant to article 43, no. 1 of the General Tax Law and article 61 of the Code of Tax Procedure and Tax Process, calculated on the amount it paid unduly up to the date of filing the request for constitution of the arbitral tribunal.

VI. COSTS

The arbitration tax is set at € 1,224.00 pursuant to Table I of the Regulations for Costs of Tax Arbitration Proceedings, to be paid by the Respondent and the Claimant, since the request was only partially well-founded, in the proportion of 22% - € 3,840.94 - with 78% - 13,911.52 € - of the amount in dispute remaining in effect, respectively, pursuant to articles 12, no. 2, and 22, no. 4, both of the Legal Regime for Arbitration in Tax Matters, and article 4, no. 4 of the cited Regulation.

Notify.

Lisbon, 9 October 2017

The Arbitrator

(Carla Castelo Trindade)

Text prepared by computer, pursuant to article 138, no. 5 of the Code of Civil Procedure, applicable by referral of article 29, no. 1, paragraph e) of the Legal Regime for Arbitration in Tax Matters.

The preparation of this decision follows the old spelling conventions.

[1] Which establishes that "the tax administration is obliged, in the event of total or partial acceptance of a complaint, judicial challenge or appeal in favour of the taxpayer, to the immediate and complete restoration of the legality of the act or situation which is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".