Stamp Tax on Vertical Property Under Verba 28 TGIS: CAAD Arbitration Case 211/2016-T

REPORT

A – PARTIES

A… – OPEN SPECIAL REAL ESTATE INVESTMENT FUND, a Special Real Estate Investment Fund, with Tax Identification Number…, whose managing entity is B… – Real Estate Investment Fund Management Company, S.A., with registered office at Rua…, ……-… floor, …-… Lisbon, hereinafter referred to as the Claimant or taxpayer.

TAX AND CUSTOMS AUTHORITY, hereinafter referred to as the Respondent or AT.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was regularly constituted on 24-06-2016, to examine and decide on the subject matter of this case, and was automatically notified to the Tax and Customs Authority on 24-06-2016, as recorded in the respective minutes.

The Claimant did not proceed to appoint an arbitrator, and therefore, pursuant to article 6(1) and article 11(1)(b) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed Arbitrator Paulo Ferreira Alves, with the appointment being accepted in accordance with legal provisions.

On 04-05-2016 the parties were duly notified of this appointment and did not express any objection to the appointment of the arbitrators, in accordance with article 11(1)(a) and (b) of RJAT and articles 6 and 7 of the Code of Ethics.

In accordance with article 11(1)(c) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal is regularly constituted on 24-06-2016.

Both parties agree to dispense with the submission of written briefs and the holding of the meeting provided for in article 18 of RJAT.

The arbitral tribunal is regularly constituted. It is materially competent, in accordance with articles 2(1)(a) and 30(1) of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are legally represented (articles 4 and 10(2) of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case is not subject to defects that would render it invalid.

B – REQUEST

1. The present Claimant seeks the declaration of illegality of the tax assessment acts for Stamp Tax purposes: no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, which fixed a total tax payable of €11,099.20 (eleven thousand ninety-nine euros and twenty cents).

C – CAUSE OF ACTION

1. To substantiate its request for an arbitral decision, the Claimant alleged, with a view to declaring illegal the tax assessment acts for Stamp Tax purposes already described in point 1 of this Award, in summary, the following:

2. It is the owner of an urban property located at… – Sector…, …, district of…, Municipality of…, Parish of…, with registration number….

3. The assessments relate to the year 2013, 1st, 2nd and 3rd installments, and the rule of incidence upon which they are based is Item 28 of the General Stamp Tax Table.

4. The Claimant sustains that in order for the objective assumptions of incidence provided for in Item 28 of the General Stamp Tax Table to be cumulatively satisfied, it is necessary that: a) there exists a right of ownership or usufruct or surface rights over a property; b) the urban property in question has a tax assessed value (listed in the property register) equal to or greater than €1,000,000 (one million euros); and furthermore that (c) the urban property have "residential purpose" [Item 28.1 of the General Stamp Tax Table]; or (d) the urban property, regardless of residential purpose, be owned by taxpayers who, while not being natural persons, are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in a list approved by an ordinance of the Minister of Finance.

5. The Claimant alleges that in the absence of a framework for what is considered "residential purpose" under the Stamp Tax Code, the interpreter should resort to the provisions subsidiarily applicable, in this case, the provisions of the Real Estate Property Tax Code.

6. The Claimant argues that the property has, in its entirety, a "residential purpose."

7. The Claimant alleges that the assessments in question were made as follows: (i) the Tax and Customs Authority added the tax assessed value of the parts of the property susceptible to independent use with "residential purpose," determining a tax assessed value of those same parts of €1,041,000.00; and, subsequently, (ii) issued a tax assessment act for the parts of the property susceptible to independent use and with "residential purpose."

8. The fact is that the tax assessed values of the floors (autonomous units) of the property in question, with residential purpose, vary between €60,000.00 and €77,000.00, meaning that none of the independent units that comprise the Claimant's property presents a tax assessed value greater than €1,000,000 (one million euros).

9. The Claimant alleges that the Tax and Customs Authority did not make a single assessment based on the tax assessed value of the "property," which has a tax assessed value of €1,041,000.00.

10. The Claimant argues that it does not accept that the idea underlying the current Item 28 of the General Stamp Tax Table, for taxation purposes, is that the mere fact that horizontal property is not established reflects any special taxpaying capacity of the respective owners in relation to owners of identical properties but over which such horizontal property has been established.

11. The Claimant argues that the tax assessed value of the "property," consisting of floors or parts susceptible to independent use, is for tax purposes the sum of various tax assessed values determined according to autonomous criteria.

12. Therefore, only properties and also floors or parts susceptible to independent use, individually considered, which have "residential purpose" and a tax assessed value used for Real Estate Property Tax purposes equal to or greater than €1,000,000 (one million euros) are susceptible to falling within the rule of incidence provided in Item 28.1 of the General Stamp Tax Table.

13. Since the Stamp Tax Code refers to the Real Estate Property Tax Code, it should be considered that the registration in the property register of immovable property in vertical ownership, consisting of different floors, apartments or divisions with independent use, obeys the same registration rules as immovable property held in horizontal ownership.

14. The Claimant argues that the existence of a property held in vertical or horizontal ownership cannot by itself be an indicator of any taxpaying capacity.

15. The Claimant believes that there is a complete absence of legal foundation that legitimizes the criterion applied by the AT in the concrete case, by considering the aggregate value of the tax assessed value attributed to the divisions with independent use, on the ground that the property is not held in a horizontal ownership regime.

16. As such, the taxation carried out by the AT of the Stamp Tax provided for in Item 28 of the General Stamp Tax Table in the manner described herein violates the principles of legality and fiscal equality as well as the principle of material truth.

17. Therefore, the AT disregards principles such as legal certainty, tax typicity and taxpaying capacity, these principles being the limits of all taxation regardless of whether it affects income, consumption or property, with legal provision in the Constitution, General Tax Law, Property Transfer Tax Code and Stamp Tax Code.

18. The Claimant concludes by alleging the illegality and unconstitutionality for being based on reasoning that suffers from deficient interpretation of the concrete applicable rules of the assessments.

D – RESPONSE OF THE RESPONDENT

1. The Respondent, duly notified for this purpose, submitted its response in a timely manner in which, in brief summary, it alleged the following:

2. That subjection to stamp tax under item 28.1 of the General Table attached to the Stamp Tax Code results from the combination of two facts: residential purpose and the tax assessed value of the urban property registered in the property register being equal to or greater than €1,000,000.00.

3. Stamp tax, being classified among the types of taxes on consumption or expenditure, can be defined as an indirect tax that affects the formalization of legal acts or other taxable facts provided for in a General Table (attached to the Stamp Tax Code).

4. The applicable rates are those contained in the General Table in force at the time the tax is due, with no accumulation of rates on the same act or document, except for acquisition by donation of the right of property or partial figures of this right over immovable property.

5. The burden of the tax falls upon entities that have an economic interest in the act and can be divided among several who share that interest, it affects acts performed in national territory – Stamp Tax is, very likely, one of the taxes on property that best reflects the principle of territoriality – as a rule its payment is due at the moment when the act, object of the tax, occurs, and the law defines for some of these acts the precise moment when this obligation arises.

6. With specific regard to immovable property, the determination of its taxable value came to be based on the new system of evaluations contained in the Real Estate Property Tax Code.

7. Well, without need for extensive initial considerations, it was precisely the wealth derived from real estate property that Law no. 55-A/2012 came, in an innovative manner, to tax, subjecting to Stamp Tax the ownership and other real rights over urban properties whose tax assessed value would prove to be equal to or greater than €1,000,000.

8. The Respondent further argues that the interpretation of this item 28 of the General Stamp Tax Table, added by Law no. 55-A/2012, of 29.10, in conjunction with article 6(1)(f) of that same Law has given rise to much controversy regarding the calculation formula of the tax with respect to a property that is not held under horizontal ownership and whose areas and physical divisions are operated independently.

9. The Respondent alleges that the situation configured in the case is precisely one of these cases in that the Claimant is the owner of various properties held in total or vertical ownership and from this derives its legitimacy to intervene in the procedure since, in accordance with the Real Estate Property Tax Code, specifically in article 8(1), the tax is due by the owner of the property as of 31 December of the year to which it refers, and therefore what matters is to determine whether or not, for purposes of subjection or non-subjection to Stamp Tax, the total tax assessed value of the property (of the legal unit) should be considered, or whether, conversely, the tax assessed value of each of the portions should be considered.

10. The crux of the dispute thus resides essentially in the interpretation of that legal provision in light of the principles invoked by the Claimant and also advocated by the AT.

11. The Respondent argues that for a property not held under horizontal ownership, the criterion for determining the incidence of stamp tax is the total tax assessed value of the fractions and other divisions intended for housing.

12. This is a property regime not over a building in its entirety, as occurs in vertical ownership, but rather over an autonomous fraction, although one is a co-owner of common parts (articles 1414, 1415 and 1420 of the Civil Code), but this co-ownership is forced and cannot leave the state of co-ownership while the horizontal property regime persists.

13. It is thus clear that we are dealing with distinct facts and legal realities, meriting, according to the AT, a differentiated tax treatment since only such a path is favored by the principle of closed typicity.

14. In accordance, it is concluded that the present Claimant, for purposes of both Real Estate Property Tax and Stamp Tax, by force of the wording of the said item, is not the owner of autonomous fractions, but rather of a single property, the AT considering this to be the understanding that best accords with the principle of legality inherent in article 8 of the General Tax Law, to which all of its activity is devoted.

15. The Respondent concludes by arguing that no error in the factual or legal assumptions in which the tax assessment acts for the disputed tax may have incurred is recognized and, consequently, the right of the taxpayer to payment of compensatory interest provided for in article 43 of the General Tax Law in case of error attributable to the services is not recognized.

E – FACTUAL FINDINGS

1. Before addressing these issues, it is necessary to present the factual matter relevant to its understanding and decision, which was done on the basis of documentary evidence and taking into account the facts alleged.

2. As to relevant factual matters, this tribunal finds the following facts to be established:

3. It is the owner of an urban property located at… – Sector…, …, district of…, Municipality of…, Parish of…, with registration number….

4. The Claimant is the owner of an urban property corresponding to a property held in total or vertical ownership (not horizontal).

5. The said property is intended for housing, called "Property…-…/1," consisting of a ground floor, where the accesses to the upper floors are located, and four floors with four housing units each, totaling 16 (sixteen) units with independent use, meaning 16 (sixteen) divisions with independent use and residential purpose.

6. Each of the independent divisions is intended for housing and has a tax assessed value assigned and separately determined in accordance with article 7(2)(b) of the Real Estate Property Tax Code.

7. The tax assessed value of the property as of the date is €1,109,920.00, and the value of the sum of the sixteen fractions with independent use and residential purpose of the property is €1,109,920.00.

8. The assessment notes for the said property concern the following floors and divisions, the tax assessed value of which was separately determined in accordance with article 7(2)(b) of the Real Estate Property Tax Code, resulting in the issuance of the following tax assessment acts, which are here disputed:

[Table of properties with valuations and assessment numbers follows - each entry showing Property designation, VPT value, and Tax Act number with corresponding tax amount]

1. The sum of the tax assessed value of the fractions with independent use and residential purpose of the property as of the date of the assessments is €1,109,920.00, and none of the parts or floors with residential purpose and with independent use has a tax assessed value greater than €1,000,000.00.

2. The Respondent was notified to pay stamp tax, calculated on the aggregate value of the sixteen fractions with residential purpose and taxed individually on each fraction.

3. The assessments described above concern three installments for payment, with due payment dates of 9 May 2014, 30 July 2014 and 27 November 2014, respectively.

4. The Claimant filed Requests for Reconsideration addressed to the Finance Office of…

5. The Claimant was notified of the denial of the Request for Reconsideration.

6. The Claimant exercised its right to be heard on 12 December 2014.

7. The Claimant filed, on 20 February 2016, an Administrative Appeal.

8. On 7 January 2016 the Claimant was notified of the denial of the Administrative Appeal of 5 January 2016.

F – FACTS NOT PROVEN

1. Of the facts with interest for the decision of the case, contained in the dispute, all those submitted for concrete analysis, those not contained in the factuality described above were not proven.

G – QUESTIONS TO BE DECIDED

1. Given the positions assumed by the parties in the arguments presented, the central questions to be resolved are as follows, which must therefore be examined and decided:

a. Those alleged by the Claimant:

(i) The alleged by the Claimant, for the declaration of illegality of the tax assessment acts for Stamp Tax purposes relating to the year 2013, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, in the amount of €11,099.20 (eleven thousand ninety-nine euros and twenty cents).

(ii) Payment of compensatory interest.

H – LEGAL GROUNDS

1. Given the positions assumed by the parties in the pleadings submitted, the central question to be resolved by this arbitral tribunal consists in examining the legality of the stamp tax assessment acts, which affected the Claimant's residential fractions in the urban property described above, by violation of law, due to erroneous interpretation and application of Item 28.1 of the General Stamp Tax Table in the amendments introduced by article 4 of Law no. 55-A/2012, of 29 October.

2. In the case sub judice, it falls to determine whether the fractions subject to the tax are covered by the criteria of incidence of stamp tax, in accordance with Item no. 28 of the General Stamp Tax Table, in the amendments introduced by article 4 of Law no. 55-A/2012, of 29 October.

3. It is necessary to first verify whether the fractions are of residential purpose, and secondly whether the tax assessed value of the fractions contained in the property register is equal to or greater than €1,000,000.00; for this it is necessary to examine the fundamental question of what tax assessed value of a property in vertical ownership (that is, not horizontal) should be considered for purposes of the said item. Whether the tax assessed value that corresponds to each of the parts of the property with residential purpose individually, or whether, instead, it is determined by the total tax assessed value of the property, which would correspond to the sum of all the tax assessed values of the residential fractions that compose it.

4. The factual matter has been established and proven, and therefore we will now determine the law applicable to the disputed facts, giving priority, in compliance with article 124(2)(a) of the Tax and Customs Procedural Code, to the defects whose resolution would provide more stable and effective protection of the Claimant's interests, regarding the defect of error of law regarding the assumptions of the right to assessment, regarding the question of the classification of urban properties held in total or vertical ownership within the scope of incidence of article 28(1) of the General Stamp Tax Table, introduced by the Regime of Law no. 55-A/2012, of 29 October.

5. The amendment of the regime as to subjection to stamp tax of properties with residential purpose by the addition of Item 28 of the General Stamp Tax Table, effected by article 4 of Law 55-A/2012, of 29/10 and amended by Law no. 83-C/2013, of 31 December, came to typify the following taxable facts, through the following wording:

"28 – Ownership, usufruct or surface rights over urban properties whose tax assessed value contained in the property register, in accordance with the Real Estate Property Tax Code, is equal to or greater than (euro) 1,000,000 – on the tax assessed value used for purposes of Real Estate Property Tax:

28.1 – For property with residential purpose – 1%;

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

1. The transitional provisions are contained in article 6 of Law no. 55-A/2012, which established the rules relating to the assessment of the tax provided for in that item:

"1 – In 2012, the following rules shall be observed by reference to the assessment of the stamp tax provided for in Item no. 28 of the respective General Table:

a) The taxable event occurs on 31 October 2012;

b) The taxpayer of the tax is the one mentioned in article 2(4) of the Stamp Tax Code on the date referred to in the preceding paragraph;

c) The tax assessed value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Real Estate Property Tax Code by reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be effected by the end of November 2012;

e) The tax shall be paid, in a single installment, by taxpayers until 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential purpose assessed in accordance with the Real Estate Property Tax Code: 0.5%;

ii) Properties with residential purpose not yet assessed in accordance with the Real Estate Property Tax Code: 0.8%;

iii) Urban properties where taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by an ordinance of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of the stamp tax provided for in Item no. 28 of the respective General Table shall be based on the same tax assessed value used for purposes of assessment of real estate property tax to be carried out that year.

3 – Failure to deliver, in whole or in part, within the specified period, of the amounts assessed as stamp tax constitutes a tax violation, punished in accordance with the law."

1. On the interpretation of this statute, Award 53/2013-T[1] has already ruled, which states:

"In the said Item 28.1 and in sub-items i) and ii) of article 6(1)(f) of Law no. 55-A/2012, a concept was used that is not used in any other tax legislation in these precise terms, which is that of 'property with residential purpose.' Specifically in the Real Estate Property Tax Code, which in several rules of the Stamp Tax Code introduced by that Law is indicated as legislation of subsidiary application with respect to the tax provided for in the said Item no. 28 [articles 2, 4, 3, 3, sub-item u), 5, sub-item u), 23, 7, and 46 and 67 of the Stamp Tax Code], such a concept is not used."

1. As to the concept of properties, it is necessary for this purpose to resort to the concepts of properties used in the Real Estate Property Tax Code, in which the species of properties are enumerated in articles 2 to 6, which is transcribed as follows:

Article 2
Concept of Property

1 – For purposes of this Code, property is every parcel of territory, including waters, plantations, buildings and constructions of any nature incorporated in or placed upon it, with the character of permanence, provided that 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 preceding circumstances, endowed with economic autonomy in relation to the land where they are implanted, even if located on a parcel of territory that constitutes an integral part of a different patrimony or does not have patrimonial nature.

2 – Buildings or constructions, even if movable by nature, are deemed to have the character of permanence when devoted to non-transitory purposes.

3 – The character of permanence is presumed when the buildings or constructions are based at the same location for a period exceeding one year.

4 – For purposes of this tax, each autonomous fraction, in the regime of horizontal ownership, is deemed to constitute a property.

Article 3
Rural Properties

1 – Rural properties are lands located outside an urban agglomeration that are not to be classified as building land, in accordance with article 6(3), provided that:

They are devoted or, in the absence of concrete purpose, have as their normal use a utilization generating agricultural income, such as are considered for purposes of personal income tax;

Not having the purpose indicated in the preceding paragraph, they are not constructed or have only buildings or constructions of accessory character, without economic autonomy and of reduced value.

2 – Also rural properties are lands located within an urban agglomeration, provided that, by force of legally approved provision, they cannot have utilization generating any income or can only have utilization generating agricultural income and are actually having this purpose.

3 – Also rural properties are:

Buildings and constructions directly devoted to the production of agricultural income, when located on the lands referred to in the preceding paragraphs;

Waters and plantations in the situations to which article 2(1) refers.

4 – For purposes of this Code, urban agglomerations are considered, in addition to those located within legally fixed perimeters, nuclei with a minimum of 10 housing units served by public roadways, with their perimeter delimited by points distant 50 m from the axis of the roadways, in the transversal sense, and 20 m from the last building, in the sense of the roadways.

Article 4
Urban Properties

Urban properties are all those that should not be classified as rural, without prejudice to the provision of the following article.

Article 5
Mixed Properties

1. Whenever a property has rural and urban parts it is classified, in its entirety, in accordance with the principal part.

2. If neither of the parts can be classified as principal, the property is deemed to be mixed.

Article 6
Species of Urban Properties

1 - Urban properties are divided into:

Residential;

Commercial, industrial or for services;

Building land;

Others.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes.

3 – Building land is considered to be land located within or outside an urban agglomeration for which a license or authorization has been granted, admission of prior notification or favorable prior information issued for a subdivision or construction operation has been issued, and also those that have been declared as such in the acquisition title, excepting lands where competent entities prohibit any of those operations, particularly those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are devoted to public spaces, infrastructure or equipment. (Amended by Law no. 64-A/08, of 31-12)

4 – Encompassed in the provision of item (d) of paragraph 1 is land located within an urban agglomeration that is not building land nor is covered by article 3(2) and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in paragraph 2 and also those in the exception of paragraph 3.

1. On the interpretation of tax rules, for the case sub judice, article 11 of the General Tax Law tells us, which establishes the essential rules for the interpretation of tax laws, which it does in the following terms:

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 tax rules employ terms specific to other branches of law, they should be interpreted in the same sense in which they have there, unless otherwise directly results from the law.

Persisting doubt about the meaning of the rules of incidence to be applied, the economic substance of the taxable facts should be considered.

The gaps resulting from tax rules covered by the reservation of law to the Assembly of the Republic are not susceptible to analogical integration.

1. To this provision, it is also necessary to resort to the general principles of interpretation of laws, to which article 11(1) of the General Tax Law refers, which are established in article 9 of the Civil Code, which establishes the following:

Article 9
Interpretation of Law

1 - Interpretation should not confine itself to the letter of the law, but reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

2 - However, the interpreter cannot consider legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3 - In determining the meaning and scope of the law, the interpreter shall presume that the legislator established the most correct solutions and was able to express its intent in adequate terms.

1. In light of the legal grounds already exposed, and taking into account the articles transcribed and mentioned, the following interpretative hypotheses emerge regarding the concept of "property with residential purpose," namely the concept of "property with residential purpose" as referring to residential properties, and as the concept of "property with residential purpose" as a concept distinct from "residential properties."

2. It results from articles 2 to 6 of the Real Estate Property Tax Code transcribed above, that the legislator does not use, in the classification of properties, the concept of "property with residential purpose," nor is this concept found, with this terminology, in any other statute.

3. The lack of exact terminological correspondence of the concept of "property with residential purpose" with any other used in other statutes may give rise to various interpretative hypotheses.

4. The text of the law, being the starting point for the interpretation of the expression "properties with residential purpose," it being on the basis of it that the "legislative intent" must be reconstructed, as article 9(1) of the Civil Code requires, applicable by force of article 11(1) of the General Tax Law, already transcribed.

5. On the interpretation of the concept of "property with residential purpose," it is important to cite Award 53/2013-T[2] which has already ruled on this matter. That Award, which equally supports two interpretative hypotheses regarding the concept of "property with residential purpose," respectively in the same sense as the present decision, regarding the concept of "property with residential purpose" as referring to residential properties, and regarding the concept of "property with residential purpose" as a concept distinct from "residential properties."

6. Award 53/2013-T writes, regarding the concept of "property with residential purpose" as referring to residential properties:

"The concept closest to the literal content of this expression used is manifestly that of 'residential properties,' defined in article 6(2) of the Real Estate Property Tax Code as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of a license, which have as their normal destination residential purposes.

To the extent that the expression 'property with residential purpose' is understood to coincide with 'residential properties,' it is manifest that the assessments would suffer from error regarding factual and legal assumptions, since all properties with respect to which Stamp Tax was assessed under the said Item 28.1 are building land, without any building or construction required to fulfill that concept of 'residential properties.'

Therefore, adopting the interpretation that 'property with residential purpose' means 'residential property,' the assessments whose declaration of illegality is sought would be illegal, for there being no building or construction on any of the lands.

However, the non-coincidence of the terms of the expression used in Item 28.1 of the General Stamp Tax Table with that which is extracted from article 6(2) of the Real Estate Property Tax Code points towards the understanding that it was not intended to use the same concept."

1. On the interpretation of the second hypothesis: Concept of "property with residential purpose" as a concept distinct from "residential properties," we again cite Award 53/2013-T, in which it states:

"The word 'purpose,' in this context of utilization of a property, has the meaning of 'action of destining something to a determined use.'

"When, as is the rule, norms (legislative formulas) bear more than one meaning, then the positive function of the text expresses itself in providing stronger support for or suggesting more strongly one of the possible meanings. For, among the possible meanings, some will correspond to the most natural and direct meaning of the expressions used, while others can only fit into the verbal framework of the norm in a forced, contrived manner. Now, in the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and specifically to their technical-legal meaning, in the (not always accurate) supposition that the legislator was able to express its intent correctly."

The relevance of the text of the law is especially emphasized in the matter of interpretation of rules of incidence of Stamp Tax, which are reduced to an amalgam, under a common denomination, of an incongruous collection of taxes of completely distinct natures (on income, on expenditure, on property, on acts, etc.), which does not leave appreciable margin for application of the principal interpretative criterion, which is the unity of the legal system, which demands its global coherence.

The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this Item 28.1, hastily included outside the General State Budget, by a fiscal legislator without perceptible global fiscal orientation, who is implementing successively norms of tax increase in proportion to budgetary reversals, the impositions of international institutional creditors (represented by the "troika") and the monitoring of the Constitutional Court.

In truth, although in the "Explanatory Memorandum" of the Legislative Proposal no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the laudable concern of the Government to "reinforce the principle of social equity in austerity, guaranteeing an effective distribution of the necessary sacrifices to comply with the adjustment program" and its commitment "to ensure that the distribution of these sacrifices will be made by all and not only by those who live from the income of their work," it is manifest, on the one hand, that these reasons for equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of Item 28.1, by taxing additionally properties with residential purpose and not also properties which do not have it, lets it be seen that the concerns of social equity and the proclaimed intention to distribute sacrifices among all, affects far more some than it does all.

In this context, with no interpretative elements available that allow detection of legislative coherence in the solution adopted in the said Item 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in light of article 9(3) of the Civil Code), the content of the legal text must be the primary element of interpretation, in conformity with the presumption, imposed by the same article 9(3), that the legislator was able to express its intent in adequate terms.

In light of those meanings of the words 'purpose' and 'to purpose,' which are 'to give destination' or 'to apply,' the formula used in Item 28.1 of the General Stamp Tax Table manifestly encompasses properties already applied to residential purposes, and therefore it is important to inquire whether it will also encompass properties that, although not yet applied to residential purposes, are destined for these and those whose destination is unknown. (…)

Therefore, it will be necessary to clarify when it can be understood that a property is devoted to a residential purpose, specifically whether it is when such purpose is fixed in a licensing act or similar, or only when the actual attribution of that purpose is concretized.

From the outset, the comparison of Item 28.1 of the General Stamp Tax Table with article 6(2) of the Real Estate Property Tax Code, which defines the concept of residential properties, manifestly points towards the necessity of an actual purpose.

In truth, a building or construction licensed for housing or, even without a license, but which has housing as its normal destination, is, in light of article 6(2), a residential property.

Therefore, in the assumption that the legislator of Law no. 55-A/2012 was able to express its intent in adequate terms (as article 9(3) of the Civil Code requires to be presumed), if it intended to refer to those properties already licensed for housing or which have housing as their normal destination, it would certainly have used the concept of 'residential properties,' which would express perfectly and clearly its intent, in light of the definition given by article 6(2) of the Real Estate Property Tax Code.

Consequently, it must be presumed that the use of a different expression is intended to address a distinct reality, and therefore, in proper hermeneutics, 'property with residential purpose' cannot be a property merely licensed for housing or destined for that purpose (that is, it will not suffice to be a 'residential property'), but must be a property already actually devoted to that purpose.

That this is the meaning of the expression 'purpose,' in the same context of classification of properties that the Real Estate Property Tax Code makes, is confirmed by article 3, in which, with respect to rural properties, reference is made to those 'devoted or, in the absence of concrete purpose, which have as their normal use a utilization generating agricultural income,' which shows that the purpose is concrete, actual. In truth, as is seen by the final part of this text, a property can have as its destination a determined utilization and be or not be devoted to it, which shows that the purpose is, at the level of the connection of a property to a determined utilization, something more intense than mere destination and which may or may not occur, downstream of this and not upstream.

The correctness of this interpretation in the sense that only properties actually devoted to housing are within the scope of incidence of Item 28.1 of the General Stamp Tax Table is also confirmed by the ratio legis perceptible from the restriction of the field of application of the norm to properties with residential purpose, in the context of the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied,' which article 9(1) of the Civil Code also establishes as interpretative elements.

From the outset, the limitation of taxation in Stamp Tax to 'properties with residential purpose' lets it be perceived that it was not intended to encompass within the scope of incidence of the tax properties devoted to services, industry or commerce, that is, properties devoted to economic activity, which is understood in a context where, as is notorious, the economy is found in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching maximum historical levels, with an avalanche of business closures derived from economic unsustainability. (bold in original)

Keeping this situation in mind and being known and public that the reanimation of economic activity and the increase in exports are the way out of the crisis, it is understood that legislative measures were not taken that would hinder economic activity, specifically the increase in the tax burden that hinders it and affects competitiveness in international terms.

Therefore, it is to be concluded that the interpretative elements available, including the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied,' point clearly towards the understanding that it was not intended to encompass within the scope of incidence of Item 28.1 the situations of properties that are not yet devoted to housing, namely building land held by companies."

1. In light of the foregoing, it is verified that the 39 fractions intended for housing are encompassed by the rule of incidence of Item 28.1, being urban properties and properties with residential purpose, the concept of which results from article 2 of the Real Estate Property Tax Code.

2. It remains, however, now to decide for purposes of application of Item no. 28 of the General Stamp Tax Table, what tax assessed value should be considered for properties in vertical regime (that is, not horizontal), if individually determined by the tax assessed value corresponding to each of the parts of the property with residential purpose, or if determined by the total tax assessed value of the property, which would correspond to the sum of all the tax assessed values of the residential fractions that compose it.

3. On this matter, the Arbitral Tribunal of CAAD has already decided through decision no. 50/2013-T and 132/2013-T.

4. It is important for purposes of the case sub judice to refer, regarding decision 50/2013-T, which tells us, regarding the treatment to be accorded for purposes of Item 28.1 of the General Stamp Tax Table to properties in vertical ownership and cumulatively which tax assessed value (individual or aggregate) to consider:

"From this we can conclude that, in the view of the legislator, what matters is not the juridical-formal rigor of the concrete situation of the property but rather its normal utilization, the purpose for which the property is intended. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership was not relevant, since no reference or distinction is made between one and the other. What is relevant is the material truth underlying its existence as an urban property and its utilization."

1. It is also important to refer from the respective decision:

"Using the criterion that the law itself introduced in article 67(2) of the Stamp Tax Code, 'to matters not regulated in the present code relating to Item 28 of the General Table shall be applied subsidiarily'...

Well, being thus, considering that the registration in the property register of immovable property in vertical ownership, consisting of different parts, floors or divisions with independent use, in accordance with the Real Estate Property Tax Code, obeys the same registration rules as immovable property held in horizontal ownership, with the respective Real Estate Property Tax as well as the new Stamp Tax being assessed individually with respect to each of the parts, it offers no doubt that the legal criterion for defining the incidence of the new tax must be the same. (…)

Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax.

Thus, there would be incidence of the new stamp tax only if any of the parts, floors or divisions with independent use presented a tax assessed value greater than €1,000,000.00.

The AT cannot thus consider as reference value for the incidence of the new tax the total value of the property, when the legislator himself established a different rule in the context of the Real Estate Property Tax Code, and this is the code applicable to matters not regulated with respect to Item 28 of the General Stamp Tax Table.

The criterion sought by the AT, of considering the value of the sum of the tax assessed values attributed to the parts, floors or divisions with independent use, on the argument that the property is not held under horizontal ownership, finds no legal support and is contrary to the criterion that results applicable in the context of the Real Estate Property Tax Code and, by reference, in the context of Stamp Tax.

To which is added the fact that the law itself explicitly establishes, in the final part of Item 28 of the General Stamp Tax Table, that the Stamp Tax to affect urban properties of value equal to or greater than €1,000,000.00 – 'on the tax assessed value used for purposes of Real Estate Property Tax.'

Thus, adoption of the criterion defended by the AT violates the principles of legality and fiscal equality, as well as the prevalence of material truth over juridical-formal reality.

The fiscal legislator in article 12(3) of the Real Estate Property Tax Code says that 'each floor or part of property susceptible to independent use is considered separately in the registration of which the respective tax assessed value is also recorded,' makes no distinction regarding the regime of properties held in horizontal or vertical ownership; if the property were held under horizontal ownership, none of its residential fractions would suffer incidence of the new tax, and therefore the AT cannot treat equal situations differently.

1. In the same sense decided the decision of the arbitral tribunal of CAAD, no. 132/2013-T:

"Furthermore, it is added that admitting differentiation of treatment could produce incomprehensible results from the juridical point of view and offensive to the objectives which the legislator said to have for adding Item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now Respondent: a citizen who is the owner of a property held in total ownership intended for housing, being the total value of the autonomous units equal to or greater than €1,000,000.00 and the tax assessed value of each one less than €1,000,000.00, is subject to an annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics as the former but which has been held under horizontal ownership, being equally the total value of the autonomous fractions equal to or greater than €1,000,000.00 and the tax assessed value of each one less than €1,000,000.00, will not be subject to taxation under the mentioned Item no. 28...

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for purposes of taxation, the respective tax assessed values? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 fractions possesses a tax assessed value less than €1,000,000.00, would be subject to taxation if – should such aggregation be admitted – the total tax assessed value exceeded that value; whereas another citizen with identical 20 fractions distributed by 5, 10 or 20 properties would not be subject to any taxation under the said Item no. 28...

If this line of reasoning makes sense – thus justifying the non-aggregation of the tax assessed values of fractions of properties in horizontal ownership – there is no plausible reason why the same should not be applied to the autonomous units of properties in total ownership.

Observing now the case under analysis, it is found that the tax assessed values of the floors (autonomous units) of the property with residential purpose vary between €104,140.00 and €113,780.00, and therefore any one of them is less than €1,000,000.00. From this it is concluded, as a result of what was stated, that the stamp tax to which Item no. 28 of the General Stamp Tax Table refers cannot affect the same, and therefore the assessment acts disputed by the Requester are illegal."

1. In light of the foregoing, and applying what the above transcribed decisions tell us, to the present case, it results that for purposes of application of Item 28 of the General Stamp Tax Table to properties in vertical ownership, the same rules of the Real Estate Property Tax Code are applied as to properties in horizontal ownership, and in the same sense the tax assessed value for purposes of application of the item is the individual tax assessed value of each independent fraction of residential purpose, and in the present case none of the fractions exceeds the criterion of incidence of €1,000,000.00.

2. Material truth is what imposes itself as the determining criterion of taxpaying capacity and not mere juridical-formal reality of the property, since the constitution of horizontal ownership implies merely a juridical alteration of the property not even imposing a new evaluation which now, such finding does not appear coherent with the decision of the AT to tax the residential parts of a property in vertical ownership, on the basis of the total tax assessed value of the property and not what is actually attributed to each part.

3. The current juridical regime does not impose the obligation of constitution of horizontal ownership and therefore the AT's actions translate into an arbitrary and illegal discrimination. The AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of fiscal legality provided for in article 103 of the Constitution, and also the principles of justice, equality and fiscal proportionality.

4. As none of the residential fractions have a tax assessed value equal to or greater than €1,000,000.00, as results from the documents attached to the case, it is concluded that the legal assumption of incidence of the Stamp Tax provided for in Item 28 of the General Stamp Tax Table has not been satisfied.

5. Thus, this tribunal concludes with the declaration of illegality of the assessments sub judice, for suffering from the defect of violation of Item no. 28.1, due to error regarding the assumptions of law, which justifies the declaration of its illegality and annulment (article 135 of the Administrative Procedure Code).

J – COMPENSATORY INTEREST

1. The Claimant further petitions for the payment of compensatory interest.

2. In light of the foregoing, the assessment of Stamp Tax, in the part encompassed by the annulment to be decreed, results from errors of fact and law attributable exclusively to the fiscal administration, to the extent that the Claimant fulfilled its obligation of declaration and were committed by that authority and the Claimant could not be unaware of different understandings.

3. In truth, being demonstrated that the Claimant paid the disputed tax in an amount exceeding what is due, by force of articles 61 of the Tax and Customs Procedural Code and 43 of the General Tax Law, the Claimant has the right to the compensatory interest due, such interest to be counted from the date of payment of the undue tax (annulled) until the date of issuance of the respective credit note, counting the period for this payment from the beginning of the period for voluntary execution of this decision (article 61(2) to (5) of the Tax and Customs Procedural Code), all at the rate determined in accordance with article 43(4) of the General Tax Law.

4. The Claimant's request is upheld.

I – DECISION

Accordingly, in view of all the foregoing, this Arbitral Tribunal decides:

a. Declares well-founded the request for declaration of illegality of the tax assessment acts for Stamp Tax purposes, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, no. 2014…, which fixed a total tax payable of €11,099.20 (eleven thousand ninety-nine euros and twenty cents) due to the defect of violation of law as to the norm contained in Item 28(1), due to error regarding the assumptions of law, which justifies the declaration of its illegality and annulment.

b. Condemns the Respondent to reimburse to the Claimant that amount incorrectly assessed and paid plus payment of compensatory interest already due for the period between 9 May 2014 to be calculated on the amount of €3,701.20 (value of Stamp Tax relating to 1st installment), from 30 July 2014 to be calculated on the amount of €3,699.00 (value of Stamp Tax relating to 2nd installment), 27 November to be calculated on the amount of €3,699.00 (value of Stamp Tax relating to 3rd installment), in accordance with article 61(2) to (5) of the Tax and Customs Procedural Code and at the rate determined in accordance with article 43(4) of the General Tax Law until full reimbursement.

The amount of the case is fixed at €11,099.20 of the assessment value given the economic value of the case measured by the value of the tax assessments disputed, and in accordance the costs are fixed at €918.00 (nine hundred eighteen euros) to be borne by the Respondent in accordance with article 12(2) of the Tax Arbitration Regime, article 4 of the Rules of Tax Arbitration Procedure and Table I attached hereto. – no. 10 of article 35, and nos. 1, 4 and 5 of article 43 of the General Tax Law, articles 5(1)(a) of the Rules of Tax Procedure, 97-A(1)(a) of the Tax and Customs Procedural Code and 559 of the Code of Civil Procedure).

Let notification be made.

Lisbon, 5 September 2016

The Arbitrator

Paulo Ferreira Alves