Stamp Tax on Vertical Property (Verba 28.1 TGIS) – CAAD Arbitration 18/2018-T Decision

ARBITRAL DECISION (consult full version in PDF)

Report

A... (hereinafter, "Claimant") with tax identification number..., residing at Avenue ... no. ... – ..., ...-... Lisbon, requested the Administrative Arbitration Centre (CAAD), on 15 January 2018, the constitution of an Arbitral Tribunal in tax matters, pursuant to the provisions of articles 2, no. 1, paragraph a), and 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration or "LRTA") and of articles 1 and 2 of Order no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (AT) is the Respondent, with a view to declaring the illegality of the dismissal decision of the petition for official review (1) case no. ...2016... - DJT Process no. RO .../17, handed down by the Senior Finance Director of the Finance Directorate of Lisbon and consequent annulment of the corporate income tax assessment acts for 2012, 2013 and 2014 - item 28.1 of the property ...-U-..., in the total amount of 32,772.00, (thirty-two thousand, seven hundred and seventy-two euros), assessments which the Claimant does not itemize, but which are 30 assessments, divided into 10 per year, all with the unit value of 1,092.40€, issued with reference to the urban property registered in the real estate registry of the parish of ..., municipality of Lisbon, district of Lisbon, under the number..., corresponding to an urban property, property in full ownership, composed of 16 units with independent use.

The Claimant chose not to appoint an arbitrator.

The petition for constitution of an Arbitral Tribunal was accepted by the President of CAAD on 15 January 2018 and automatically notified to the AT on the same date.

The Signatory was appointed by the President of the Deontological Council of CAAD as arbitrator of a singular Arbitral Tribunal, pursuant to the provisions of article 6 of the LRTA, having communicated acceptance of the assignment within the legal period, in accordance with article 4 of the CAAD Deontological Code.

The Parties were notified of the appointment of the Signatory, issued on 28 February 2018, pursuant to article 11, no. 1, paragraphs a) and b) of the LRTA, and did not object to it.

The singular Arbitral Tribunal was thus regularly constituted on 20 March 2018, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the LRTA.

The AT was notified of the arbitral order of 20 March 2018, by notification issued on 23 March of the same year, to submit a response within the period of 30 (thirty) days, which it submitted on 26 April 2018, which was immediately notified to the Claimant.

By arbitral order of 30 April 2018, the Arbitral Tribunal considered, under the provisions of article 16, paragraphs c) and e) of the LRTA, the meeting provided for in article 18 of the LRTA to be dispensable, under the principle of the autonomy of the Arbitral Tribunal in conducting the proceedings, celerity, simplification and procedural informality (articles 19, no. 2 and 29, no. 2 of the LRTA).

The filing of written pleadings was also dispensed with, by application of the same principles, and the parties were invited to attach word versions of their procedural documents to the record, only the Respondent having done so.

The Parties possess legal capacity and standing and are legitimate (articles 4 and 10, no. 2 of the LRTA and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings are not vitiated by defects that would invalidate it.

Claimant's Request

The Claimant filed a petition for arbitral pronouncement with a view to declaring illegal and consequently annulling the corporate income tax assessment acts for the years 2012, 2013 and 2014, following dismissal of a petition for official review of a tax act, which it also seeks to have declared illegal.

The Claimant filed the present petition, based on the grounds briefly indicated as follows:

1. The corporate income tax assessments relate to the urban property registered in the real estate registry of the parish of ..., municipality of Lisbon, district of Lisbon, under the number..., corresponding to an urban property, in full ownership, composed of 16 units with independent use.

2. According to Item no. 28 of the General Table, in force at the date of the facts, the following fall within the scope of the Stamp Tax:

"Ownership, usufruct or right of superficies of urban properties whose tax property value shown in the registry, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than 1,000,000.00 - on the tax property value used for IMI purposes:

28.1 - For residential property or for land for construction whose construction, authorized or envisaged, is for residential purposes, as provided for in the Municipal Property Tax Code - 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, listed in the list approved by order of the Minister of Finance - 7.5%

1. The Claimant does not question the classification of the property in question as urban and with residential purpose, in accordance with the criteria established in articles 2, 4 and 6 of the Municipal Property Tax Code, questioning only the exact meaning of "tax property value considered for IMI purposes," contained in the scope provision of the Stamp Tax.

2. The contested assessments are illegal due to violation of law, since properties under a full or vertical ownership regime, which include fractions intended for residential purposes susceptible of independent use that do not individually have a tax property value exceeding 1,000,000.00 €, do not fall within the scope of application of item 28.1 of the General Stamp Tax Table;

3. In sum, the Claimant petitions for the declaration of illegality of the Stamp Tax assessment acts (IS) for the years 2012, 2013 and 2014, from item 28.1 of the General Stamp Tax Table, in the total amount of € 32,772.00€, issued with reference to the urban property registered in the real estate registry of the parish of ..., municipality of Lisbon, district of Lisbon, under the number..., corresponding to an urban property in full ownership, composed of 16 units with independent use, with the consequent return of the tax already paid, plus the corresponding indemnificatory interest until full and complete payment;

Response of the Respondent

The Respondent filed its Response, which it grounds as follows:

By Opposition

• The assessments were issued in accordance with the information in the real estate registry, both regarding its residential purpose and regarding the total tax property value of the property;

• The properties being under a full ownership regime, not possessing autonomous fractions to which tax law attributes the qualification of property, because from the notion of property in article 2 of the CIMI, only autonomous fractions of property under a horizontal ownership regime are considered property – no. 4 of the cited article 2 of the CIMI, the violation of law must be judged to be unproven;

• The Respondent further defends itself based on articles 28 to 49, claiming non-violation of the principle of equality, it being that the Claimant has not expressly invoked the violation of that principle;(2)

• If the parts of properties, for IMI purposes, are not properties, then neither will they be for IS purposes. Therefore, the taxable event is the ownership of the property as a whole, as follows from the concept contained in article 2 of the CIMI;

• In sum, it submits that the present petition for arbitral pronouncement should be judged unfounded, not proven, with the contested tax assessment acts remaining in the legal order, and the respondent entity should accordingly be absolved of the petition.

Findings of Fact

Proved Facts

Based on the elements in the record and in the administrative proceeding attached to the file, as well as the position of the parties, the following facts are considered proved:

• The Claimant is the owner of an urban property registered in the real estate registry of the parish of ..., municipality of Lisbon, district of Lisbon, under the number..., corresponding to an urban property, in full ownership, composed of 16 units with independent use,

• The matrix registration according to the urban property record is decomposed with the following description:

• Each of the five floors, divided into two autonomous units each, susceptible of independent use and allocated for residential purposes, has an individual tax property value below € 1,000,000.00.

• The AT proceeded to assess Stamp Tax for the years 2012, 2013 and 2014, from item 28.1 of the General Stamp Tax Table, in the total amount of € 32,772.00€, which are 30 assessments, divided into 10 per year, all with the unit value of 1,092.40€, based on the matrix allocation of the independent units to Residential.

• The assessments in question are:

2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2014 ... of 2015-03-20 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2013 ... of 2014-03-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40
2012 ... of 2013-07-17 value of 1,092.40

• The Claimant filed a petition for official review of those assessment acts on 14.12.2015.

• By decision of the Finance Directorate of Lisbon notified to the claimant on 02/01/2018, the official review filed was rejected, on the grounds that, "In view of the opinions and proposals preceding, the tenor, content and grounds of the information provided below and the other elements of the record, I consider that the petition does not merit approval since, according to information provided, the legal requirements provided for the requested Review are not met and it is a matter resolved at a higher level in the direction of dismissing the petition."

• The Claimant filed the present arbitral action on 15.01.2018.

Grounds for the Proved Facts

The Tribunal's conviction regarding the proved facts resulted from analysis of the documentary evidence attached to the petition for arbitral pronouncement (copies of the property record of the identified property, proof of payment of the collection notes issued in the name of the Claimant, plus costs and default interest, as well as the official review proceedings and the position of the parties in the proceedings).

Facts not Proved

None of relevance to the decision of the case.

The Tribunal is competent, is regularly constituted, the parties having capacity, legitimacy and representation, with no nullities or exceptions or preliminary questions preventing consideration of the merits of the case.

Findings of Law

Questions to Decide:

Whether the property in the case which was subject to taxation under item 28.1 of the General Stamp Tax Table constitutes a taxable event for purposes of that provision.

Evolution of the Normative Framework (3)

The Stamp Tax Code, approved by Law no. 150/99, of 11 September, commenced its effectiveness in March 2000, being significantly amended by Decree-Law no. 287/2003, of 12 November, which republished it.

With the reform of property taxation undertaken in 2003, Stamp Tax came to be configured primarily as a tax on operations that, regardless of their materialization, reveal income and wealth, applying to a "heterogeneous multiplicity of facts or acts," without "a common trait that gives them identity" (JOSÉ MARIA FERNANDES PIRES, Lessons on Taxes on Heritage and Stamp Tax, p. 453). This capacity to accommodate within itself taxation of different natures created a path for the tax legislator to assign it a complementary role to other taxes.

As noted by J. SILVÉRIO DIAS MATEUS and L. CORVELO DE FREITAS (Taxes on Real Property – The Stamp Tax, p. 251, Lisbon 2005) "stamp tax is configured as a means of reaching manifestations of contributory capacity not covered by the incidence of any other taxes. Not assuming the nature of overlapping taxation, this tax tends to assume a residual function filling spaces left open by taxation of income and consumption".

Law no. 55-A/2012, of 29 October, introduced a set of amendments to the codifying instruments of three taxes – Personal Income Tax, Corporate Income Tax and Stamp Tax – as well as to the General Tax Law, among which the provision now under examination, all guided toward supplementary obtaining of tax revenue and, in general, to counter budgetary imbalance. Thus, invoking the principles of social equity and fiscal justice, taxation of capital income and capital gains was increased, measures were introduced to strengthen the fight against tax fraud and evasion, through strengthening of the regime applicable to manifestations of wealth of taxpayers and transfers to and from tax havens, to which was added the introduction, within the scope of Stamp Tax, of taxation of legal situations (expression added to no. 1 of article 1 of the Stamp Tax Code), which was understood to be capable of supporting increased fiscal burden, thereby distributing more equitably the burden to achieve the budgetary consolidation required of taxpayers.

Thus, with the addition of item no. 28 to the General Stamp Tax Table by article 4 of Law no. 55-A/2012, a legal situation was subjected to this tax, embodied in the ownership, usufruct or right of superficies of an urban property with residential purpose, whose tax property value shown in the registry, pursuant to the Municipal Property Tax Code, is equal to or greater than €1,000,000.00, with the tax applying at the rate of 1%.

In accordance with what is contained in the proposal of Law no. 98/XX before the Assembly of the Republic, published in the DAR, I Series, no. 9/XX/2, of 11 October 2012, with the intended legislative amendment the creation is sought of "a rate under Stamp Tax applicable to urban properties with residential purpose whose tax property value is equal to or greater than one million euros". "These measures are fundamental to strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live on the income of their work. In accordance with this aim, this act expands the taxation of capital and property income, equitably covering a broad set of sectors of Portuguese society". Appeal is made, therefore, alongside the creation of yet another mechanism generating revenue, to the need to accommodate the principles of social equity and fiscal justice so that natural persons who are holders of properties valued at equal to or greater than € 1,000,000.00 contribute especially.

The wording of item 28.1 subsequently underwent amendment, through Law no. 83-C/2013, of 31 December, beginning to extend the incidence of Stamp Tax, at the rate of 1%, to "(…) urban property or (for) land for construction whose construction, authorized or envisaged, is for residential purposes, as provided for in the Municipal Property Tax Code".

The incidence of Stamp Tax, characterized by a heterogeneous multiplicity of facts, remits, as regards essential elements of the liquidation of the tax, notably as to the normative criteria defining the tax property value to be considered, to the regulation contained in the Municipal Property Tax Code, ensuring, or at least promoting, a certain degree of harmony among the various legislative bodies within the scope of property taxation. Doctrine itself attributes to it the condition of "additional tax to the Municipal Property Tax," directed to "discriminate properties of higher tax property value and subject them to a more burdensome tax regime than the others" (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 504), explaining the creation of a new fact subject to Stamp Tax, beyond the heterogeneity that characterizes this tax, by the need to increase the tax revenues of the State, since the revenue from the Municipal Property Tax reverts to the benefit of the municipalities and Stamp Tax is a revenue of the State (op. cit., p. 506).

Indeed, this condition was even realized with the creation of the additional to the Municipal Property Tax accomplished by Law 42/2016, of 28/12, grafted as chapter XV in the compendium of the Municipal Property Tax, with provisions on incidence, taxable value, rate, liquidation and payment and various provisions, with its own rules, which expressly repealed item 28 of the General Stamp Tax Table.

However, this additional to the Municipal Property Tax possesses a personal nature of taxation, as it addresses global situations of real property wealth, from a perspective of richness, which alongside the direction of revenues to the Social Security Stabilization Fund, allows comprehension of the difference in objectives and concrete regimes, which both pursued, as viewed ultimately they all have budgetary revenue purposes.

In truth, the taxation flowing from the scope provision housed in item no. 28 assumed the nature of a partial tax (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 507), taking as taxable base the urban property allocated for residential purposes, calculating the respective tax property value by relevant legal and economic unit. It does not constitute a general tax on property, or even a tax on all real property, in terms of founding a comparison rooted in an approach of personalizing the tax and based on all the property of the taxpayer.

In truth, the concept of "(urban) property with residential purpose" was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Municipal Property Tax Code, to which no. 2 of article 67 of the Stamp Tax Code (also introduced by that Law), refers as a subsidiary matter.

Having undertaken this already lengthy excursus, let us now examine the provision in question and what can be understood by residential property and the relevant tax property value.

The initial wording of item 28.1 was as follows:

28.1 – For property with residential purpose – 1%;

Law no. 83-C/2013, of 31 December, effective from 1 January 2014, altered it to:

"for residential property or for land for construction whose construction, authorized or envisaged, is for residential purposes, as provided for in the Municipal Property Tax Code".

The recurring question in the interpretation of legal norms and with much greater acuity in its partial amendments, lies in the interpretation whether the addition of a certain direct complement relates only to what was added or also refers to what was already there. In other words, it is to know whether there was intent on the part of the legislator that the excerpt "as provided for in the Municipal Property Tax Code," apply to what was added – land for construction, or also to what was already there – residential property.

It is true that the wording given by article 3 of Law 55-A/2012, of 29 October, to article 67, no. 2, of the Stamp Tax Code, established that: "To matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply subsidiarily." Article 4 of the CIMI contains the definition of what constitutes urban properties and, in turn, article 6 lists the various categories of urban properties. Now, but if that is so, with the vigor of including from the end of 2012 that the provisions of the CIMI are applicable subsidiarily, why did the legislator need to expressly mention it when altering the wording of item 28.1? If there was already a general rule? If we also analyze the provision of article 49 of the Stamp Tax Code, we see that no. 3, added by Decree-Law no. 41/2016, of 1 August, provided "3 - The provisions of article 115 and no. 2 of article 129 of the CIMI apply, with necessary adaptations, to assessments of the tax provided for in item no. 28 of the General Table.

But if there was already the provision of article 67, no. 2, why make this amendment, if they were already applicable?

Examining the cited articles 115 and 129, no. 2, we do not derive from them any systematic logic, nor even with respect to logical element.

It will not therefore be by the logic of the system that we can found in an inexpugnable way the meaning of the provision.

In truth, it has long been peacefully accepted by doctrine that tax norms are interpreted as are any other legal norms, a solution which today expressly appears in no. 1 of article 11 of the General Tax Law, establishing that "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".

Among the elements of interpretation, that from which the applier of the norm must depart is, precisely, the grammatical element, that is, the text of the law, there being, however, to be noted that in determining the meaning and value of the norm, the interpreter cannot fail to consider the logical element or, in accordance with no. 1 of article 9 of the Civil Code, fail to "reconstitute (…) the legislative thought, having especially in account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

But let us examine the specific case:

We are faced with a property that is not constituted under horizontal ownership, the commonly designated full and/or vertical ownership, composed of 16 independent units, having in fact material, economic and legal autonomy, in which of those 16 units only 10 of them are taxed, because those are the 10 that are intended for residential purposes, proceeding to 10 autonomous assessments – 1 for each of these independent units, but which are then added together to result from there a tax property value of only those 10, exceeding 1,000,000.00€! In other words, the property is "peeled" and then part of it is used!

In its defense the AT states that: "The assessments were issued in accordance with the information in the real estate registry, both regarding its residential purpose and regarding the total tax property value of the property;"

But they were not! Because either the whole is property, as the AT says "regarding the total tax property value of the property", or it turns out that parts of the property are relevant.

From which it follows in the logic of the Respondent, if the dependent units are not property "per se," it means that everything will be property and therefore all 16 independent units, but in fact 6 independent units which are part of the whole, cannot be taxed because their purpose is warehouse, services or commerce. (4)

Appealing in this context to what has been learned written in the Decision of CAAD, handed down in case 152/2015-T, where an exegetical excursus is undertaken from the perspective of tax property value, "With respect to the determination of the tax property value of properties not constituted under horizontal ownership, article 7, no. 2, of the Municipal Property Tax Code applies, but only regarding "urban properties with parts classifiable in more than one of the classifications of no. 1 of the preceding article," in which case, in accordance with its paragraph b) "(…) each part is evaluated by application of the corresponding rules, the value of the property being the sum of the values of its parts"."

We must emphasize that this is the only provision of the Municipal Property Tax Code that mentions the global value of the property, without anything being drawn from it.

"From the combination of the provisions of no. 2 of article 7 and of no. 1 of article 6, both of the Municipal Property Tax Code, it follows that, if an urban property not constituted under horizontal ownership comprises exclusively parts or divisions of residential purpose, the value of the property does not equal the sum of its parts."

From this interpretation it results that on one side, we have a property constituted under vertical ownership, composed solely of independent units with residential purpose, it being that in this case the value (tax property value) of the property does not equal the sum of the parts and on the other side, we have a property constituted under vertical ownership, composed of independent units, but with multiple purpose, e.g.: residential and commerce and in this case, we say that the sum of the parts corresponds to the value (tax property value) of the property.

Based on these assumptions, in the first situation, where each of the parts is autonomous, not having been assigned a tax property value equal to or greater than € 1,000,000.00, it will be excluded from the incidence of Stamp Tax – item 28.1 of the General Stamp Tax Table. And as to the second situation?

Arriving here, it falls to question the subjection to Stamp Tax of a part or division of independent use, with residential purpose, of a property not constituted under horizontal ownership, which comprise parts or divisions of independent use, classifiable in more than one of the classifications of no. 1 of article 6 of the Municipal Property Tax Code, for example, divisions intended for commerce and services, as is the case in the present proceedings.

We rely on what was written in the cited Decision of CAAD, case 152/2015-T, which we transcribe for better understanding: "Now, the answer must be negative, notwithstanding the provision of paragraph b) of no. 2 of article 7 of the CIMI, according to which the value of the property is the sum of the values of its parts or divisions of independent use, classifiable in more than one of the classifications of no. 1 of article 6 of the same Code.

That is, here, we are not comparing, as the AT intends, two legally distinct realities, as would be the parts or divisions of independent use of an urban property not constituted under horizontal ownership, on one hand, and the autonomous fractions of properties submitted to that regime, which, for IMI purposes, are themselves properties, on the other.

What is compared here are realities entirely identical, that is, parts or divisions of independent use and residential purpose, integrated into urban properties not constituted under horizontal ownership.

And the answer to the question must be negative, as nothing would justify that the legislator intended to tax parts or divisions of independent use and residential purpose of an urban property not constituted under horizontal ownership, integrated with other parts or divisions of independent use intended for other purposes and did not tax parts or divisions of independent use and residential purpose of another urban property in full ownership, integrated exclusively by parts or divisions of independent use, intended for residential purposes. Should the legislator have intended to treat unequally realities entirely identical, one would have to conclude that there was a flagrant violation of the principle of equality.

Not appearing to be that the legislative intent, one cannot accept that the AT formulates a scope provision ex novo, distinct from that created by the legislator, seeking to tax parts of properties, even though economically and functionally independent and, as such, separately registered in the registry, as the law is clear in subjecting to stamp tax of item 28.1 of the General Stamp Tax Table, urban properties with residential purpose, whose tax property value, for IMI purposes, exceeds € 1,000,000.00.

Effectively, as referred to by the Claimant in its pleadings and has already served as a ground for other arbitral decisions, notably that handed down in case no. 50/2013-T, "The ratio legis underlying the rule of item 28 of the General Stamp Tax Table, introduced by Law no. 55-A/2012 of 29 October, in obedience to the provision of article 9 of the Civil Code, according to which the interpretation of the legal norm should not be confined to the letter of the law, but reconstitute from the texts and other elements of interpretation the legislative thought, taking account of the unity of the legal system, the circumstances in which it was elaborated and the specific conditions of the time in which it is applied." (5)

In light of all that has been set out and with the various grounds that are advanced in the Decisions that we have been citing and in those enumerated in the footnote,(6) the interpretive sense of the provision of item 28.1 of the General Stamp Tax Table, in the wording of Law no. 55-A/2012 of 29 October, relating to properties not constituted under a horizontal ownership regime that comprise floors or divisions susceptible of independent use, if the tax property value relevant for purposes of application of the tax is that attributed individually to each of them or, on the contrary, is that corresponding to the sum of all of them, we cannot fail to conclude that the relevant tax property value is that attributed individually to each floor, or independent division.

Whereby we understand that the AT's position cannot be accepted, in seeking to set as the reference value for the incidence of stamp tax the global value of the residential part of a property in vertical ownership, as the CIMI does not allow it, which is also the remissive legal basis supporting that.

Not having any of the parts susceptible of independent use a tax property value exceeding one million euros, there is, therefore, no place for incidence of item 28.1 provided in the General Stamp Tax Table (indeed, now repealed by Law no. 42/2016 – State Budget Law for 2017 – article 210-2).

Given what has been stated, the petition for arbitral pronouncement filed by the Claimant proceeds with clear violation of law and error regarding the factual and legal assumptions.

Indemnificatory Interest

In accordance with the provision of paragraph b) of article 24 of the LRTA, the arbitral decision on the merit of the claim to which no appeal or challenge lies binds the Tax Authority from the end of the period provided for appeal or challenge, and the latter, in the exact terms of the procedence of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of decisions of the tax courts, "shall restore the situation that would exist 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 in harmony with the provision of article 100 of the General Tax Law [applicable by virtue of the provision of paragraph a) of no. 1 of article 29 of the LRTA] which establishes that "the tax authority is obliged, in case of total or partial procedence of claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation which is the subject of the dispute, comprising the payment of indemnificatory interest, if applicable, from the end of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b) of the LRTA uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning in the CAAD, making no reference to condemnatory decisions, it should be understood that the competences include the powers that in judicial challenge proceedings are attributed to the tax courts, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve the LRTA, in which it is proclaimed, as the first directive, that "the tax arbitration proceeding must constitute an alternative procedural means to judicial challenge proceedings and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge proceeding, despite being essentially a proceeding for annulment of tax acts, admits condemnation of the Tax Authority in the payment of indemnificatory interest, as may be inferred from article 43, no. 1 of the General Tax Law, which establishes that "indemnificatory interest is due when it is determined, in gracious claim or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than that legally due" and from article 61, no. 4 of the Code of Tax Procedure and Process (CPPT) (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), which establishes that "if the decision recognizing the right to indemnificatory interest is judicial, the period for payment is counted from the beginning of the period of its spontaneous execution".

Thus, no. 5 of article 24 of the LRTA, in stating that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Code of Tax Procedure and Process," should be understood as allowing recognition of the right to indemnificatory interest in arbitration proceedings.

In the case at hand, it is manifest that, following the illegality of the assessment act, there is place for payment of indemnificatory interest, as the assessment is attributable to the AT, which, on its own initiative, performed it without legal support.

Consequently, the Claimants have the right to indemnificatory interest, in accordance with articles 24, no. 5 of the LRTA, 43, no. 1 of the General Tax Law and 61 of the CPPT, to be determined by the Tax and Customs Authority in execution of this decision.

C) DECISION

Terms upon which this Arbitral Tribunal decides

• To judge the petition for arbitral pronouncement well-founded in its entirety as to the petition for annulment of the assessments sub judice;

• To condemn the Respondent to refund to the Claimant the amounts unduly paid by virtue of the annulled assessment acts;

• To judge well-founded the petition for condemnation of the Respondent Tax Authority in indemnificatory interest;

• To condemn the Respondent in costs;

D. Value of the Case

The value of the case is fixed at €32,772.00 (thirty-two thousand, seven hundred and seventy-two euros), in accordance with the provision of article 306, no. 2 of the Code of Civil Procedure, 97-A, no. 1, paragraph a) of the Code of Tax Procedure and Process and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at 1,836.00 €, in accordance with articles 12, no. 2 and 22, no. 4, both of the LRTA, 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings and Attached Table I, to be borne by the Respondent;

Text prepared by computer, in accordance with the provision of article 131 of the Code of Civil Procedure, applicable by referral of paragraph e) of no. 1 of article 29 of the Legal Regime for Tax Arbitration, with blank verses, and reviewed by the arbitrator.

The wording of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990, except as to transcriptions made.

Lisbon, 2 July 2018

The Singular Arbitrator

António Pragal Colaço

(1) In this decision, the expression official review and the expression review of a tax act are used with identical meaning interchangeably;

(2) In truth, the Claimant in its argument invokes Decision no. 047/15 of 09-09-2015 of the Supreme Administrative Court, transcribing it next, being in the part of interest to us: "In fact, the Tax Authority 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 fiscal legality provided for in article 103 of the Constitution of the Portuguese Republic, and also the principles of justice, equality and fiscal proportionality." But, such transcribed excerpt forms part of the principal argument and does not constitute the express invocation of any principle of constitutional nature that would generate possible unconstitutionality;

(3) See Decision of CAAD, Case number 533/2016, of 20 March 2017, in which the signatory was Adjunct Arbitrator, which we follow almost "ipsis verbis";

(4) The AT understands in its Response that article 2, no. 4 of the CIMI is clear and that, independent of each floor or part of the property not constituted under horizontal ownership being susceptible of independent use and being considered in the matrix registration with its own tax property value, for purposes of IS the property as a whole is relevant, as the divisions susceptible of independent use are not considered as property (underlined by us);

(5) As also well explained in the decision handed down by the Arbitral Tribunal in case 349/2015-T, "Thus, property will be the independent area, considered separately and autonomously in the registry, being subject to IS if two requirements are met: being intended for residential purposes and having a tax property value equal to or greater than one million euros, criterion for assessing residential "luxury" properties. Otherwise, an unforeseen reality would be created: that of a, so to speak, "residential property," possibly inserted within a larger property, possibly with various purposes, in which the tax property value of that, spurious to the registry records, would consist in the fiction of a tax property value given by the addition of the autonomous tax property value of each division (independent and with residential purpose) considered in the matrix registration. That is, where the legislator considered two realities, the interpreter would now have, without support in the legislative text, to fictionally create a third reality, hybrid, midway between the urban property and its independent divisions to which the legislator of the IMI, and of the IS by referral to the CIMI, understood to give tax relevance."

(6) On this question, among others, the decisions of CAAD handed down in cases number 565/2017-T, 367/2017-T, 261/2017-T, 260/2017-T, 253/2017-T, 245/2017-T, 164/2017-T, 147/2017-T, 146/2017-T, 123/2017-T, 93/2017-T, 82/2017-T, 529/2016-T, 507/2016-T, 495/2016-T, 485/2016-T, 471/2016-T, 466/2016-T, 465/2016-T, 464/2016-T, 450/2016-T, 439/2016-T, 438/2016-T, 433/2016-T, 431/2016-T and 425/2016-T, and the decisions no. 0820/17, 0498/16, 0560/16, 01447/16, 01394/16, 01219/16, 0711/16, 0166/16, 047/15, 01352/15, 01344/15, 01534/15 and 01425/14 of the Supreme Administrative Court have pronounced themselves.