Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
I. REPORT
1. On 19 March 2018, the commercial company A…, Unipessoal, Lda., NIPC…, with registered office at Rua …, …, Lisbon (hereinafter, Claimant), filed a petition for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2, no. 1, subsection a), and 10, nos. 1, subsection a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking a declaration of illegality and annulment of Stamp Tax assessments [item 28.1 of the General Table of Stamp Tax (hereinafter, TGIS)] relating to the year 2014 and concerning an urban property, in vertical ownership with floors or divisions capable of independent use, registered under article … in the urban land registry of the parish of …, municipality and district of Lisbon, in the total amount of € 10,679.60.
The Claimant attached 16 (sixteen) documents and did not request the production of any other evidence.
The Respondent is AT – Tax and Customs Authority (hereinafter, Respondent or AT).
1.1. In essence and in brief summary, the Claimant alleged the following:
The payment notifications for the tax in question do not contain the minimum elements of any tax assessment act, as they lack: the indication of the authority that performed it and the mention of the delegation or subdelegation of powers, where it exists; the enumeration of the facts or acts that gave rise to it; the minimum substantiation of the act; the content or sense of the decision and its respective object; and, the signature of the author of the act.
Such elements constitute the minimum set of mentions that must accompany administrative acts and should be stated in a clear, precise and complete manner, so as to be able to determine unequivocally the sense and scope of the act and its legal effects, under penalty that, in their absence, the tax act should be considered null due to defective form, invalidity which is invoked.
The property record of the property in question, which is not constituted in horizontal property ownership, identifies 14 fractions with residential use and with independent use which currently total a TPN of € 1,067,960.00.
The Stamp Tax assessments in dispute concern the TPN of the various fractions/divisions with independent use that compose that property, which was determined separately and without any exceeding the value of € 1,000,000.00.
In assessing the criterion that should guide the determination of the relevant value for the incidence of Stamp Tax on properties in vertical ownership, account should be taken of the fact that the registration in the registry of this type of property, consisting of different parts, floors or divisions with independent use, in accordance with the CIMI, follows the same registration rules as property constituted in horizontal ownership, and the respective IMI, as well as Stamp Tax, are levied individually in relation to each part, whereby there is no doubt that the legal criterion for defining the incidence of Item 28.1 of the TGIS must be the same.
This is confirmed by the very fact that the Tax Authority itself, in issuing the disputed assessments, clearly discriminates the TPN of each fraction, subsequently applying the tax rate corresponding to Item 28.1 to the sum of all TPN relating to the fractions that compose the property. And it proceeds thus because 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.
In this measure, Item 28.1 of the TGIS shall only apply if any of the parts, floors or divisions with independent use has a TPN greater than € 1,000,000.00, which does not occur in the present case.
The criterion followed by AT as being applicable finds no legal support and is contrary to the criterion applicable in the context of CIMI and, by extension, in the context of Stamp Tax. The law itself expressly establishes, in the final part of Item 28 of the TGIS, that Stamp Tax applies to urban properties with a value equal to or greater than € 1,000,000.00, "on the tax-bearing value used for IMI purposes".
Thus, the adoption of the criterion defended by AT violates the principles of legality and tax equality and, likewise, the principle of the prevalence of substance over legal form.
In that measure, the contested tax acts should be annulled as they are tainted by error in the legal assumptions, since the TPN relating to each of the floors or divisions capable of independent use, with residential use, that constitute the said property, is less than € 1,000,000.00.
The AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality, provided for in article 103, no. 2, of the Constitution, and also the principles of justice, equality and tax proportionality.
The application of the criterion adopted by AT would lead to the unacceptable situation that, if the property in question were in a horizontal ownership regime, none of its residential fractions would be subject to the tax rate corresponding to Item 28 of the TGIS; therefore, the disputed tax assessments amount to arbitrary and illegal discrimination.
The Claimant concludes its initial pleading by petitioning the following:
"In these terms and in all other respects of law, a declaration of illegality of the Stamp Tax assessment notices relating to the fiscal year 2014 – 1st, 2nd and 3rd installments, which set a tax in the amount of € 10,679.60 (ten thousand six hundred and seventy-nine euros and sixty cents), should be issued."
2. The petition for constitution of an arbitral tribunal was accepted and automatically notified to AT on 23 March 2018.
3. The Claimant did not appoint an arbitrator, whereby, pursuant to the provisions of no. 1 of article 6 and subsection a) of no. 1 of article 11 of the RJAT, the President of the CAAD Deontological Council designated the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.
4. On 10 May 2018, the parties were duly notified of such designation, and neither manifested the intention to refuse the arbitrator's appointment, pursuant to the combined provisions of article 11, no. 1, subsections b) and c), of the RJAT and articles 6 and 7 of the CAAD Deontological Code.
5. Thus, in accordance with the provision of subsection c) of no. 1 of article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 30 May 2018.
6. On 25 June 2018, the Respondent, duly notified for that purpose, filed its Reply in which it specifically opposed the arguments adduced by the Claimant and concluded that the present action was unmeritorious, with its consequent dismissal of the petition.
The Respondent attached no documents and did not request the production of any other evidence.
At the same occasion, the Respondent attached to the case file the respective administrative file (hereinafter, abbreviated as PA).
6.1. In essence and also briefly, it is important to extract the most relevant arguments on which the Respondent based its Reply:
With regard to the notifications of periodic taxes, issued by ordinary postal means pursuant to article 38, no. 4, of the CPPT, as in the case of the Stamp Tax assessments under analysis in this matter, although they are given the designation of notifications, they are not acts with the nature of the notifications provided for in article 36 of the CPPT, as they do not have underlying any procedural decision of AT, any act in tax matters, but rather are issued mechanically by the services.
From which it follows that the notifications sent to the Claimant are nothing more than the collection documents underlying the assessments processed, with the necessary adaptations, pursuant to the provisions of article 6 of Law no. 55-A/2012, of 29 October and article 119, no. 1, of the CIMI, applicable by virtue of article 46, no. 5, of the CIS.
The Stamp Tax assessment in question was made by the Tax Administration, taking into account the nature of the urban property, namely its divisions allocated to residential purposes, at the date of the taxable event, applying, with the necessary adaptations, the rules contained in the CIMI.
Now, since the disputed Stamp Tax assessments were issued in accordance with the information contained in the property record of the property in question, they are valid and do not suffer from any illegality.
At that time, the Claimant held full ownership of the urban property in question, valued in accordance with the CIMI, within the framework of the general valuation of urban properties, described as "property in full ownership with floors or divisions capable of independent use", with tax-bearing value (VP) exceeding € 1,000,000.00.
In compliance and pursuant to the provisions of article 6, no. 2, of Law no. 55-A/2012, of 29 October, which added Item 28 to the TGIS, with the amendment made by Law no. 83-C/2013, of 31 December and whose respective rule of incidence refers to urban properties, valued in accordance with the CIMI, with TPN equal to or exceeding € 1,000,000.00 and, pursuant to its no. 28.1, residential use, AT proceeded to notify the collection documents for payment of the assessment in question.
Although the assessment of Stamp Tax, in situations provided for in Item 28.1 of the TGIS, is processed in accordance with the rules of the CIMI, the truth is that the legislator reserves the aspects that require appropriate adaptations, namely those in which, as is the case of properties in full ownership, even though with floors or divisions capable of independent use (although IMI is levied in relation to each part capable of independent use), for purposes of Stamp Tax the property as a whole is relevant since the divisions capable of independent use are not considered as property, but only autonomous fractions under the horizontal ownership regime, as appears from no. 4 of article 2 of the CIMI.
Thus, the defect of violation of law, due to error as to the legal assumptions, should be judged unmeritorious, maintaining in the legal order the assessments challenged as they constitute a correct application of the law to the facts.
AT considers that the provision of Item 28.1 of the TGIS does not constitute any violation of the principle of equality, with no discrimination existing in the taxation of properties constituted in horizontal ownership and properties in full ownership with floors or divisions capable of independent use, or between properties with residential use and properties with other uses.
The norms of evaluation procedures, the norms on matricial registration and also the norms on the assessment of parts capable of independent use, do not allow one to affirm that there should be an equalization of the property in full ownership regime to the vertical ownership regime, because it would be illegal and unconstitutional.
These civil law regimes are different, and tax law respects them.
It is, thus, a consequence of the taxable event of Stamp Tax in Item 28.1 consisting in the ownership of urban properties whose tax-bearing value appearing in the registry, in accordance with the CIMI, is equal to or exceeding € 1,000,000.00, that the tax-bearing value relevant for purposes of the incidence of the tax is the total tax-bearing value of the urban property and not the tax-bearing value of each of the parts that comprise it, even when capable of independent use.
Thus, one cannot conclude by an alleged discrimination in violation of the principle of equality when we are dealing with distinct realities, valued by the legislator in a different manner.
Moreover, taxation in respect of Stamp Tax follows the criterion of adequacy, to the extent that it aims at the taxation of the wealth embodied in the ownership of property of high value, arising in a context of economic crisis that cannot be ignored.
Thus, the legitimacy of the option for this mechanism of obtaining revenue is found, which would only be censurable, in view of the principle of proportionality, if it resulted in manifestly indefensible, which is not the case, as such a measure is applicable indiscriminately to all holders of property with residential use of value exceeding € 1,000,000.00.
The Respondent concludes its pleading thus:
"In these terms, and in such other respects as Your Excellency shall duly supply,
The present petition for arbitral pronouncement should be judged unmeritorious, as not proven, maintaining in the legal order the contested tax assessment acts, thus acquitting the respondent entity of the petition."
7. On 25 June 2018, a ruling was issued dispensing with the holding of the meeting referred to in article 18 of the RJAT, as well as the submission of any pleadings and setting 28 September 2018 as the deadline for issuing the arbitral decision.
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II. CLARIFICATION
The Arbitral Tribunal was regularly constituted and is competent.
The proceedings do not suffer from any nullities.
The parties enjoy legal personality and capacity, are duly represented and are legally interested.
The cumulation of claims is admitted – multiple acts of Stamp Tax assessments are at issue, and a declaration of illegality and annulment of each of them is sought – as it is verified that the merits of the claims formulated by the Claimant depend essentially on the assessment of the same factual circumstances and on the interpretation and application of the same legal principles or rules (cf. article 3, no. 1, of the RJAT).
There are no other exceptions or preliminary issues that prevent consideration of the merits and which need to be decided.
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III. SUBSTANTIATION
III.1. FACTUAL MATTERS
§1. FACTS FOUND PROVEN
The following facts are found to be proven:
a) In the year 2014, the Claimant was the owner of the urban property, in full ownership with floors or divisions capable of independent use, located at Rua …, nos. … to …, parish of …, municipality and district of Lisbon, then registered in the respective land registry under article … (current article …). [cf. document no. 16 attached to the Initial Petition.]
b) In that same year, the said urban property was described in the respective land registry as a property in full ownership with floors or divisions capable of independent use, with total tax-bearing value of € 1,067,960.00. [cf. documents nos. 2 to 16 attached to the Initial Petition.]
c) The floors or divisions capable of independent use that make up that same urban property are all allocated to residential purposes and have their own tax-bearing values, determined in accordance with the IMI Code, which in 2014 were less than € 1,000,000.00. [cf. documents nos. 2 to 16 attached to the Initial Petition.]
d) On 20 March 2015, AT assessed Stamp Tax, relating to the year 2014 and concerning the floors or divisions with independent use that make up the said urban property, in the total amount of € 10,679.60. [cf. documents nos. 2 to 15 attached to the Initial Petition.]
e) The Stamp Tax assessments referred to in the previous proven fact resulted from the application of Item 28.1 of the TGIS to each and every one of the aforementioned floors or divisions with independent use. [cf. documents nos. 2 to 15 attached to the Initial Petition.]
f) Following the mentioned Stamp Tax assessments, the following collection documents were issued in the name of the Claimant [cf. PA attached to the case file]:
g) The Claimant did not make voluntary payment of the amounts indicated in the previous proven fact, relating to the aforementioned Stamp Tax assessments, whereby the respective debt certificates were issued and the corresponding tax enforcement proceedings were instituted, suspended by provision of security, which are listed below [cf. PA attached to the case file]:
h) On 28 August 2015, the Claimant filed a petition for administrative review against the indicated Stamp Tax assessments, which was registered under no. …2015… and was dismissed by an order of the Chief of the Finance Service of Lisbon …, issued on 13 December 2017. [cf. PA attached to the case file]
i) On 19 March 2018, the Claimant filed the petition for constitution of an arbitral tribunal that gave rise to the present proceedings. [cf. processing management system of CAAD]
j) On 12 April 2018, the Chief of the Finance Service of Lisbon … issued an order determining the institution of an ex officio review procedure, having as its object the mentioned Stamp Tax assessments, which was registered under no. …2018…, having as its basis "serious or notorious injustice" and to which underlies the following information/proposal of the respective services [cf. PA attached to the case file]:
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§2. FACTS NOT FOUND PROVEN
With relevance to the assessment and decision of the case, there are no facts that were not proven.
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§3. REASONING ON THE FACTUAL MATTERS
The conviction of the Tribunal was based on the facts alleged by the Parties, whose adherence to reality was not disputed, on the documents and on the administrative file attached to the case file.
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III.2. LEGAL MATTERS
The Claimant begins by arguing the existence of various formal defects which, according to it, taint the notifications of the disputed Stamp Tax assessments; specifically, the Claimant invokes the absence of the following elements which, as it contends, generate nullity: the indication of the author of the act; the enumeration of the facts that gave rise to it; the minimum substantiation of the act; the content or sense of the decision and its respective object; and, the signature of the author of the act.
Subsequently, the Claimant alleges that the contested tax acts suffer from various material defects, namely: on the one hand, the violation of the constitutional principles of legality, justice, equality and proportionality and, on the other hand, the violation of the tax incidence norm contained in item 28.1 of the TGIS.
Article 124 of the CPPT, applicable ex vi article 29, no. 1, subsection a), of the RJAT, provides that the tribunal must evaluate primarily the defects that lead to a declaration of non-existence or nullity of the impugned act and, subsequently, the defects that lead to its annulment (no. 1). Regarding the defects that constitute non-existence or nullity, the judge must primarily consider the defects whose substantiation determines, according to his prudent discretion, the most stable or effective protection of the offended interests. With respect to the defects that constitute annulability, the same criterion is established, which shall only not apply if the impugner has established a relationship of subsidiarity between the defects attributed to the act – which is permitted by art. 101 of the CPPT – because in that case priority is given to its intention (provided that the Public Prosecutor has not invoked other defects) (no. 2).
The rules emanating from this legal norm regarding the order of consideration of defects are intended to protect the interest of the impugner with maximum procedural efficiency, omitting pronouncement on defects invoked when the defect or defects already recognized prevent the renewal of the act with the same sense. In fact, the establishment of this order of consideration of defects presupposes that, considering a defect that leads to the legal elimination of the impugned act, the tribunal will cease to consider the remaining ones, as if the judge had to consider all the defects attributed to the act, it would be indifferent the order of consideration. This means, therefore, that the recognition of the existence of a defect implies that the consideration of the remaining defects is prejudiced.
The protection of the offended interests is more stable when the decision prevents the renewal of the act that lesions the interests of the impugner and will be more effective when it permits the interested party, in execution of the judgment, to obtain better satisfaction of its interests, offended by the annulled act.
Thus, if it were, for example, a defect of violation of law – such as a tax incidence norm – the annulment of the act would prevent the practice of a new tax act in which the same norm that based the previous act is applied, which would result in the impossibility of practicing a new act that imposes taxation on the impugner.
As can be inferred from what has been said, it is taking into account the execution of the annulling judgment and the influence that it has on it the type of defect that founded the annulment that justifies the establishment of an order of consideration of the defects of the impugned act.
Returning to the present case, as was noted above, the Claimant points out various formal defects to the notifications of the disputed tax assessments and various material defects to the assessment acts themselves.
However, if the said notifications actually suffer from some or even all of the formal defects that are attributed to them by the Claimant, with the consequent invalidity thereof, this will not affect the validity of the assessment acts notified, which will then be merely ineffective (article 36, no. 1, of the CPPT).
Thus, we shall then begin by considering the defects attributed by the Claimant to the impugned assessment acts, as these are the ones that provide more stable and effective protection of its interests, among which the Claimant did not establish a relationship of subsidiarity.
Among these, we shall begin with the consideration of the defect of violation of the tax incidence norm contained in item 28.1 of the TGIS, as if it is verified, it will definitively rule out the possibility of imposing on the Claimant a new tax act practiced under that same norm. Furthermore, it will only be relevant to proceed with the consideration of unconstitutionality issues (violation of the constitutional principles of legality, justice, equality and proportionality) if and to the extent that the interpretation and realization of the normative solution resulting from item 28.1 of the TGIS involves the subsumption to the respective legal provision of the situation sub judice.
Subsequently, if the interpretation and realization of the normative solution resulting from the mentioned item 28.1 does indeed involve subsumption to the respective legal provision of the situation sub judice, we shall proceed, to the extent that it is necessary in order to resolve the dispute, to the consideration of the noted unconstitutionality defects and, finally, of the formal defects invoked regarding the aforementioned notifications.
Thus being.
The essential question to be resolved on the merits of the dispute relates to determining whether, for purposes of the incidence of item 28.1 of the TGIS, in cases of a property in full ownership with floors or divisions capable of independent use, one should attend to the total value of the property resulting from the sum of the tax-bearing values of the various floors or divisions (with residential use), or whether one should instead give relevance to the tax-bearing value of each floor or division with residential use.
§1. ON THE INTERPRETATION AND DELIMITATION OF THE OBJECTIVE SCOPE OF ITEM 28.1 OF THE TGIS
At the heart of the disagreement that opposes the Parties in this proceeding is the tax incidence norm contained in item 28.1 of the TGIS, whereby it is necessary, naturally, to begin with the interpretation of this norm, with a view to ascertaining its scope and, thereby, delimiting what is its field of application.
Law no. 55-A/2012, of 29 October, introduced various amendments to the Stamp Tax Code and added item 28 to the TGIS (cf. article 4), with the following wording:
"28 — Ownership, usufruct or right of superficies of urban properties whose tax-bearing value appearing in the registry, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000 — on the tax-bearing value used for IMI purposes:
28.1 — For property with residential use— 1%;
28.2 — For property, when the persons liable to tax who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance — 7.5%."
Subsequently, Law no. 83-C/2013, of 31 December (State Budget Law 2014), amended the wording of item 28.1 of the TGIS (cf. article 194), which then came to have the following tenor [applicable ratione temporis to the situation sub judice]:
"28.1 — For residential property or for land for construction whose building, authorized or planned, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code— 1%"
The interpretation of the incidence norm contained in item 28.1 of the TGIS cannot fail to be effected on the basis of the hermeneutical guidelines that emanate from article 11 of the LGT and article 9 of the Civil Code, norms that provide the following:
"Article 11 [LGT]
Interpretation
1. In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.
2. Whenever, in tax norms, terms specific to other branches of law are used, they must be interpreted in the same sense as they have there, unless otherwise directly follows from the law.
3. Where doubt persists as to the meaning of the applicable incidence norms, account should be taken of the economic substance of the taxable facts.
4. Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration."
"Article 9 [CC]
Interpretation of the Law
1. Interpretation must not be limited to the letter of the law, but must reconstruct from the texts the legislative thinking, having especially in account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.
2. However, the interpreter cannot consider the legislative thinking that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.
3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express its thinking in appropriate terms."
Regarding this interpretive task, with respect, we adopt here the following considerations contained in the arbitral decision rendered in process no. 53/2013-T of CAAD:
«The relevance of the text of the law is particularly emphasized in the matter of interpretation of the incidence norms of Stamp Tax, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on property, on acts, etc.), which leaves no appreciable margin for application of the primary interpretive criterion, which is the unity of the legal system, which demands its overall coherence.
The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this item no. 28.1, hastily included on the margins of the General State Budget, by a tax legislator without perceptible overall fiscal orientation, who is successively implementing norms of fiscal aggravation in accordance with the ups and downs of budget execution, the impositions of international institutional creditors (represented by the "troika") and the oversight of the Constitutional Court.
In truth, although in the "Statement of Reasons" of Bill no. 96/XII/2nd Reading, on which Law no. 55-A/2012 was based, reference is made to the commendable concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program" and its commitment "to ensuring that the distribution of these sacrifices will be made by all and not just by those who live from their labor income", it is clear, on the one hand, that those reasons for equity, certainly existing, did not begin to be valid in mid-2012, already existing at the beginning of the year, when the General State Budget came into force and, on the other hand, that the scope of item no. 28.1, by taxing additionally the properties with residential use and not also the properties that do not have it, reveals that the concerns of social equity and the proclaimed intention of distribution of sacrifices by all, affects much more some than properly all.
In this context, where there are no reliable interpretive elements that make it possible to detect legislative coherence in the solution adopted in said item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretive purposes in view of no. 3 of article 9 of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same no. 3 of article 9, that the legislator knew how to express its thinking in appropriate terms.»
Said this. Having analyzed the wording – both the original and the current – of item 28.1 of the TGIS, we find that this norm has a fundamentally remissive character, as its relevant regulatory content depends on the ad quam normativity contained in the Municipal Property Tax Code.
In truth, both as to objective incidence, with the reference to "urban properties" and to "tax-bearing value appearing in the registry, in accordance with the Municipal Property Tax Code", and as to the fixation of the taxable matter, with the reference to "tax-bearing value used for IMI purposes", the regulatory tenor of this item 28 of the TGIS results from the delegation – in accordance with a general remission – to the set of regulations found in the Municipal Property Tax Code.
Indeed, this aspect is reinforced by no. 2 of article 67 of the CIS, which provides that to matters not regulated in the CIS concerning item 28 of the TGIS, the provisions of the Municipal Property Tax Code shall apply, subsidiarily.
In this framework, it is then necessary to gather the norms of the Municipal Property Tax Code that appear pertinent for the understanding and, therefore, for the application of item 28.1 of the TGIS.
In the Municipal Property Tax Code, the concept of "property" is thus defined in its article 2:
"1. For purposes of this Code, property is any portion of territory, including waters, plantations, buildings and structures of any nature incorporated in or resting on it, with a character of permanence, provided 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 structures, in the circumstances mentioned above, endowed with economic autonomy in relation to the land where they are situated, even though located on a portion of territory that is an integral part of a different asset or does not have patrimonial nature.
2. Buildings or structures, even if movable by nature, are deemed to have a character of permanence when allocated to non-transitory purposes.
3. The character of permanence is presumed when the buildings or structures have been located in the same place for a period exceeding one year.
4. For purposes of this tax, each autonomous fraction, under the horizontal ownership regime, is deemed to constitute a property."
Subsequently, in articles 3 to 5 of the CIMI, the types of properties that exist are enumerated, namely:
Rural properties (article 3):
"Rural properties are lands located outside an urban agglomeration that are not to be classified as land for construction, pursuant to no. 3 of article 6, provided that:
a) They are allocated or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income, such as are considered for purposes of income tax for natural persons (IRS);
b) Not having the allocation indicated in the preceding subsection, they are not built on or have only buildings or structures of an accessory character, without economic autonomy and of reduced value.
2 – Lands located within an urban agglomeration are also rural properties, provided that, by force of legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are actually being used for this allocation.
3 – Also rural properties are:
a) Buildings and structures directly allocated to the production of agricultural income, when located on the lands referred to in the preceding numbers;
b) Waters and plantations in the situations referred to in no. 1 of article 2.
4 – For purposes of this Code, urban agglomerations are deemed to be, in addition to those located within legally fixed perimeters, the nuclei with a minimum of 10 dwellings served by public roadways, with their perimeter delimited by points distant 50 m from the axis of the roadways, in the transverse direction, and 20 m from the last building, in the direction of the roadways."
Urban properties (article 4):
"Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article."
Mixed properties (article 5):
"1. Whenever a property has rural and urban parts it is classified, in full, in accordance with the main part.
2. If none of the parts can be classified as main, the property is deemed mixed."
Subsequently, in article 6 of the CIMI, the types of urban properties are indicated:
"1. Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Other.
2. Residential, commercial, industrial or for services are buildings or structures licensed for such purposes or, in the absence of licensing, which have as their normal destination each of these purposes.
3. Land for construction is deemed to be land located within or outside an urban agglomeration for which a license or authorization has been granted, prior communication admitted or favorable prior information issued for subdivision or construction operations, and also those declared as such in the title of acquisition, except for lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal territorial planning plans, are allocated to spaces, infrastructure or public facilities.
4. The provision of subsection d) of no. 1 covers land located within an urban agglomeration that are not land for construction nor covered by the provision of no. 2 of article 3 and also buildings and structures licensed or, in the absence of licensing, which have as their normal destination purposes other than those referred to in no. 2 and also those of the exception in no. 3."
On the "tax-bearing value", article 7 of the CIMI provides the following:
"1. The tax-bearing value of properties is determined in accordance with this Code.
2. The tax-bearing value of urban properties with parts classifiable in more than one of the classifications of no. 1 of the preceding article is determined:
a) If one of the parts is main and the other or others merely accessory, by application of the assessment rules of the main part, taking into account the enhancement resulting from the existence of the accessory parts;
b) If the different parts are economically independent, each part is assessed by application of the corresponding rules, and the value of the property is the sum of the values of its parts.
3. The tax-bearing value of mixed properties corresponds to the sum of the values of its rural and urban parts determined by application of the corresponding rules of this Code."
Under the heading "concept of land registries", article 12 of the CIMI provides the following:
"1. Land registries are records in which appear, in particular, the characterization of properties, their location and tax-bearing value, the identity of the owners and, where applicable, of the usufructuaries and superficiaries.
2. There are two registries, one for rural property and another for urban property.
3. Each floor or part of a property capable of independent use is considered separately in the matricial registration, which also discriminates its respective tax-bearing value.
4. The registries are updated annually with reference to 31 December.
4. The matricial entries constitute, for tax purposes only, a presumption of ownership."
Also regarding land registries, it is important to consider no. 1 of article 13 of the CIMI, from which it follows that "[t]he registration of properties in the registry and the updating thereof are effected on the basis of a statement presented by the taxpayer".
Regarding the determination of tax-bearing value, it is important to cite here article 38 of the CIMI, headed "Determination of tax-bearing value":
"1. The determination of the tax-bearing value of urban properties for residential, commercial, industrial and service purposes results from the following expression:
Vt = Vc x A x Ca x Cl x Cq x Cv
where:
Vt = tax-bearing value;
Vc = base value of built properties;
A = gross construction area plus the area exceeding the implantation area;
Ca = allocation coefficient;
Cl = location coefficient;
Cq = quality and comfort coefficient;
Cv = age coefficient.
2. The tax-bearing value of urban properties determined is rounded up to the nearest ten euros."
As norms that specify the values and coefficients mentioned in this legal provision, we have articles 39 ("Base value of built properties"), 40 ("Types of areas of built properties"), 40-A ("Area adjustment coefficient"), 41 ("Allocation coefficient"), 42 ("Location coefficient"), 43 ("Quality and comfort coefficient") and 44 ("Age coefficient") of the CIMI.
In view of the literal tenor of item 28.1 of the TGIS (wording applicable ratione temporis to the situation sub judice), the properties subject to this tax incidence norm are urban residential properties with a tax-bearing value equal to or exceeding € 1,000,000.00.
In light of the norms of the CIMI cited above, we have that residential properties are buildings or structures licensed by the municipalities for that purpose or, in the absence of licensing, which have as their normal destination that use (article 6, no. 2, of the CIMI); thus, residential properties are the said buildings or structures, and these are therefore subject to item 28.1 of the TGIS.
The correctness of this interpretation, regarding the scope of incidence of item 28.1 of the TGIS, is confirmed by the perceivable ratio legis of the restriction of the field of application of the norm to residential properties – a restriction that was maintained as to the use (residential) in the legislative amendment that came to broaden the scope of incidence to land for construction – in the context of the "circumstances in which the law was drafted and the specific conditions of the time in which it is applied", which article 9, no. 1, of the Civil Code also enshrines as interpretive elements.
Effectively, the limitation of the application of the tax to residential properties and, subsequently, to land for construction in which construction for residential purposes is provided or authorized, reveals the intention not to burden the productive sector and companies in general and, in that sense, it was not intended to cover in the scope of incidence of the tax either properties allocated to services, industry or commerce, that is, properties allocated to economic activity, nor land for construction for which construction for those other purposes is provided or authorized. This results comprehensible in a context in which the economy was in recessional spiral, publicly proclaimed at the highest level, with unemployment rates reaching historic levels, with an avalanche of business closures due to economic unsustainability. On the ratio legis of the introduction of item 28 of the TGIS, see, among others, the decisions rendered in processes nos. 50/2013-T, 132/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/20114-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of CAAD.
Having present this situation and it being well known and public that the reanimation of economic activity and the increase of exports are the gateways out of the crisis, it is comprehensible that, despite the pressing need to increase tax revenues, legislative measures were not taken that would hinder economic activity, namely the aggravation of the tax burden that hinders it and affects competitiveness in international terms.
Therefore, it can be concluded that the available interpretive elements, including the "circumstances in which the law was drafted and the specific conditions of the time in which it is applied", clearly point to the fact that it was not intended to include in the scope of incidence of item 28.1 of the TGIS non-residential properties and, subsequently, also land for construction for which construction for purposes other than residential use is authorized or provided.
To conclude this exegesis of item 28.1 of the TGIS, it is important to note that the cited articles 38 to 46 of the CIMI have no relation to the classification of urban properties, as in those norms only the factors to be considered in their respective valuation are indicated.
Thus being. It results from the combined analysis of the cited provisions of the CIMI that no distinction is made in this legal compendium between properties constituted under the horizontal ownership regime or full ownership. In fact, although no. 4 of article 2 expressly refers to the autonomous fractions of properties constituted under the horizontal ownership regime as constituting, each of them, a property, the truth is that it does not exclude from such classification the divisions with independent use of properties constituted under the full or vertical ownership regime.
And, where the law did not distinguish, the interpreter cannot do so.
Having analyzed, therefore, the definition of property inherent in no. 1 of article 2 of the CIMI, we do not see any reason why the divisions with independent use of properties constituted under the full ownership regime should not be included here, as these constitute a portion of territory that is an integral part of the assets of a natural or legal person and which has economic value.
It should be noted that each of these divisions or fractions is assigned a tax-bearing value.
It being established that the divisions with independent use of properties constituted under the full ownership regime are classified as "properties", pursuant to the terms and for the purposes of the CIMI, it appears evident that each of these divisions, when that is the purpose for which they are intended, are residential properties.
In the case at issue, as was proven, all the divisions or floors of the urban property in question are capable of independent use, and all of them are allocated to residential purposes.
Indeed, were the divisions or floors in question in the present proceedings not individually classified as "properties", it would make no sense or logic to issue, in this case, a Stamp Tax assessment for each of those units.
It is true that the subsidiary application of the CIMI could suggest the idea that only autonomous fractions, under the horizontal ownership regime, are deemed properties under the provisions of no. 4 of article 2 of the CIMI.
However, if attention is paid to the wording of that legal norm, it will immediately be seen that the prerequisite of the constitution of the horizontal ownership regime is only necessary for purposes of taxation in IMI.
It should be noted, on the other hand, that, in light of the provision of article 12, no. 3, of the CIMI, "each floor or part of a property capable of independent use is considered separately in the matricial registration, which also discriminates its respective tax-bearing value".
It should also be noted that, as has been said above, the introduction of item 28 in the TGIS had as its objective the taxation of urban properties of high value with residential use, taxing the wealth, externalized in the ownership, usufruct or right of superficies, of urban properties of luxury, or their autonomous fractions or divisions, with residential use.
Now, if the purpose of the law was to adapt taxation in respect of Stamp Tax to the taxable capacity of taxpayers, it seems to lack any relevance the distinction between properties constituted under the horizontal ownership regime or vertical ownership.
Manifestly, it is not by that that the greater or lesser taxable capacity is revealed, especially since, as is known, horizontal ownership is a relatively recent legal institution, and it is certain that a large part of old properties are not even constituted in this regime, despite, in practice, functioning as such.
Now, the principle of the prevalence of substance over form requires that AT must value the material truth. And, in the case at issue, the material truth consists in the non-existence of any substantive difference between the divisions capable of independent use that make up the urban property in question and the fractions of a property constituted in horizontal ownership.
Or, stated differently, the constitution of horizontal ownership being merely a legal operation and not a factual one, no reasons are seen for differences in taxation in this respect, as what will always be relevant is the individual value of each of the fractions, whether or not the property is constituted under the horizontal ownership regime.
In light of all that has been expounded, there is no doubt that the tax-bearing value relevant for purposes of the incidence of Stamp Tax in cases of properties constituted under the full ownership regime, composed of various divisions with independent use, is the tax-bearing value of each of the divisions of the property and not the overall tax-bearing value of the property, corresponding to the sum of all the tax-bearing values of the divisions that comprise it.
Thus, in conclusion, regarding properties in full ownership with floors or divisions capable of independent use, attention must be given exclusively to the tax-bearing value proper to each floor or division with residential use, appearing in the registry, for purposes of the application of item 28.1 of the TGIS.
§2. OF THE CASE SUB JUDICE
As was proven, none of the floors or divisions with independent use, described in the land registry as allocated to residential purposes, of the urban property in question, has a tax-bearing value equal to or exceeding € 1,000,000.00.
In that measure and in light of what has been expounded above, since the tax-bearing value of each of the indicated floors or divisions with independent use allocated to residential purposes is less than the value to which item 28.1 of the TGIS refers, it follows that such floors or divisions do not fall within the tax incidence norm contained in that item 28.1, whereby the contested assessments suffer from a defect of violation of law, due to error as to the legal assumptions, embodied in the erroneous interpretation and application of item 28.1 of the TGIS, which implies the declaration of their illegality and consequent annulment.
The same vitiating defect strikes the decision on the administrative review petition no. …2015…, as it maintained the Stamp Tax assessments in dispute, determining the declaration of their illegality and consequent annulment.
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In view of the substantiation of the petitioned declaration of illegality of the disputed Stamp Tax assessments, due to a defect that prevents the renewal of those acts, the consideration of the remaining defects invoked by the Claimant is prejudiced, as unnecessary.
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IV. DECISION
In the terms exposed, this Arbitral Tribunal decides:
To judge the petition for arbitral pronouncement meritorious and, consequently, due to a defect of violation of law, due to error as to the legal assumptions, embodied in the erroneous interpretation and application of item 28.1 of the TGIS, to declare illegal and annul the Stamp Tax assessments impugned in the present proceedings, relating to the year 2014 and concerning the urban property registered under article … in the urban land registry of the parish of …, municipality and district of Lisbon, with all the legal consequences;
To condemn the Tax and Customs Authority to payment of the costs of the present proceedings.
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VALUE OF THE PROCEEDINGS
In accordance with the provisions of arts. 306, no. 2, of the CPC, 97-A, no. 1, subsection a), of the CPPT and 3, no. 2, of the Regulations of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 10,679.60 (ten thousand six hundred and seventy-nine euros and sixty cents).
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COSTS
Pursuant to article 22, no. 4, of the RJAT, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), pursuant to Table I attached to the Regulations of Costs in Tax Arbitration Proceedings, charged to the Tax and Customs Authority.
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Lisbon, 6 July 2018.
The Arbitrator,
(Ricardo Rodrigues Pereira)
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