Stamp Tax on High-Value Properties: Vertical Property vs Horizontal Property - CAAD Rules Aggregation of Values Illegal (Process 194/2014-T)

ARBITRAL DECISION

I. Report

..., taxpayer number ..., resident in Lisbon, at Rua ... (hereinafter referred to as "Applicant"), filed on February 27, 2014, a request for constitution of a collective arbitral tribunal in tax matters, which was accepted, seeking the declaration of illegality of tax assessment acts for Stamp Tax, relating to the application of item 28.1 of the General Stamp Tax Table (TGIS) to properties of which she is the owner, relating to the year 2012, presenting a cumulation of claims for procedural economy.

Pursuant to the provisions of paragraph a) of number 2 of article 6 and paragraph b) of number 1 of article 11 of Decree-Law number 10/2011, of January 20, as amended by article 228 of Law number 66-B/2012, of December 31, the Deontological Council of the Administrative Arbitration Center designated as arbitrators Jorge Lino Ribeiro Alves de Sousa (president-arbitrator), Maria Manuela Roseiro and Ana Teixeira de Sousa, and the parties, after being duly notified, did not express opposition to this designation.

Thus, in accordance with the provisions of paragraph c) of number 1 of article 11 of Decree-Law number 10/2011, of January 20, as amended by article 228 of Law number 66-B/2012, of December 31, the collective arbitral tribunal was constituted on May 5, 2014.

The highest official of the Tax and Customs Authority service (hereinafter referred to as "Respondent") was notified to, if desired, within 30 days, present a response and request production of additional evidence, and a response was filed on June 5, 2014, signed by the legal experts Ms. Dr. ... and Dr. ..., in the name and representation of the Respondent.

In light of the AT's Response, the tribunal, through an order dated June 5, 2014, from its President, decided to dispense with the meeting referred to in article 18 of the RJAT and that the final decision will be presented by July 31, 2014.

In response to arbitral orders dated June 24 (requesting the Respondent to submit the administrative file) and July 7, 2014 (requesting the Applicant to provide a legible copy of documents previously sent with the initial Petition, as Doc. number 1), the AT sent an order of designation but informed that "there is no gracious proceeding that configures the nature of an administrative proceeding, to be submitted under the terms of number 2 of article 17 of the RJAT"; the Applicant sent, on July 10, 2014, a new set of documents[1].

1. The Request for Arbitral Ruling

Summarizing, the grounds presented by the Applicant are as follows:

The cumulation of claims is justified given that the claims concern acts of liquidation of Stamp Tax carried out under item 28.1 of the General Stamp Tax Table, relating to situations in which the same factual circumstances and application of identical principles and rules of law are at issue;

In October 2013, she was notified of the following documents for payment, in the month of November, of Stamp Tax under Item 28.1 of the TGIS, relating to the following properties:

[TABLE: S. Sebastião U-... with payment month Nov-13, liquidation dates 17-07-2013, various document IDs from 2013, amounts ranging from €506.60 to €997.20, Total: €12,280.40]

[TABLE: Coração de Jesus U-... with payment month Nov-13, liquidation dates 14-07-2013, various document IDs from 2013, amounts ranging from €890.20 to €1,430.70, Total: €15,551.00]

[TABLE: São Sebastião U-... with payment month Nov-13, liquidation dates 17-07-2013, various document IDs from 2013, amounts ranging from €578.90 to €1,029.70, Total: €11,873.10]

[TABLE: Coração de Jesus U-... with payment month Nov-13, liquidation dates 14-07-2013, various document IDs from 2013, amounts ranging from €890.20 to €1,432.90, Total: €12,960.00]

[TABLE: Santo Condestável U-... with payment month Nov-13, liquidation dates 14-07-2013, various document IDs from 2013, amounts ranging from €756.30 to €864.90, Total: €11,264.90]

She made payment of the tax demanded of her, despite disagreeing with the liquidations as she considers them illegal;

Given the wording of number 1 of article 1 of the Stamp Tax Code in conjunction with Item 28 of the TGIS, in the wording in force at the date of the facts, which was added by Law number 55-A/2012, of October 29, the tax is levied on the ownership, usufruct or surface right of properties whose tax patrimonial value appearing in the matriz, under the terms of the IMI Code, is equal to or greater than €1,000,000.00, and, in the present case, it results from the attached documents that the liquidations concern properties constituted, in vertical property, by floors or divisions capable of independent use whose tax patrimonial values registered in the matriz under the terms of the Municipal Property Tax Code (CIMI) are not greater than €1,000,000.

From the set of applicable norms (number 7 of article 23 of the Stamp Tax Code and number 3 of article 12 and number 1 of article 113 of the IMI Code, as well as paragraph u) of number 1 of article 5 of the CIS) there is no legal provision that makes the tax patrimonial value of a property composed of various independent divisions or units correspond to the sum of the respective parts.

IMI is liquidated annually in relation to each part capable of independent use and taking into account the respective tax patrimonial value appearing in the matrizes, finding no support in the letter or spirit of the law, the fiction of the existence of a tax patrimonial value corresponding to the sum of the tax patrimonial values of the various floors or divisions capable of independent use, as has been decided by unanimous CAAD jurisprudence.

The liquidations apply an unconstitutional norm, by violation of the principle of equality constitutionally enshrined in article 13 of the Constitution of the Portuguese Republic (CRP).

If the legislator introduced a difference between properties that have been constituted in horizontal property and properties in total property with floors or parts capable of independent use, the principle of equality would be violated as it would be a totally arbitrary distinction, without prior opportunity having been given to owners of properties in total property with parts capable of independent use to constitute horizontal property.

The liquidations of Stamp Tax are illegal insofar as they suffer from a vice of violation of Law, by applying an invalid norm in the face of a rule of superior hierarchy.

There is also nullity of the liquidations as they are administrative acts that offend "the content of a fundamental right" (article 133, number 1, paragraph d) of the CPA), as is the case with the principle of equality, a right included in the catalog of fundamental rights.

On the other hand, in the present case, the AT notified the Applicant to proceed with the full payment of the Stamp Tax registered in each liquidation, of an amount greater than €500 (five hundred euros), in clear violation of the provisions of number 1 of article 120 of the IMI Code, combined with number 1 of article 113 of the same Code, all under the terms of the referral of number 7 of article 23 of the Stamp Tax Code.

The liquidations of Stamp Tax, relating to the year 2012, under item 28.1 of the respective TGIS, dated 14/07/2013 and 17/07/2013, should be annulled, and the tax paid by the Applicant should be reimbursed plus compensatory interest at the legal rate.

The Response of the Tax and Customs Authority

The Respondent responded, in summary:

The contested liquidations, dated 14/07/2013 and 17/07/2013, refer to the year 2012 and concern five distinct properties in total property regime with divisions, totaling €63,929.40.

Contrary to what the Appellant argues, it results unequivocally from the letter of the law that the legislator wanted to tax with item 28.1 of the TGIS properties as a single legal-tax reality.

According to article 2, number 4, of the CIS, in the situations provided for in item 28 of the TGIS, the taxable persons of the tax are the taxable persons of IMI, under the terms of article 8 of the CIMI and, according to article 3, number 3, paragraph u), of the CIS, the burden of Stamp Tax falls on the taxable persons referred to in art. 8 of the CIMI.

As the taxable event of stamp tax of item 28.1. consists of the ownership, usufruct or surface right of urban properties whose tax patrimonial value appearing in the matriz, under the terms of the CIMI, is equal to or greater than €1,000,000.00, the patrimonial value relevant for purposes of tax incidence is the total patrimonial value of the urban property and not the patrimonial value of each of the parts that compose it, even when capable of independent use.

Article 80, number 2, of the CIMI declares that to each property corresponds a single article registered in the matriz, except as provided in articles 84 and 92, that is, the principle that to each property corresponds only one matricial article is excepted with respect to mixed properties in which, according to the said article 84, each of the distinct parts is registered in the matriz in the part that competes to it and with respect to properties constituted in horizontal property in which, despite, under the terms of article 2, number 4, of the CIMI, each autonomous fraction is regarded as constituting a property, corresponding to each building in horizontal property regime a single matricial registration.

In the case sub judice, the properties are not in horizontal property regime (situation in which each of the autonomous fractions would be regarded as urban property, including for purposes of subjection to stamp tax of item 28.1. of the TGIS) but in vertical property regime.

According to article 12, number 3, of the CIMI, each floor or property capable of independent use is considered separately in the matricial registration, which discriminates the respective tax patrimonial value on which IMI is liquidated.

Also when the body of art. 232, rule 1, of the Property Tax and Agricultural Industry Tax Code (CCPIIA), provided that each dwelling or part of property was automatically taken for purposes of determining the taxable income on which the liquidation should fall, the taxable income necessarily had to correspond to the sum of the rent or rental value of each of the components of the property with economic autonomy.

Thus, for purposes of registration in the property matriz, the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent, is relevant, but the unity of the urban property in vertical property composed of various floors or divisions is not affected by the fact that all or part of those floors or divisions are capable of independent economic use and registered separately under the terms of articles 37 and following of the CIMI.

Because such property does not cease to be only one, and its distinct parts are not legally equated to autonomous fractions in horizontal property regime, nor can its ownership, without prejudice to the co-ownership regime, be attributed to more than one owner.

Thus, in the present case, the tax patrimonial value on which the incidence of Stamp Tax of item number 28.1. of the General Table depended had to be, as it was, the global patrimonial value of the properties, and not that of each of their floors or independent parts, having no influence the fact that IMI was determined based on the tax patrimonial value of each floor or part of the properties with independent economic use, because item number 28.1 of the TGIS is applied according to the rules of the CIMI but with reservation of aspects that require due adaptations as is this case of properties in total property, with floors or divisions capable of independent use.

For Stamp Tax purposes, the property in its entirety is relevant since divisions capable of independent use are not regarded as property, only autonomous fractions in the horizontal property regime being so because number 4 of article 2 of the CIMI provides that "each autonomous fraction, in the horizontal property regime, is regarded as constituting a property", the same not occurring with respect to floors or parts capable of independent use of a property in total property with divisions.

The argument of violation of the constitutional principle of tax equality does not succeed because this principle prohibits arbitrary or unjustified discriminations but not discriminations possibly justified by the more evolved character of the institutes or by the coherence of the tax system.

The provision of item 28.1 of the TGIS does not embody any arbitrary discrimination in the taxation of properties constituted in horizontal property and properties in total property with floors or divisions capable of independent use because it focuses on the ownership, usufruct or surface right of urban properties with residential allocation, whose tax patrimonial value appearing in the matriz, under the terms of the CIMI, is equal to or greater than €1,000,000.00, applying to all cases in which the respective factual and legal assumptions are verified;

Taxation under Stamp Tax obeys the criterion of adequacy, aiming at the taxation of wealth embodied in the ownership of high-value real estate, emerging in a context of economic crisis that cannot be ignored.

The distinct treatment of properties in horizontal and vertical property regimes is a discrimination imposed by the need to impose coherence on the tax system, not arbitrary because they are distinct realities, differently valued by the legislator,

The measure seeks maximum effectiveness, as to the objective to be achieved, with minimum injury to other interests considered relevant, the incidence option defined is legitimized by obtaining revenue and would only be censurable, in light of the principle of proportionality, if it were manifestly indefensible – and it is not because it applies indistinctly to all holders of real estate with residential allocation of value greater than €1,000,000.00.

As for the vice of law imputed to the liquidations because the Applicant was notified for full payment of the Stamp Tax, when this amounted, in each of the liquidations, to an amount greater than €500, with violation of article 120, number 1 of the CIMI and article 23, number 7 of the CIS, it does not succeed because this last article refers to the liquidation rules contained in the CIMI, albeit with the necessary adaptations, providing nothing as to the question of payment of the tax, so the interpretation supported by the Applicant has no legal basis.

And paragraph e) of number 1 of article 6 of Law number 55-A/2012, of October 29, which amended the CIS, provides that as to the year 2012, the liquidation of Stamp Tax, provided for in item 28 of the TGIS, must be paid in a single installment.

The liquidations are correct and should be maintained and the request for ruling should be judged to lack merit, absolving the Respondent entity from the request.

1. Object of the Request

In addition to the preliminary question, relating to the possibility of cumulation of claims, the questions that the Applicant intends to have decided are:

Legality of the liquidation of Stamp Tax provided for in item 28.1 of the TGIS (added by article 4 of Law number 55-A/2012, of October 29) with respect to the global tax patrimonial value of a building, corresponding to the sum of the tax patrimonial values of various floors or divisions capable of independent use.

Unconstitutionality of the norm applied by violation of the principle of equality enshrined in article 13 of the Constitution.

Legality of the demand for payment of the liquidations notified, each reaching an amount greater than €500, in a single installment, in light of the provisions of article 120, number 1, of the CIMI and article 23, number 7 of the CIS.

1. Preliminary Matters

The cumulation of claims made in the present request for arbitral ruling, in which acts of liquidation of the same tax (Stamp) are at issue, based on the same factual basis and applying the same rules of law, is fully justified in light of the principle of procedural economy enshrined in article 3 of the RJAT[2].

The collective arbitral tribunal is materially competent, under the terms of the provisions of articles 2, number 1, paragraph a) of the Legal Regime of Arbitration in Tax Matters.

The parties enjoy legal personality and capacity and have standing under the terms of art. 4 and number 2 of art. 10 of the Legal Regime of Arbitration in Tax Matters (RJAT), and art. 1 of Ordinance number 112-A/2011, of March 22.

The process does not suffer from any nullity nor have the parties raised any exceptions that prevent the appreciation of the merits of the case, so the conditions for issuing the arbitral decision are met.

II. GROUNDS

1. Proven Facts

Based on the documents submitted by the Applicant (request for arbitral ruling, Doc. number 1 attached with that Request; Response of the A.T.), the following facts are established[3]:

11.1. The Applicant is the owner of various floors or divisions of five buildings in total or vertical property, that is, not constituted in horizontal property (article 1 of the Application for arbitral ruling; article 2 of the Response and liquidation documents submitted to the case by the Applicant on July 10, 2014, combined with Doc. number 1, attached with the Request, whose content is deemed reproduced).

11.2. In the building with the matricial article U-..., of the parish of São Sebastião, municipality of Lisbon, the Applicant is the owner of 13 (thirteen) divisions with independent use – basement; ground floor E; ground floor D; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D - whose tax patrimonial values are, respectively, €50,660.00; €96,460.00; €96,460.00; €97,760.00; €97,760.00; €97,760.00; €97,760.00; €98,740.00; €98,740.00; €98,740.00; €98,740.00; €99,720.00 and €99,720.00.

11.3. In the building with the matricial article U-..., of the parish of Coração de Jesus, municipality of Lisbon, the Applicant is the owner of 12 (twelve) divisions with independent use - ground floor E; ground floor D; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D - whose tax patrimonial values are, respectively, €133,810.00; €133,810.00; €143,070.00; €134,290.00; €143,070.00; €134,290.00; €143,070.00; €134,290.00; €143,070.00; €134,290.00; €89,020.00 and €89,020.00.

11.4. In the building with the matricial article U-... of the parish of São Sebastião, municipality of Lisbon, the Applicant is the owner of 12 (twelve) divisions with independent use – basement E; basement D; ground floor; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D - whose tax patrimonial values are, respectively, €57,890.00; €99,720.00; €102,970.00; €102,970.00; €102,970.00; €102,970.00; €102,970.00; €102,970.00; €102,970.00; €102,970.00; €102,970.00 and €102,970.00.

11.5. In the building with the matricial article U-..., of the parish of Coração de Jesus, municipality of Lisbon, the Applicant is the owner of 10 (ten) divisions with independent use - ground floor; 1st; 2nd D; 2nd E; 3rd D; 3rd E; 4th D; 4th E; 5th D; 5th E - whose tax patrimonial values are, respectively, €133,810.00; €143,070.00; €143,070.00; €134,290.00; €143,070.00; €134,290.00; €143,070.00; €143,290.00; €89,020.00 and €89,020.00.

11.6. In the building with the matricial article U-... of the parish of Santo Condestável, municipality of Lisbon, the Applicant is the owner of 14 (fourteen) divisions with independent use – basement E; basement D; ground floor E; ground floor D; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D, whose tax patrimonial values are respectively €82,830.00; €78,310.00; €75,630.00; €84,670.00; €83,300.00; €78,730.00; €76,440.00; €85,580.00; €77,250.00; €66,490.00; €77,250.00 and €86,490.00.

11.7. The amounts referred to in the liquidations as total VPT of the buildings identified in the previous number are as follows: the property with the matricial article U-... of the parish of São Sebastião, the total VPT of €1,228,040.00 (one million two hundred twenty-eight thousand and forty euros); the property with the matricial article U-..., of the parish of Coração de Jesus, the total VPT of €1,555,100.00 (one million five hundred fifty-five thousand one hundred euros); the property with the matricial article U-... of the parish of São Sebastião, the total VPT of €1,187,310.00 (one million one hundred eighty-seven thousand three hundred ten euros); the property with the matricial article U-..., of the parish of Coração de Jesus, the total VPT of €1,296,000 (one million two hundred ninety-six thousand euros); the property with the matricial article U-... of the parish of Santo Condestável the total VPT of €1,126,490 (one million one hundred twenty-six thousand four hundred ninety euros) (cf. 46 documents sent to the case on 7/10/2014, and doc number 1, hardly legible, attached with the Request).

11.8. In October 2013, the Applicant was notified of different liquidations of Stamp Tax, some dated July 14, 2013 and others July 17, 2013, relating to the buildings described in the previous numbers (article 6 of the Request).

11.9. The liquidations referred to the year 2012, indicated as foundation item 28.1 of the TGIS, applied the 1% rate to the patrimonial value of each property subject to IMI, but taking into account the global VPT of the building in which each of the taxed properties was inserted (liquidations annexed under the joint designation of document number 1 of the application for ruling).

11.10. The amounts of the levies liquidated as Stamp Tax (item 28.1 of the TGIS) in relation to each of the five buildings in question (11.2 to 11.7) were:

11.10.1. As for the building with the matricial article U-... of the parish of São Sebastião, on the 13 (thirteen) autonomous divisions: €506.60; €964.60; €964.60; €977.60; €977.60; €977.60; €977.60; €987.40; €987.40; €987.40; €987.40; €997.20 and €997.20, relating to Basement; Ground floor E; Ground floor D; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D, respectively.

11.10.2. As for the building with the matricial article U-..., of the parish of Coração de Jesus, on 12 (twelve) autonomous divisions: €1,338.10; €1,338.10; €1,430.70; €1,342.90; €1,430.70; €1,342.90; €1,430.70; €1,342.90; €1,430.70; €1,342.90; €890.20 and €890.20, relating to ground floor E; ground floor D; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D, respectively.

11.10.3. As for the building with the matricial article U-... of the parish of São Sebastião, on 12 (twelve) autonomous divisions: €578.90; €997.20; €1,029.70; €1,029.70; €1,029.70; €1,029.70; €1,029.70; €1,029.70; €1,029.70; €1,029.70; €1,029.70 and €1,029.70, relating to Basement; Ground floor; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D, respectively.

11.10.4. As for the building with the matricial article U-..., of the parish of Coração de Jesus, on 10 (ten) autonomous divisions: €1,338.10; €1,430.70; €1,430.70; €1,342.90; €1,432.90; €1,342.90; €1,430.70; €1,432.90; €89,020 and €89,020, relating to Ground floor; 1st; 2nd E; 2nd D; 3rd D; 3rd E; 4th D; 4th E; 5th D; 5th E, respectively.

11.10.5. As for the building with the matricial article U-... of the parish of Santo Condestável, on 14 (fourteen) autonomous divisions: €828.30; €783.10; €778.90; €756.30; €756.30; €846.70; €833.00; €787.30; €764.40; €855.80; €772.50; €866.49; €772.50 and €864.90, relating to basement E; basement D; Ground floor E; Ground floor D; 1st E; 1st D; 2nd E; 2nd D; 3rd E; 3rd D; 4th E; 4th D; 5th E and 5th D, respectively.

11.11. The Applicant proceeded on November 29, 2013, therefore within the deadline that had been granted, to payment of the tax demanded by the liquidations (stamps affixed on the liquidation documents attached with the Request as Doc number 1).

1. Unproven Facts

There are no unproven facts with relevance to the decision of the case.

1. Applicable Law

13.1. The scope of incidence of item 28 of the General Stamp Tax Table

It results from the positions of the Parties that the essential question in these proceedings consists of knowing whether in the case of properties in total property, with floors or divisions of independent use but not constituted in horizontal property regime, the VPT to be considered for purposes of incidence of Stamp Tax provided for in item 28.1 of the TGIS should correspond to the VPT of each floor or division with residential allocation and independent use or to the sum of the VPT corresponding to the floors or divisions of independent use with residential allocation. That is, knowing whether the relevant VPT as a criterion of tax incidence is that corresponding to the sum total of the tax patrimonial value attributed to the different parts or floors (global VPT) or, rather, the VPT attributed to each of the residential parts or floors.

This question has already been addressed in several proceedings within Tax Arbitration[4], and no arguments have been identified so far that would allow breaking the unanimity that has been achieved in the decisions issued.

Item 28 of the General Stamp Tax Table, annexed to the Stamp Tax Code (CIS), was added by article 4 of Law number 55-A/2012, of October 29, with the following content:

"28 – Ownership, usufruct or surface right of urban properties whose tax patrimonial value appearing in the matriz, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value for IMI purposes:

28-1 – Per property with residential allocation – 1%;

28.2 – Per property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, appearing in the list approved by ordinance of the Minister of Finance – 7.5%."

According to what results from the amendments to the Stamp Tax Code, introduced by article 3 of Law number 55-A/2012, of 29/10, the stamp tax provided for in item 28 of the TGIS is levied on a legal situation (number 1 of art. 1 and number 4 of art. 2 of the CIS), in which the respective taxable persons are those referred to in article 8 of the CIMI (number 4 of art. 2 of the CIS), to whom the burden of the tax falls (paragraph u) of number 3 of article 3 of the CIS).

The provisions of the CIS, in the wording given by Law number 55-A/2012, both in article 4, number 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever the properties are located in Portuguese territory"), and in article 23, number 7 ("In the case of tax due for the situations provided for in item number 28 of the General Table, the tax is liquidated annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI"), combined with art. 1 of the CIMI, consider the property itself as the taxable event (the situation that triggers taxation) provided it reaches the value provided for in item 28 of the General Stamp Table, regardless of the number of taxable persons, possessors (as owners, usufructuaries or surface right holders) of the assets in question[5].

As for rates, paragraph f) of number 1 of the same article 6, of Law number 55-A/2012, provides for the application in 2012 of a rate lower than the 1% rate, provided for in item 28.1 of the TGIS for properties with residential allocation, distinguishing also between cases of properties valued under the terms of the IMI Code (0.5% rate) and properties with residential allocation not yet valued under the terms of the IMI Code (0.8% rate).

13.2. The concept of property used in item 28 of the TGIS

The concept of "properties with residential allocation" used in item 28.1[6] is not expressly defined in any provision of the CIS or in the CIMI, instrument to which number 2 of article 67 of the CIS refers.

In the case of the proceedings, whether one takes into account each of the Applicant's properties in vertical property or each of the respective divisions endowed with autonomy, these are (not contested) properties classified as urban and residential according to the criteria established in arts. 2, 4 and 6 of the Municipal Property Tax Code, applicable by reference of art. 67 of the CIS.

Thus, only the exact meaning of the segment "tax patrimonial value considered for IMI purposes", contained in the norm of tax incidence in the body of item 28 of the TGIS, is at issue: in the case of properties in total property but with floors or divisions capable of independent use, does the relevant VPT correspond to the sum of the VPT of the various divisions/floors, as the AT claims, or what must be taken into account is the VPT of each of the respective floors or autonomous divisions, as the Applicant argues?

Now this segment is integrated in a text that defines as object of tax incidence the "Ownership, usufruct or surface right of urban properties whose tax patrimonial value appearing in the matriz, under the terms of the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value for IMI purposes" (bold ours).

As has been repeatedly invoked and admitted, the IMI Code enshrines, both as regards matricial registration and discrimination of the respective tax patrimonial value, and as regards liquidation of the tax, the autonomization of parts of urban property capable of independent use and the segregation/individualization of the VPT relating to each floor or part of property capable of independent use[7].

Thus, to each property, in the terms conceptually defined by article 2 of the CIMI, corresponds a single article in the matriz (number 2 of article 82 of the CIMI) but, according to number 3 of art. 12 of the same Code, referring to the concept of property matriz (registration of the property, its characterization, location, VPT and ownership), "each floor or part of property capable of independent use is considered separately in the matricial registration, which discriminates the respective tax patrimonial value", not taking as reference the sum total of the patrimonial values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

As for the liquidation of IMI - application of the rate to the taxable base - art. 119, number 1 provides that "the competent collection document" contains the "discrimination of properties, their parts capable of independent use, respective tax patrimonial value and levy (...)".

That is, the rule is autonomization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, capable of independent use[8], according to the concept of property defined right in number 1 of article 2 of the CIMI: property is every fraction (of territory, covering waters, plantations, buildings and constructions of any nature incorporated or seated on it, with a character of permanence) provided it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the previous circumstances, endowed with economic autonomy (presentation and underlining ours).[9]

Thus, when number 4 of article 2 provides that "For purposes of this tax, each autonomous fraction, in the horizontal property regime, is regarded as constituting a property", it does not properly enshrine an exceptional or special regime for properties in horizontal property.

After all, each building in horizontal property (article 92 of the CIMI) has only one matricial registration (number 1), generically describing the building and mentioning the fact that it is in horizontal property regime (number 2) and the matricial autonomy is concretized in the attribution to each of the autonomous fractions, described and individualized in detail, of a capital letter, according to alphabetical order (number 3). This seems to be the specificity of buildings in horizontal property; in other cases, of properties in vertical or total property, the divisions or floors with autonomy but without horizontal property status, the matriz also enshrines autonomy but evidencing the units with indication of the type of floor/story.

Nor does the argument advanced by the Respondent seem acceptable that the more beneficial tax treatment of fractions in horizontal property and divisions, economically autonomous but without that status, would be justifiable on the basis of the "legally more evolved institute" of horizontal property, and that this would prevent qualifying the discrimination as arbitrary, because the constitutional principle of tax equality prohibits arbitrary or unjustified discriminations but not discriminations possibly justified by the more evolved character of the institutes or by the coherence of the tax system.

Indeed, it does not seem possible to discern in Law number 55-A/2012, of October 29, any elements of interpretation that allow identifying and legitimizing a (extra-fiscal) purpose of incentivizing the development of horizontal property. Rather, the unexpected discrimination would risk violating (also) the constitutional principle of trust...

On the other hand, the argument that "taxation under Stamp Tax obeys the criterion of adequacy, aiming at the taxation of wealth embodied in the ownership of high-value real estate, emerging in a context of economic crisis that cannot at all be ignored", is not acceptable, because the distinct treatment of properties in horizontal and vertical property regimes is neither justified as "a discrimination imposed by the need to impose coherence on the tax system" (what coherence?) nor can it escape the qualification of arbitrary by treating differently realities that are largely identical, and, if different, with the risk even of treating more severely situations generally related to lower tax capacity than those that would have more beneficial treatment.

Nor is the Respondent's argument convincing that in the case of properties in total property, even with floors or divisions capable of independent use, notwithstanding that IMI is liquidated with respect to each part capable of independent use, the tax patrimonial value on which the incidence of Stamp Tax of item number 28.1. of the General Table depended had to be, as it was, the global patrimonial value of the properties, and not that of each of their floors or independent parts, because item number 28.1 of the TGIS is applied according to the rules of the CIMI but "with reservation of aspects that require due adaptations" (underlinings ours). The question is that, precisely, the reason why the "adaptations" to the CIMI norms, advocated by the AT, should be accepted requires demonstration.

All said, no reason is discerned to, in matters of incidence of Stamp Tax provided for in item 28.1 of the TGIS, give to fractions of properties in "vertical property", endowed with autonomy, different treatment from that granted to properties in horizontal property, when in any of these situations IMI is applied to the patrimonial value evidenced in the matriz for each of the autonomous units.

13.3. The ratio legis of item 28 and 28.1 of the TGIS

The interpretation sustained above, resulting from the analysis of the letter of the law and its insertion in the set of other applicable tax norms, is most consonant with the spirit of the legislative amendments introduced by Law number 55-A/2012, of October 29.

As has already been evidenced in other arbitral decisions, "the legislator, in introducing this legislative innovation, considered as a determining element of tax capacity urban properties, with residential allocation, of high value (luxury), more rigorously, of value equal to or greater than €1,000,000.00 on which a special rate of stamp tax began to be levied, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or surface right of luxury urban properties with residential allocation. Therefore, the criterion was application of the new rate to urban properties with residential allocation, whose VPT is equal to or greater than €1,000,000.00". (...) "The foundation of the measure designated as 'special rate on urban residential properties of highest value' is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense way the holders of high-value properties intended for housing, making the new special rate fall on 'houses of value equal to or greater than 1 million euros. Clearly the legislator understood that this value, when imputed to a dwelling (house, autonomous fraction or floor with independent use) translates a tax capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the fiscal effort."[10]

Now, it seems to completely lack adherence to reality the sustaining of the thesis that the holding of fractions devoid of horizontal property status denounces greater tax capacity than if they were provided with that nature....

On the contrary, in most cases, as evidenced by Arbitral Decision number 50/2013, "many of the existing properties in vertical property are old, with an undeniable social utility, since in many cases they house tenants with modest and more accessible rents, factors that necessarily must be taken into account."

Thus, the interpretation is considered correct that item 28 of the TGIS does not cover each of the floors, divisions or parts capable of independent use when only from their sum total results a VPT greater than what the same item provides.

As decided in other arbitral proceedings, this tribunal understands that with regard to the date of constitution of the tax obligation, tax connection, determination of the taxable base, liquidation and payment of the stamp tax in question, the corresponding rules of the CIMI are applicable, by express reference of arts. 5, number 1, paragraph u), 4, number 6, 23, number 7, 44, number 5, 46, number 5 and 49, number 3, of the CIS.

Subjecting to the new stamp tax autonomous parts without the legal status of horizontal property and not subjecting any of the residential fractions if the property were in horizontal property regime would constitute violation of the constitutional principle of equality, treating equal situations differently.

Nor can one ignore the incoherence, in terms of taxation of patrimony, of the different treatment given to holders of fractions concentrated in the same property or dispersed across different properties....

In the case of the proceedings, verifying that none of the "fractions" of any of the buildings in question presents, per se, "value equal to or greater than 1 million euros", there is no place for incidence of item 28 provided for in the General Stamp Tax Table.

1. Conclusion

Thus, the present collective arbitral tribunal concludes that the liquidations of Stamp Tax, based on item 28.1 of the TGIS, with respect to each of the floors or parts capable of independent use, property of the Applicant, object of the present proceedings, are stricken with illegality, because the said provisions cannot be interpreted in the sense of their application to floors or parts capable of independent use of a property in vertical property, when only from the sum total of each of those floors or parts is a VPT equal to or greater than €1,000,000.00 (one million Euros) achieved, the VPT of each of the said floors or parts not exceeding that legal threshold.

And, as results from the established facts, none of the floors intended for housing, of the five properties, in vertical property, object of this proceeding, has patrimonial value equal to or greater than €1,000,000.00, it is concluded that the legal assumption of incidence of IS provided for in Item 28 of the TGIS is not verified.

1. Prejudiced Questions: unconstitutionality and illegality of liquidations for non-division into installments

As the collective arbitral tribunal did not accept the understanding of the applicability of item 28.1 of the TGIS to the present case, the appreciation of the remaining vices that the contested liquidations may suffer from is prejudiced as procedurally useless.

Thus, knowledge of the question of unconstitutionality of the norm introduced in the TGIS (item 28/28.1) by Law number 55-A/2012, of October 28, by violation of the principle of equality enshrined in article 13 of the Constitution is prejudiced, as well as the question referring to the legality of the demand for payment of the liquidations notified, in light of the provisions of article 120, number 1, of the CIMI and article 23, number 7 of the CIS.

1. Decision

Under the terms and with the grounds set forth, the arbitral tribunal decides to uphold the request for arbitral ruling with the consequent annulment of the contested liquidations, with all legal consequences, namely the reimbursement of the tax paid by the Applicant, plus compensatory interest to which there may be entitlement (article 43 of the LGT).

1. Case Value

In accordance with the provisions of number 2 of article 315 of the CPC, paragraph a) of number 1 of article 97-A of the CPPT and also number 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of €63,929.40 (sixty-three thousand, nine hundred and twenty-nine euros and forty cents) is fixed for the proceedings.

1. Costs

For the purposes of the provisions of number 2 of article 12 and number 4 of article 22 of the RJAT and number 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €2,448.00, under the terms of Table I annexed to said Regulation, to be borne entirely by the Respondent.

Notify.

Lisbon, July 28, 2014.

The Arbitrators

(Jorge Lino Ribeiro Alves de Sousa)

(Maria Manuela Roseiro)

(Ana Teixeira de Sousa)

[Text prepared on computer, under the terms of article 131, number 5 of the Code of Civil Procedure (CPC), applicable by reference of article 29, number 1, paragraph e) of the Tax Arbitration Regime. The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990]

[1] These elements, although incomplete, helped to decipher the data of document number 1 previously attached to the Request and which are considered proven. Even if some error was committed, or some elements that are customarily made available are missing, it is understood that, given the application of law sustained in the present decision, any shortcomings will be irrelevant.

[2] Norm, moreover, with a broader scope than article 104 of the CPPT (Jorge Lopes de Sousa, Guide to Voluntary Arbitration, Almedina, 2013, p. 145/146).

[3] The properties will be referred to by their respective matrizes and parishes, all of Lisbon, according to the territorial organization prior to Law number 56/2012, of November 8, as they appear in the liquidations object of this proceeding.

[4] On the application of item 28 of the TGIS in the case of properties in vertical property, decisions are already published on the CAAD website, namely, in Proceedings 50/2013-T; 132/2013-T; 181/2013-T; 183/2013-T; 185/2013-T; 248/2013-T.

[5] The provisions of Law number 55-A/2012, of October 29, regarding the new item 28 of the General Stamp Tax Table, entered into force the day following the publication of the law, that is, October 30, 2012. Article 6 of Law number 55-A/2012, provides transitional provisions by virtue of which, in that first year of validity, that is, 2012: the taxable event occurs on October 31 (when, according to article 8 of the CIMI, applicable by reference of number 4 of art. 2 of the CIS, it would be on December 31); the taxable person of the tax is the holder of the property (number 4 of article 2 of the CIS) also on that October 31; the tax patrimonial value to be used in the liquidation of the tax corresponds to what results from the rules provided for in the CIMI by reference to the year 2011; the liquidation of the tax by the AT is carried out by the end of the month of November 2012; the tax must be paid in a single installment, by the taxable persons, by December 20 of that year 2012.

[6] The wording of this number was amended by Law number 83-C/2013, of December 31, the concept "residential property" being used, but the liquidations object of the present proceedings refer to the year 2012.

[7] "Another aspect that should be evidenced in the matriz has to do with the need to make relevant the autonomy that, within the same property, can be attributed to each of its parts, functionally and economically independent. In these cases, the matricial registration should not only make reference to each of the parts but should make express reference to the patrimonial value corresponding to each of them" (Silvério Mateus and Freitas Corvelo, Taxes on Real Estate Patrimony and Stamp Tax, Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160). And the same authors also said (ibidem, p. 160): "This autonomization of the autonomous parts of a property, applicable especially to urban properties, was justified within the scope of the old Property Tax in which the taxable income corresponded to the rent or rental value of each of those components, continued to be justified in the case of the Municipal Tax in which the patrimonial value had underlying the actual or potential rent and continues to be pertinent under IMI, given that the valorization factors provided for in articles 38 and following may not be the same for all those components (...) the fact that a property is or is not leased continues to have relevance for purposes of determining the tax patrimonial value both for IMI and IMT purposes (see Article 17 of DL 287/2003)" (they referred to the original wording "transitional regime for leased urban properties", norm to be reviewed, according to its number 5, when the urban lease law was reviewed, which happened with Law number 6/2006, of 27/02).

[8] On this aspect, and in line with the commentary cited in the previous note, see the grounds contained in decision number 248/2013-T: "The autonomization in the matriz of the functionally and economically independent parts of a property in total property is related to reasons of fiscal and extra-fiscal nature. On the fiscal level, this autonomization has to do with the very determination of the tax patrimonial value, which constitutes the taxable base of IMI, given that the formula for determining that value, provided for in art. 38 of the same Code, comprises indices that vary according to the use attributed to each of those parts. On the extra-fiscal level, this autonomization continues to find justification in the relevance attributed to the tax patrimonial value of properties and their autonomous parts in urban lease legislation." Also mentioned there is number 1 of art. 15-O, of Decree-Law number 287/2003, of 12/11, added by Law number 60-A/2011, of 30/11 (providing that the safeguard clause relating to the aggravation of taxation in IMI resulting from the general valuation of urban properties, is applicable per property or part of urban property that is object of said valuation) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[9] As observed in Proc. 132/2013: "The norms (...) listed enshrine the principle of autonomization of independent parts of an urban property, even when not constituted in horizontal property. That is, each part capable of independent use must be, for IMI purposes, valued in light of its specificities and allocation, resulting in an autonomous VPT, individualizable and corresponding to each part capable of independent use."

[10] Excerpts from the Decision in proceeding number 50/2014-T, also referring to the Arbitral Decision in proceeding number 48/2013-T, regarding the analysis of the Discussion of the legislative proposal in the Assembly of the Republic.