Summary
Full Decision
ARBITRAL DECISION
I - REPORT
A - IDENTIFICATION OF PARTIES
Claimant: A..., S.A., with registered office at Rua ..., no. ..., ..., ... - ... Aveiro, holding the tax identification number for legal entities NIPC: ..., hereinafter referred to as Claimant or taxpayer.
Respondent: Tax and Customs Authority, hereinafter referred to as Respondent or TA.
The Claimant filed an application for the establishment of an Arbitral Tribunal in tax matters and for an arbitral decision, pursuant to the provisions of item (a) of paragraph 1 of Article 2 and item (a) of paragraph 1 of Article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter abbreviated as LRAT).
The application for the establishment of the Arbitral Tribunal was accepted by the President of CAAD, and in accordance with the requirements of item (c) of paragraph 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Tax Authority was notified on 2017-06-01.
The Claimant did not proceed with the appointment of an arbitrator, whereby, pursuant to the provisions of paragraph 1 of Article 6 and item (b) of paragraph 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as Arbitrator Rita Guerra Alves, with the appointment having been accepted by her, in accordance with legal requirements.
On 2017-05-17, both parties were duly notified of this appointment, and expressed no objection to it, in accordance with Article 11, paragraph 1, items (a) and (b), of the LRAT and Articles 6 and 7 of the Deontological Code.
The Sole Arbitral Tribunal was properly constituted on 2017-06-01, to examine and decide the subject matter of the present dispute, and the Tax and Customs Authority was automatically notified on 2017-06-01 to present its response, as recorded in the respective minutes.
B - CLAIM
The Claimant herein filed a request for an arbitral decision declaring the illegality of the tax assessment acts for Stamp Tax, nos. 2017..., 2017..., relating to the year 2015, which established a tax payable of €14,535.04 (fourteen thousand five hundred and thirty-five euros and four cents).
C - GROUNDS FOR THE CLAIM
To support its request for an arbitral decision, the Claimant alleged, with a view to declaring the illegality of the tax assessment acts for Stamp Tax, the following:
The Claimant is the owner of ½ of the building land corresponding to Articles ... and ..., recorded in the urban property register of the Union of Civil Parishes of ... and ..., in the Municipality and District of Aveiro, whose taxable property value amounts to a total of €1,870,420.00;
The Claimant alleges that being the owner of a property with a value equal to or exceeding €1,000,000 or being a co-owner of the same property are situations to be assessed differently, since the contributive capacity revealed in each of the situations is distinct;
For that reason, the subjection of the co-owner to Stamp Tax as provided in item 28.1 of the General Stamp Tax Table (GSTT) depends on the co-owned share having a value equal to or exceeding €1,000,000, as this is the threshold of tax relevance provided by law;
To this end, the co-owner must be treated as equivalent to a sole owner, so as to comply with the principles of equality and contributive capacity;
In the case at hand, the Claimant is a co-owner, in the proportion of the building land lots aforementioned, whose taxable property value is €1,870,420.00, and the taxable property value of the part that allows for the construction of residential properties is €1,453,481.07;
This means that its property right corresponds, in this regard and in each of them, to an ideal share of €726,740.54;
If it were the sole owner of a building lot with a taxable property value of €726,740.54 and whose authorized or contemplated construction were for residential purposes, it would not be subject to Stamp Tax. For this reason and in light of the criterion of contributive capacity and equal treatment before the law, the Stamp Tax assessments in question here represent unequal treatment of equal situations;
Otherwise, there would be arbitrary discrimination between the co-owner and the sole owner with respect to the taxation of building land, taxed under Stamp Tax, item 28.1 of the GSTT;
And for that reason, the assessment acts now submitted for arbitral examination should be considered illegal, since the building land did not fall within the objective scope of item 28.1 of the GSTT in the year 2015;
The Claimant further alleges the unconstitutionality of the taxation of building land under Stamp Tax, as it does not appear compatible with the constitutional principle of equality, given the negative discrimination to which they are subject in relation to residential properties built in horizontal or vertical ownership and whose autonomous fractions or units of individual allocation do not exceed, in their respective TPV, the value of €1,000,000, but whose total TPV is equal to or exceeding this amount.
The Claimant concludes by petitioning for a declaration of illegality of the Stamp Tax assessments, for violation of the provisions of item 28.1 of the GSTT and Article 6 of the Municipal Property Tax Code (MPTC).
D - RESPONSE OF THE RESPONDENT
The Respondent, duly notified for this purpose, timely presented its response in which, in abbreviated summary, alleged the following:
The Claimant is, together with another, a co-owner of urban property with a total taxable property value of €1,870,420.00, with the taxable property value of the part that allows for the construction of residential properties being €1,453,481.07;
It holds merely an ideal co-owned share of said property and not any part of a property capable of independent use, in accordance with Article 7, paragraph 1, item (b), of the Municipal Property Tax Code (MPTC);
The Claimant defends that co-ownership results in the joint holding of real property rights;
Pursuant to Article 1405, paragraph 1, of the Civil Code (CC), co-owners exercise, jointly, all rights pertaining to the sole owner;
Co-owned shares cannot, in fact, be equated with parts of properties capable of independent use;
Each co-owner may, in fact, exercise, jointly with the others, the right of ownership over the totality of the property;
The collective of co-owners is, moreover, responsible for the payment of the tax, in accordance with Article 21, paragraph 1, of the General Tax Law (GTL);
The Respondent defends that Item 28 annexed to the GSTT states that stamp tax is levied "on the taxable property value used for Municipal Property Tax purposes";
For Municipal Property Tax purposes, the TPV to be taken into account is the total global TPV of the property that corresponds to each of the co-owners;
Thus, in the present case, the Claimant is responsible only for the payment of stamp tax in proportion to its co-owned share, as evidenced by the assessment notices issued by the TA;
Whereby Item 28.1 of the GSTT does not incur any arbitrariness or in any way violates the principle of equality in tax matters in the aspect of contributive capacity, contrary to what was alleged by the Claimant;
In conclusion, given the rationale of Item 28.1 of the GSTT, the nature and structure of the tax, as well as the manifestation of wealth or income that the legislator intended to capture, the assessments challenged in the present case do not incur any illegality or constitute a violation of the principle of equality enshrined in Article 13 of the Constitution in all its aspects;
E - STATEMENT OF FACTS
For the examination of the questions submitted for consideration by this Tribunal, it is necessary to state the factual matters relevant to the decision, based on the documentary evidence submitted by the parties and the facts not contested by the parties.
Accordingly, this Tribunal finds the following facts to be established:
The Claimant is the owner of ½ of the building land corresponding to Articles ... and ..., recorded in the urban property register of the Union of Civil Parishes of ... and ..., in the Municipality and District of Aveiro, whose taxable property value amounts to a total of €1,870,420.00;
Indeed, the value of €1,453,481.07 corresponds to the taxable property value of the part that allows for the construction of residential properties, with the remainder being allocated to an area for services and commerce valued at €416,916.62, and as such, this value is not subject to Stamp Tax.
Considering the portion held by the Claimant, and as it holds ½ of the property, it then holds the equivalent of €935,210.00 of the TPV of the property.
Now, based on the rules of the MPTC and for the application of item 28.1, the residential allocation that allows for the construction of residential properties corresponds in the concrete case to the value of €726,751.69 and to the value of €204,458.31, these allocated to services and commerce.
Thus, the TPV of both plots of land, for purposes of the base of the assessment challenged, amounts to €726,751.69;
Since the value corresponding to €204,458.31, corresponding to the allocation for services and commerce, was not taken into account for purposes of applying the rate of item 28.1.
The Claimant was notified of the following Stamp Tax assessment acts:
No. 2017..., of 2015, relating to demonstration of stamp tax assessment on the property ... ... and ... U-... Algés, with a collection of €7,267.52;
No. 2017..., of 2015, relating to the second installment of stamp tax on the property ... ... and ... U-... Algés, with a collection of €7,267.52.
F - UNPROVEN FACTS
Of the facts of interest for the decision of the case, contained in the claim and all subject to concrete analysis, those not included in the above factual statement were not proven.
G - ISSUES TO BE DECIDED
Given the positions of the parties adopted in the arguments presented by each, the central issue is the following, which it is therefore necessary to examine and decide:
A) The declaration of illegality of the tax assessment acts for Stamp Tax, nos. 2017..., 2017..., relating to the year 2015, which established a tax payable of €14,535.04 (fourteen thousand five hundred and thirty-five euros and four cents).
H - MATTER OF LAW
Given the positions assumed by the parties in their pleadings, the central issue to be resolved by this Arbitral Tribunal will be to decide whether the Stamp Tax assessment acts, nos. 2017..., 2017..., relating to the year 2015, which established a tax payable of €14,535.04 (fourteen thousand five hundred and thirty-five euros and four cents) on the properties recorded under Articles ... and ... in the property register of the Union of Civil Parishes of ... and ..., in the Municipality and District of Aveiro, both with a unitary taxable property value of €1,870,420.00 and with the taxable property value for Stamp Tax purposes of €1,453,481.07, were issued with erroneous interpretation and application of item 28.1 of the GSTT and Article 6, paragraph 1, item (f), (i) of the aforementioned Law no. 55-A/2012, of 29 October.
Observing that both properties recorded under Articles ... and ... as well as their respective assessments are entirely identical, the present decision is applicable in the same terms to both.
Given the factual matters established as proven, we will then determine the applicable law, giving priority, in compliance with the provisions of item (a) of paragraph 2 of Article 124 of the Code of Administrative Procedure, to the analysis of the defects of the assessment act, the finding of which determines a more stable and effective protection of the Claimant's interests.
The fundamental issue in the present arbitral proceedings, and on which the Arbitral Tribunal will rule, will result in the analysis of the defects arising from error regarding the prerequisites of the right to assess, concerning the question of whether building land falls within the scope of Article 28, paragraph 1 of the GSTT, introduced by the Regime established in Law no. 55-A/2012, of 29 October.
With respect to the properties in question subject to assessment, "building land," it will be for this Tribunal to decide on the issue resulting from the interpretation to be given to Article 28, paragraph 1 of the GSTT, introduced by the Regime of Law no. 55-A/2012, of 29 October, in situations where the property is held in co-ownership, and the value of the property assigned is over one million euros in its entirety, but the value held by the co-owner is less than one million euros.
It is important to note beforehand that, with respect to item 28.1 of the GSTT, the Constitutional Court decided in its Decision no. 247/2016, of 04-05-2016, that item 28.1 aims, within the principle of social equity in austerity, to tax properties with greater indicators of wealth, as partially transcribed below:
"Nor is there found in the tax rule in question an arbitrary fiscal measure, because it lacks rational foundation. As we have seen, the legislative change was intended to expand the taxation of property, making it fall more intensely on property which, by its value considerably higher than that of the generality of urban properties with residential allocation, reveals greater indicators of wealth and, as such, is capable of justifying the imposition of an increased contribution for the remedying of public accounts from its holders, in pursuit of the aforementioned 'principle of social equity in austerity.'"
This rule aims to tax "luxury properties," which reveal a greater contributive capacity, within the "principle of social equity in austerity."
With the amendment of the regime regarding the subjection to Stamp Tax of properties with residential allocation, through the addition of item 28 of the General Stamp Tax Table, effected by Article 4 of Law 55-A/2012, of 29/10, the following tax facts were established, with the following wording:
"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the register, in accordance with the Municipal Property Tax Code (MPTC), is equal to or greater than €1,000,000 – on the taxable property value used for Municipal Property Tax purposes:
28.1 – For residential property or for building land whose authorized or contemplated construction is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code;
28.2 – For property, when the taxpayers who are not individuals 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%."
And Article 6 of Law no. 55-A/2012 contains the transitional provisions which establish the rules relating to the assessment of the tax provided for in that item:
"1 – In 2012, the following rules must be observed with reference to the assessment of stamp tax provided for in item no. 28 of the respective General Table:
The tax fact occurs on 31 October 2012;
The taxpayer of the tax is the one mentioned in paragraph 4 of Article 2 of the Stamp Tax Code on the date referred to in the preceding item;
The taxable property value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the Municipal Property Tax Code with reference to the year 2011;
The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;
The tax must be paid, in a single installment, by the taxpayers by 20 December 2012;
The applicable rates are as follows:
Properties with residential allocation assessed in accordance with the Municipal Property Tax Code: 0.5%;
ii) Properties with residential allocation not yet assessed in accordance with the Municipal Property Tax Code: 0.8%;
iii) Urban properties when the taxpayers who are not individuals 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%.
2 – In 2013, the assessment of stamp tax provided for in item no. 28 of the respective General Table must be based on the same taxable property value used for the purposes of assessing municipal property tax to be effected in that year.
3 – The failure to deliver, in whole or in part, within the stated period, of the sums assessed for stamp tax constitutes a tax infraction, punished in accordance with the law."
With respect to Item 28, paragraph 1 of the GSTT, introduced by the Regime of Law no. 55-A/2012, of 29 October, three cumulative requirements are necessary for its application to building land, respectively:
Ownership, usufruct or right of superficies of urban properties;
The TPV of the urban property is equal to or greater than €1,000,000;
And the building land whose authorized or contemplated construction is for residential purposes.
Let us examine, regarding the interpretation of Tax Rules, in the case sub judice, the provisions of Article 11 of the General Tax Law:
"Article 11
Interpretation
In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.
Whenever terms peculiar to other branches of law are used in tax rules, they must be interpreted in the same sense as they have there, unless otherwise directly derived from law.
If doubt persists regarding the meaning of the tax rules to be applied, the economic substance of the tax facts should be considered.
Gaps resulting from tax rules covered by the reservation of law of the National Parliament are not capable of being filled by analogy."
To this provision, it is equally necessary to resort to the general principles of interpretation of laws, as provided for in Article 9 of the Civil Code, by reference in paragraph 1 of Article 11 of the GTL, which establishes the following:
"Article 9
Interpretation of law
Interpretation must not be limited to the letter of the law, but must reconstruct from the texts the legislative intention, taking especially into account the unity of the legal system, the circumstances in which the law was made and the specific conditions of the time in which it is applied.
However, the legislative intention that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter.
In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its intention in adequate terms."
On this issue, there is already jurisprudence from Arbitral Tribunals, within the scope of Cases 259/2014-T and 14/2016-T, a position which we subscribe to.
Within the scope of Case 14/2016-T, the following was decided, which we partially transcribe:
"Through item 28.1 of the GSTT, in its original wording, the legislator intended to tax 'luxury properties,' as the Respondent refers and quite rightly so. It being certain that the global value of the taxpayer's real estate patrimony was not taken into account for purposes of the tax's scope, it is also clear that the tax fact was based on a qualitative element which the legislator considered apt to reveal special contributive capacity. This qualitative element resided precisely in the existence of a 'luxury residential property.' Indeed, the facts of experience show that contributive capacity does not always have to be assessed solely by quantitative elements, but that qualitative elements may enter into the assessment of contributive capacity. As we have already stated, a 'luxury residential property' contains a qualitative element that is in itself indicative of a particularly high contributive capacity, just as a yacht or other goods normally associated with high levels of wealth.
Nothing prevented the legislator, in the exercise of its legislative discretion, from basing itself on this qualitative element – luxury residential unit – to shape the tax fact. In doing so, it had to define 'luxury residential property.' And in setting the value of €1,000,000 to define a 'luxury' residential unit, it continued to act within the limits of its legislative discretion.
However, by extending taxation to building land, which cannot be considered 'luxury properties,' this qualitative element became absent from the tax fact. There is nothing that distinguishes, in qualitative or quantitative terms, for purposes of assessing the contributive capacity of two given taxpayers, the ownership of a building lot with a TPV of €1,000,000 or the ownership of two building lots each with a TPV of half a million euros.
And in the same way, there is nothing that distinguishes, in terms of contributive capacity, the ownership of a property, which is not a 'luxury' property, with a taxable property value of €657,001.15 – which is not taxed – from the ownership of a co-owned share of a property to which a taxable property value of €657,001.15 corresponds.
It is thus evident that, in light of the criterion of contributive capacity – the only criterion on which the realization of the principle of tax equality should be based in the case of taxes – the assessment challenged represents unequal treatment of equal situations.
(...)
The Tribunal considers therefore, in the first place, that the principle of equality requires that equal treatment be given to what is essentially equal. Essentially equal means, in our understanding, equal in what is relevant, in the situations in question, in view of the purposes or objectives of the laws in question. In other words, the Tribunal considers that arbitrary, unreasonable or unfounded differences in treatment are not to be admitted, being considered as such all those which do not find sufficient support in the distinct materiality of the different situations being contemplated.
It seems to us to be understood, as we have endeavored to demonstrate, that between the situation of co-ownership of a 50% co-owned share of a plot of land with a TPV of €1,314,002.31 and the situation of ownership of a building lot with a TPV of €657,001.15 euros, there is no "distinct materiality." There is essential equality. The truth is that the second situation is not taxed, the first one is.
The Tribunal considers, moreover, that a difference in treatment of situations that are essentially identical can be justified provided that they are not arbitrary or devoid of sufficient material foundation." That is, the difference in treatment between situations that are essentially equal can be justified if there is sufficient material foundation for that differentiation.
(...)
Just as we have already said previously, we sustain that this argument is only valid for those properties that can be qualified, in common language, as "houses of residence." The qualifier "property which, by its value considerably higher than that of the generality of urban properties with residential allocation" is not applicable to building land. In fact, while it can be said that a TPV of €1,000,000 is an exceptionally high value for a "house of residence," thus denoting a 'particularly high' contributive capacity, which a person owning two properties of lower value does not possess, it is not true that the ownership of a building lot with a TPV of €1,000,000 euros denotes a greater contributive capacity than that of a person who owns two plots each valued at half a million euros.
Consequently, there is no "sufficient material foundation for the differentiation of taxation to which item 28.1 of the GSTT leads, with respect to building land.
And consequently, we must conclude that this discrimination is arbitrary, because it lacks sufficient rational foundation, and therefore violates and breaches the principle of tax equality contained in Article 13 of the Constitution."
In the same sense, it was decided in Case 259/2014-T, which we subscribe to in its entirety:
Delving a little deeper, it cannot be said that the literal element is dissonant with the legislator's intention. In fact, from the intervention of the Secretary of State for Tax Affairs in the National Parliament, on the occasion of the presentation and discussion of the proposal relating to the budgetary law, the will to impose the new taxation on (all) properties with residential allocation and with TPV exceeding a certain value emerges. There it was stated that within a framework of "measures that effectively strengthen a just and equitable distribution of the burden of adjustment by a broad and comprehensive set of sectors of Portuguese society," a "special tax on high-value urban residential properties" is created, it being stressed that "this is the first time that Portugal has created a special taxation on high-value properties intended for residential purposes," which "will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses valued at equal to or exceeding 1 million euros," whereby "the fiscal burden required from these owners will be significantly increased in 2012 and 2013."
Now, from this statement it follows precisely the intention to negatively discriminate against owners of properties intended for residential purposes with TPV exceeding a certain amount, as that property right expresses an increased contributive capacity, justifying an additional contribution to budgetary balance efforts. And as is read in the Decision issued in Case no. 50/2013-T of CAAD, "The legislator, in introducing this legislative innovation, considered as the determining element of contributive capacity urban properties, with residential allocation, of high value (luxury), more precisely, valued at equal to or exceeding €1,000,000.00, on which a special rate of stamp tax now applies, intending to introduce a principle of taxation on wealth exteriorized in the ownership, usufruct or right of superficies of luxury urban properties with residential allocation. For this reason, the criterion was the application of the new rate to urban properties with residential allocation, whose TPV is equal to or exceeding €1,000,000.00", invoking for this purpose "the principles of social equity and fiscal justice, calling upon the holders of high-value properties intended for residential purposes to contribute in a more intense manner, applying the new special rate to 'houses valued at equal to or exceeding 1 million euros'." Or, as is stated in the decision taken in Case 4/2014-T, also of CAAD, "the legislator understood that the value of one million euros, when attributed to a residential property, expresses a contributive capacity above the average and, as such, capable of determining a special contribution to ensure fair distribution of the fiscal burden."
But it is precisely this intention of, at a moment of special financial emergency, identifying exteriorizations of particularly increased contributive capacities, thus leading to strong negative discrimination, that should make us doubt the goodness of a merely literal interpretation of the rule and the constitutional risks that it inevitably carries.
The incidence of the new special rate on "houses valued at equal to or exceeding 1 million euros," as a form of implementing the "principles of social equity and fiscal justice, calling upon the holders of high-value properties intended for residential purposes to contribute in a more intense manner," effectively leads to the necessity of testing the preceding interpretation in light of the legislator's real intention and constitutional principles. For it is manifestly very different to be the owner of a luxury property or of a co-owned share of it. The contributive capacities exteriorized in the two situations are necessarily diverse, to the detriment of the second case, as is obvious. Even though the diversity one intends to refer is manifest, it is important to resort to an example to well illustrate such diversity: the owner of a property with a certain market value (understanding TPV thus as an approximation to market value – cf. José Maria Fernandes Pires, Lessons on Property Taxes and Stamp Tax, p. 15, 2nd ed. 2012, Almedina), externalizes a contributive capacity ten times greater than that of a co-owner of an equivalent property, with the same market value and in which holds an ideal share of ten percent. And this co-owner, in turn, possesses a contributive capacity identical to, if not less than, that of the owner of a property with a market value of ten percent of the property initially referred to. This is because luxury properties do not necessarily evidence an exceptional contributive capacity, if held solely in co-ownership. As is evident, this exteriorization of increased contributive capacity will be dependent on the combined effect of the value of the property and the concrete proportion of the co-owner's right. Otherwise, we would have manifest inequality of co-owners compared to owners of properties with value equivalent to the value of the co-owned share of those co-owners, should this value be less than one million euros.
Thus are evident the doubts and limitations that a literal reading places on the compatibility of the rule, if read in that sense, with the principle of equality, or equity in the terminology of Glória Teixeira, whether in the sense of horizontal equity or in the sense of vertical equity (Glória Teixeira, Manual of Tax Law, p. 56, 2nd ed., Almedina). And as is well stated in Decision 117/2013 T of CAAD, "the interpretation exclusively based on the literal meaning .... cannot be accepted, for in the interpretation of tax rules the general rules and principles of interpretation and application of laws are observed (Article 11, paragraph 1, of the GTL) and Article 9, paragraph 1, expressly prohibits interpretations exclusively based on the literal meaning of the rules by stating that 'interpretation must not be limited to the letter of the law,' instead it must 'reconstruct from the texts the legislative intention, taking especially into account the unity of the legal system, the circumstances in which the law was made and the specific conditions of the time in which it is applied.' And because for there to be correspondence between the interpretation and the letter of the law, a 'minimum of verbal correspondence, even if imperfectly expressed' will suffice (Article 9, paragraph 3, of the Civil Code), this will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even recognizing in it imperfection in the expression of the legislative intention. For this reason, the letter of the law is no obstacle to declarative interpretation, which makes explicit the scope of the literal meaning, nor even restrictive interpretation, when it can be concluded that the legislator said less than what, in coherence, it would have intended to say, that is, when it said imperfectly what it intended to say."
Now, in the case in question, a declarative interpretation is therefore imposed, or possibly a restrictive one, which reconciles it with the principle of equality, as the rule aims to call upon only those who have greater capacity to do so, exteriorized in a certain way. Such negative discrimination must therefore be anchored in solid exteriorization of an exceptional contributive capacity, and one cannot admit a tax claim on those who do not exteriorize it, especially if taxation is possible to not exist in cases of equivalent contributive capacity.
Now, the useful meaning of the rule, for situations such as those of the concrete case, will have to be sought by keeping this difficulty well in mind and also the fact that the tax in which the new taxation is inserted cannot help with the interpretation, as the Stamp Tax corresponds to a tax which "applies to a heterogeneous multiplicity of facts or acts … without a common trait that gives them identity," a fact aggravated by the Reform of Property Taxation of 2003/2014, making its classification even more complex (cf. José Maria Fernandes Pires, Op. Cit., p. 422).
This interpretative help shall be found, precisely, in the principle of tax equality, implicitly integrated in the constitutional principle of equality (Article 13 of the Constitution), which, as Sérgio Vasques well states, is more than a mere negative limit and imposes more than mere prohibition of arbitrariness, instead postulating a distribution of taxes in accordance with the criterion of contributive capacity (cf. Article 4 of the GTL) – "the material criterion of equality appropriate to taxes" – postulating that taxes apply "to the wealth … in a way that reflects the actual economic strength of the taxpayer," reason for which "the tax should only begin where this economic strength begins," and must "end where that economic strength ends also, with contributive capacity operating as its limit" (cf. Manual of Tax Law, p. 249 et seq, 2011, Almedina).
Considering this limit to taxation (where there is no "economic strength"), the conclusion that there cannot be taxation whenever the real estate patrimony, viewed as a whole, is less than the stated limit of one million euros, is ineluctably imposed on the interpreter. Moreover, it is clear that the legislator could not have intended any other option, even if it expressed its thought inappropriately, as any other interpretative option would not be compatible with the system as a whole and this reading is fundamental to maintain, at least for this reason, the conformity of the rule with fundamental constitutional principles essential to its validity in the legal system, such as the principles of equality and contributive capacity.
And if doubts should persist, recourse should always be made to the economic interpretation of the concept, postulated by the questioned paragraph 3 of Article 11 of the GTL, which is understood to point in the direction sustained here (on this matter cf. Taxes, General Theory, Américo Fernando Brás Carlos, p. 196, 2014, 4th ed. Almedina), as the meaning of the rule is to require an additional contribution for the effort to control budgetary deficit, on the revenue side, from the holders of properties intended for residential use with value equal to or exceeding one million euros, a requirement which, economically, having present the principle of substance over form, the Respondent does not meet.
From the foregoing it is clear that a merely literal interpretation of the rule would not be constitutionally acceptable, thus requiring a constitutional conforming interpretation, so as to accommodate in the implementation of the new item 28.1 of the GSTT the full compliance with the principles of equality and contributive capacity, to which the tax legislator is subordinated.
Now, "constitutionally conforming interpretation" corresponds to a "method which, among the various possible results of the interpretation of a legislative text, chooses that which can be considered compatible with the constitutionally enshrined principles," being precisely that which "will happen whenever one or another interpretation might result in a breach of the principle of equality, potentially violated by a certain application of the legal text" (cf. J. L. Saldanha Sanches, Manual of Tax Law, 3rd Edition, Coimbra Editora, p. 147 et seq), just as would ineluctably occur in the case in question, were the interpretation sustained by the Respondent to be followed.
And because the tax legislator is subordinated to the principles of equality (Article 13 of the Constitution) and contributive capacity (Constitution and Article 5, paragraph 2 of the GTL), which postulate that the legislator must anchor taxation in reasonable and non-arbitrary economic elements, capable of justifying the tax claim in a contributive capacity concretely exteriorized by the taxpayer, one must seek in the text of the rule a reading that gives effect to those principles.
In this case the increased contributive capacity glimpsed by the legislator corresponds to the holding of real estate property, intended for residential purposes, of particularly high value. Now, the co-owner does not hold, or does not necessarily hold, real estate property intended for residential purposes of particularly high value, whenever it is a co-owner of property intended for residential purposes with TPV equal to or exceeding one million euros. It suffices, as we have seen, that its co-owned share is such that the taxable property value that proportionally corresponds to its right does not reach that minimum threshold of tax relevance, of minimum exteriorization of an increased contributive capacity, as provided by the legislator.
The thesis sustained by the Respondent cannot therefore proceed, and instead the interpretation pursued by the Claimant must be adhered to, imposing itself the conclusion that the tax act is infected with error of law in its prerequisites, thus suffering from the defect of violation of law, in this case the new item 28.1 of the GSTT.
In both proceedings it was decided in the same sense.
Indeed, it is the understanding that the TPV of Item 28.1 should be considered the value allocated to residential purposes that the co-owner holds and not the total value of the property, and that the contrary understanding would violate the principle of contributive capacity.
Following the same interpretative logic, arbitral jurisprudence was issued within the scope of Cases 50/2013-T, 132/2013-T, 507/2016-T, 513/2016-T, 82/2017-T, regarding the question of taxation of Stamp Tax on properties in co-ownership regime of properties with residential allocation in vertical ownership (not horizontal), which interpreted Item 28.1 in the sense that the TPV to be considered is the individual value of each property with independent use and not the total value of the property, even if the co-owner holds a co-owned share of the total value of the property exceeding €1,000,000, in accordance with the decision issued in Case 50/2013-T:
From this we can conclude that, in the legislator's view, what matters is not the juridical-formal rigor of the concrete situation of the property but rather its normal use, the purpose to which the property is intended. We also conclude that for the legislator the situation of the property in vertical ownership or in horizontal ownership was not relevant, as no reference or distinction is made between some and others. What is relevant is the material truth underlying its existence as an urban property and its use.
Using the criterion that the law itself introduced in Article 67, paragraph 2 of the Stamp Tax Code, "to matters not regulated in the present Code relating to item 28 of the General Table, the following is applied subsidiarily..." [MPTC rules apply].
Now, being thus, considering that the registration in the register of properties in vertical ownership, consisting of different parts, floors or divisions with independent use, in accordance with the MPTC, follows the same rules of registration of properties constituted in horizontal ownership, with their respective Municipal Property Tax, as well as the new Stamp Tax, being assessed individually in relation to each of the parts, there is no doubt that the legal criterion for defining the incidence 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 way as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax.
Thus, the new stamp tax would only apply if any of the parts, floors or divisions with independent use presented a TPV exceeding €1,000,000.00.
The TA cannot therefore consider as the reference value for the incidence of the new stamp tax the total value of the property, when the legislator itself established a different rule under the MPTC, and this is the code applicable to matters not regulated regarding item 28 of the GSTT.
The criterion sought by the TA, of considering the value of the sum of the TPV attributed to the parts, floors or divisions with independent use, on the argument that the property is not constituted in horizontal ownership regime, finds no legal support and is contrary to the criterion that results applicable under the MPTC and, by reference, under the Stamp Tax.
To which is added the fact that the law itself expressly establishes, in the final part of item 28 of the GSTT, that the Stamp Tax applying to urban properties with value equal to or exceeding €1,000,000 – "on the taxable property value used for Municipal Property Tax purposes."
Thus, the adoption of the criterion defended by the TA violates the principles of legality and fiscal equality, as well as the prevalence of material truth over juridical-formal reality.
The tax legislator in Article 12, paragraph 3 of the MPTC states that "each floor or part of a property capable of independent use is considered separately in the registration for which the respective taxable property value is also separately stated," with no distinction made regarding the regime of properties that are in horizontal or vertical ownership, if the property were in horizontal ownership regime, none of its residential fractions would suffer the incidence of the new tax, whereby the TA cannot treat equal situations differently.
Indeed, material truth is what must be imposed as the determining criterion of contributive capacity and not mere juridical-formal reality of the property, the scope of the TPV provided for in item ii of Item 28.1 must be adapted to the material reality of the property and of the taxpayer.
As such the TPV for purposes of Item 28.1 must be in consonance with the meaning that the Legislator conferred upon it.
As results from the interpretation conferred by the works of presentation and discussion in the National Parliament, this rule and the stated rate of 1% must be interpreted in the sense of being applicable to taxpayers who hold a property whose residential allocation, calculated in accordance with the MPTC, is exceeding €1,000,000.
Faced with the jurisprudence cited above, we can conclude that the scope and meaning to be given to item 28.1 does not apply to taxpayers who hold a co-owned share of less than €1,000,000 of the TPV of a property whose TPV in its entirety is greater than €1,000,000.
In accordance with the principle of tax equality and the criterion of contributive capacity, the present assessment would result in unequal treatment of equal situations.
First, for purposes of calculating the TPV of item 28.1, only the part allocated to residential purposes is considered, as has already been decided on several occasions by the Arbitral Tribunals.
A position that was adopted by the TA in the assessment of Stamp Tax and defended in its response. It identified as exempt/not subject value (value of €208,458.31) and as such excluded from taxation, as it is not allocated for residential building purposes or is allocated for service and commerce purposes.
Let us return to the present case in which the Claimant is (co)owner of a property whose residential allocation, calculated in accordance with the MPTC, is of the taxable property value of €726,751.69, a value which was considered by the TA for the incidence of the Tax, as demonstrated by the assessment notices.
In this manner, the Claimant is the owner of a property whose value is less than €1,000,000.00, consequently it is not legally covered by a tax whose rate is expressly applicable to taxpayers who hold a property valued above €1,000,000.00.
However, it results that within the scope of Stamp Tax, each co-owner is individually responsible for the payment of their tax.
Stamp Tax must be calculated individually without considering the position of the other owners.
Under Stamp Tax, the taxpayer is solely and exclusively responsible for the payment of their Stamp Tax and not for the totality of the Stamp Tax attributed to the entire Property.
In the present case, the value for purposes of Stamp Tax taxation, the responsibility of the Claimant is in the amount of €726,751.69, as calculated in accordance with the MPTC, as being the TPV attributed to the part allocated to residential construction.
Additionally, it is clarified that the non-payment of Stamp Tax by one of the co-owners does not imply the joint payment by the others of that Stamp Tax.
In the present case and in accordance with the assessments effected by the TA, it issued an assessment of the exclusive responsibility of the Claimant, not transferable to the other Co-owners.
Moreover, Stamp Tax is taxed individually for each co-owner, with the respective payment responsibility not being transferable, nor joint, nor even dependent on the others.
Before what is set out, the Claimant does not hold a building lot whose authorized or contemplated construction is for residential purposes with a TPV for purposes of Stamp Tax taxation exceeding 1 million euros.
Indeed, the assessment sub judice, for which a declaration of illegality is sought, is infected with the defect of violation of that item no. 28.1, due to error regarding the law's prerequisites.
In the terms set out above, the decision is rendered for the illegality of the assessments.
Let us turn next to the alleged invocations that also constitute the subject matter of the foundation of the Claimant, regarding the alleged unconstitutionality, for violation of the principles of equality and proportionality.
Pursuant to Articles 608, paragraph 2, 663, paragraph 2 and 679 of the Civil Procedure Code, by application of Article 29 of the LRAT, the present Arbitral Tribunal is not required to examine all arguments alleged by the Claimant nor by the Respondent, when the decision is rendered moot by the solution already given, which in the present case translates into the decision of illegality of the assessments.
Before what is set out, and because a decision has been rendered for the illegality of the assessments, the examination of the alleged unconstitutionality, for violation of the principles of equality and proportionality, is thus rendered moot.
In conclusion, the present Tribunal decides for the declaration of illegality of the assessments sub judice, for being infected with the defect of violation of item no. 28.1, due to error regarding the law's prerequisites, which justifies the declaration of their illegality and annulment.
J - DECISION
In view of all the foregoing, the present Arbitral Tribunal decides:
To grant the claim for declaration of illegality of the tax assessment acts for Stamp Tax, nos. 2017..., 2017..., relating to the year 2015, which established a tax payable of €14,535.04 (fourteen thousand five hundred and thirty-five euros and four cents).
To condemn the Respondent to refund to the Claimant this amount unduly assessed and paid.
The value of the case is set at €14,535.04 (fourteen thousand five hundred and thirty-five euros and four cents), corresponding to the value of the assessment given the economic value of the case assessed by the value of the tax assessments challenged, and in accordance therewith the costs are set, in the respective amount of €918.00 (nine hundred and eighteen euros), at the charge of the Respondent, in accordance with Article 12, paragraph 2 of the Tax Arbitration Regime, Article 4 of the Rules of Procedure for Tax Arbitration and Table I annexed thereto. – paragraph 10 of Article 35, and paragraphs 1, 4 and 5 of Article 43 of the GTL, Articles 5, paragraph 1, item (a) of the Rules of Procedure for Tax Courts, 97-A, paragraph 1, item (a) of the Code of Administrative Procedure and 559 of the Civil Procedure Code.
Notify.
Lisbon, 11 September 2017.
The Arbitrator
Rita Guerra Alves
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