Stamp Tax on Vertical Property Units Under Verba 28.1 TGIS – CAAD Case 236/2015-T

ARBITRAL DECISION

1. REPORT

A… – OPEN REAL ESTATE INVESTMENT FUND, with registered office at Rua …, … – ….º floor, fraction "M", …-…, Lisbon, with Tax Identification Number … (hereinafter referred to as Applicant), represented by B… – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, SA, with registered office at Rua …, … – ….º Floor, in Lisbon and with Tax Identification Number …, hereby, pursuant to the combined provisions of articles 2.º and 10.º of the Legal Framework for Arbitration in Tax Matters (RJAT), submits a request for arbitral decision, against which the Tax and Customs Authority is named Respondent (hereinafter AT or Respondent), with a view to the declaration of illegality and consequent annulment of the Stamp Duty assessments for the year 2012, issued on 7 November 2012 and on 22 March 2013, relating to twenty-three units capable of independent use and intended for housing, of the urban property designated as "Block B", consisting of Lots …./… to …/…, located in … – … and registered under article … of the parish of …, municipality of Loulé, district of Faro, administrative area of the Tax Office of Loulé 2, of which it is the owner.

Cumulatively, the Applicant requests the condemnation of the Respondent to the restitution of the amounts unduly paid as Stamp Duty for the year 2012, in the global sum of € 38 665.65 (thirty-eight thousand, six hundred and sixty-five euros and sixty-five cents), as well as the payment of compensatory interest at the legal rate, from the date of each of the undue payments, until the date of their effective restitution.

The grounds for the request for annulment of the Stamp Duty assessment acts for the year 2012 are as follows:

1. "From item 28 of the TGIS (the rule of incidence):

a. Item 28 of the TGIS provides as follows: "28 – Ownership, usufruct or right of surface of urban properties whose tax asset value contained in the registration, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or greater than € 1 000 000 – on the tax asset value used for purposes of IMI: 28.1 – For residential property or for building land whose construction, authorized or envisaged, is for residential purposes, as provided in the Code of IMI – 1%; 28.2 – For property, when taxpayers other than natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial order of the Minister of Finance";

b. In order for the cumulative objective requirements of incidence provided for in Item 28 of the TGIS to be met, it is necessary that: (a) there exists a right of ownership, usufruct or right of surface of an urban property (located in Portuguese territory); and (b) the urban property in question has a tax asset value (contained in the registration) equal to or greater than € 1 000 000 (one million euros); and furthermore that (c) the urban property has "residential designation" [Item 28.1 of the TGIS]; or (d) (…);

c. (…) the enumeration of the requirements mentioned in Item 28 of the TGIS, carried out by the legislator, is a definitive enumeration;

d. It is certain that the Applicant is the owner of a property located in …, Lots …/… to …/… (…) Parish of … (…) described in the Urban Property Register as a "Property in Full Ownership with Floors or Units Capable of Independent Use", consisting of "Urban Property intended for residential purposes, designated as "Block B", composed of 8 buildings (…) [at] the date of the assessments described above, the TAV of the Property was € 2,577,710.00 (two million, five hundred and seventy-seven thousand seven hundred and ten euros) (…);

e. It is, finally, confirmed by the Applicant that the said Property is an urban property within the meaning of article 4.º (Urban properties) and 6.º (Categories of urban properties), no. 1, paragraphs a) and b), both of the Code of Municipal Property Tax (hereinafter "CIMI") and that, (…) for purposes of verifying the requirements of incidence of Item 28.1 of the TGIS, the Property has a "residential designation";

f. (…) in the absence of definition of what is understood as "residential designation" under the Stamp Tax Code, the interpreter should resort to the provisions that are subsidiarily applicable, in this case, the provisions of the CIMI;

1. Critique of Item 28 of the TGIS – unconstitutionality:

a. As the Applicant understands, the assessments in question were carried out as follows: (i) The Tax and Customs Authority added the tax asset value of the parts of the Property capable of independent use, with "residential designation" calculating a tax asset value of those same parts, at the time, of € 1 088 680.00 (…) and, subsequently, (ii) it carried out a tax assessment act for parts of the property capable of independent use (with "residential designation");

b. It happens that the TAV of the floors (autonomous units) of the property in question, with residential designation, vary between 89,000.00 and 116 000.00 euros, that is, none of the independent units that make up the Applicant's property has a tax asset value greater than € 1,000,000;

c. (…) the Tax and Customs Authority did not make a single assessment based on the tax asset value of the "property" (which presented at the date of the assessments, the tax asset value of € 2 577 710.00 (…);

d. (…) the Applicant does not understand how the idea embodied in the current Item 28 of the TGIS, for tax purposes, is that the mere fact that horizontal co-ownership is not constituted reflects any special contributory capacity of the respective owners compared to owners of identical properties but on which such horizontal co-ownership has been constituted;

e. (…) article 7.º (Tax asset value) provides as follows:

"Article 7.º (Tax asset value)

1 - The tax asset value of properties is determined in accordance with the provisions of this Code.

2 - The tax asset value of urban properties with parts that can be classified in more than one of the classifications of no. 1 of the preceding article is determined:

a) If one of the parts is principal and the other or others merely accessory, by application of the evaluation rules of the principal part, taking into account the appreciation resulting from the existence of the accessory parts;

b) If the different parts are economically independent, each part is evaluated by application of the corresponding rules, and the value of the property is the sum of the values of its parts.

3 - The tax asset value of mixed properties corresponds to the sum of the values of their rural and urban parts determined by application of the corresponding rules of this Code." [underlined in original];

f. Thus, in accordance with the provision of paragraph b) of no. 2 of article 7.º (…) the value of the property is the sum of the values of its parts (…);

g. (…) article 12.º (Concept of property registers) provides in its no. 3: "Article 12.º (Concept of property registers)

(…)

3 – Each floor or part of property capable of independent use is considered separately in the property register entry, which also discriminates the respective tax asset value (…)" (underlined in original);

h. It thus appears that the tax asset value of the "property", consisting of floors or parts capable of independent use, is, for tax purposes, the sum of the various TAVs calculated in accordance with autonomous criteria;

i. So, if that is the case, only the "properties", also the floors or parts capable of independent use, individually considered, that have "residential designation" and a tax asset value, used for purposes of IMI, equal to or greater than € 1,000,000 (one million euros) are capable of falling within the rule of incidence contained in Item 28.1 of the TGIS;

j. Since the Stamp Tax Code defers to the Municipal Property Tax Code, it should be considered that registration in the property register of properties in vertical co-ownership, consisting of different parts, floors or units with independent use, follows the same registration rules as properties constituted in horizontal co-ownership;

k. This would justify, by way of example, that when the owner of a property, whether this ownership is horizontal or vertical, files their personal income tax return, counts the apartments one by one and not the property as a whole in a single line. If that were not the case, that is, if the maximum applied in the calculation made by AT regarding the assessments in question were applied, this would mean that in the Portuguese legal system the same property would be treated unit by unit to pay IMI and considered as a whole to pay stamp tax…

l. In this regard, see what is stated in the arbitral decision, in the scope of case no. 181/2013-T, of 10-02-2014 "(…) it is important to bring to the fore the principle of universality of TAV, according to which the evaluation carried out in accordance with the Code of IMI has full application in the other taxes, including Stamp Tax […] Therefore, in light of the Code of IMI, each autonomous part of the property has its own TAV, constituting taxable value for purposes of this tax, and therefore that should be the taxable value for purposes of Stamp Tax, namely, in the field of application of item 28.1 of the TGIS which, moreover, expressly requires it when mentioning that the value to be considered is "the tax asset value used for purposes of IMI"";

m. (…) The AT cannot add the TAV calculated individually for each floor of a property to reach a value greater than 1 million euros and apply stamp tax to it (…);

n. An identical position was adopted by CAAD, as sustained in an arbitral decision delivered in Case no. 50/2013-T, of 29-10-2013: "(…) Clearly the legislator understood that this value [1 million euros], when attributed to a residential unit (house, autonomous fraction or floor with independent use) reflects above-average contributory capacity and, as such, capable of determining a special contribution to ensure fair apportionment of tax burden.)" (…) "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical co-ownership, in the same way as it establishes for properties in horizontal co-ownership, clearly it established the criterion, which must be unique and unambiguous, for defining the rule of incidence of item 28.1 of the TGIS." [underlined in original];

o. (…) It is the Applicant's understanding that with the present rate one does not see any purpose of discouraging vertical co-ownership, rather the legislator intends solely to expand the tax base, requiring an increased effort, from taxpayers holding high-value real estate properties, insofar as these reveal their greater contributory capacity, regardless of whether the properties are of a horizontal or vertical character;

p. In this sense, see what is stated in the learned arbitral decision delivered in Case 88/2014-T, of 04-07-2014: "(…) Regarding the determination of the value relevant for the incidence of Stamp Tax on properties in vertical co-ownership, the criterion adopted by AT does not appear to be in accordance with the principle of tax legality. Since the Stamp Tax Code defers to the CIMI, we must consider that registration in the property register of properties in vertical co-ownership, consisting of different parts, floors or units with independent use, follows the same registration rules as properties constituted in horizontal co-ownership. It follows that the respective IMI, as well as Stamp Tax, are assessed individually in relation to each of the parts. For this reason, the legal criterion for defining the incidence of the new tax must be the same." [underlined in original];

q. It suffices, moreover, to analyze the discussion of bill no. 96/XII in the National Assembly, from which it appears that the "special rate on urban residential properties of higher value" is based on the invocation of the principles of social equity and tax justice, calling to contribute in a more intense way the holders of high-value properties intended for housing, applying the new special rate on "houses of value equal to or greater than 1 million euros" to conclude that [t]he existence of a property in vertical or horizontal co-ownership cannot, by itself, be an indicator of any contributory capacity;

r. See also, in this vein, what is defended by arbitral jurisprudence, in Case no. 132/2013-T, of 13-01-2013, in which the following is understood: "Moreover, admitting the differentiation of treatment could produce results incomprehensible from a legal point of view and contrary to the objectives that the legislator said it had for adding item no. 28. (…) If this line of reasoning makes sense – therefore justifying the non-aggregation of TAVs of fractions of properties in horizontal co-ownership – no plausible reason is seen for why the same should not be applied to the autonomous units of properties in full ownership." [underlined in original];

s. (…) Law no. 55-A/2012, of 29 October, does not have a preamble that could assist the interpreter in his hermeneutical task. However, [t]he Applicant dares to consider that the legislator did not intend to tax in Stamp Tax floors or parts of properties capable of independent use and with "residential designation" integrated in properties in full ownership and to leave autonomous fractions with "residential designation" outside the scope, that is, of taxation, when these fractions and floors have identical tax asset values (and equal to or greater than € 1,000,000 (one million euros);

t. This would be tantamount to wanting to tax differently identical economic realities, which does not happen in IMI and, to the extent that it did, it would always be a violation of the Constitution of the Portuguese Republic (Cf. article 13.º);

u. It is certain that tax matters must respect the principles of justice, tax equality and material truth, which implies that AT treats tax-wise equally what is equal and differently what is different;

v. (…) In view of the foregoing, the Applicant believes that there is a total absence of legal grounds to legitimize the criterion applied by AT in the specific case, when considering the summed value of the TAV attributed to the units with independent use, on the ground that the property is not in a horizontal co-ownership regime;

w. As such, the taxation carried out by AT of Stamp Tax provided for in item 28 of the TGIS in the terms described here violates the principles of legality and tax equality, as well as the principle of material truth (…) makes a clean slate of principles such as legal certainty, tax typicality and contributory capacity (…) with legal provision in the Constitution, General Tax Law, Real Estate Transfer Tax Code and Stamp Tax Code."

The Applicant concludes by formulating the requests for (i) annulment of the assessments identified in the request for arbitral decision and (ii) [to be reimbursed (…) for the entire amount paid by virtue of the assessments described in the present p.i., plus compensatory interest that may be due until the date of that reimbursement.".

The Applicant assigns to the request the economic value of € 38 665.65 (thirty-eight thousand, six hundred and sixty-five euros and sixty-five cents), attaching a power of attorney and 8 documents.

Notified in accordance with and for the purposes provided in article 17.º of the RJAT, the AT expressed its view for the maintenance of the challenged assessments, as they constitute a correct interpretation of Item 28.1 of the TGIS:

1. "(…) The now Respondent is the owner of the urban property registered in its respective property register of the parish of …, municipality of Loulé, under article …, property, which is constituted in a full ownership regime, also designated as vertical;

2. The property is composed of 23 apartments intended for housing, these being units or parts capable of independent use, composed of 3 floors, distributed by 8 buildings, as appears from its respective property register;

3. The tax asset value was determined separately, in accordance with article 7.º, no. 2, paragraph b), of the Code of Municipal Property Tax (CIMI), and the total tax asset value is in the amount of € 2,577,710.00;

4. It was the tax asset value of the floors/parts with residential designation, which corresponds to a TAV of € 2, 577,710.00, which was taken into account in the assessments made, for the years 2012;

5. It was on this value of € 2,577,710.00 that AT assessed the stamp tax of item 28.1 of the General Table, for the year 2012, in accordance with article 6°, no. 1, paragraphs a) and f) of said Law no. 55-A/2012, of 29 October, for 2012;

6. From these assessments of stamp tax resulted a global value for the year in reference of € 38.665.65;

7. The subjection to stamp tax of item 28.1 of the General Table results from the combination of two facts, namely, the residential designation and the tax asset value of the urban property registered in the register being equal to or greater than € 1 000 000.00;

8. (…) Given the position of the respondent we cannot, at all, adhere to any of its arguments, for the reasons that follow, but we will focus only on the interpretive question of the rule of incidence (underlined);

9. The situation of the Respondent's property subsumes itself, linearly, which is to say, literally, to the provision of the item in question, which has the following wording:

28 Ownership, usufruct or right of surface of urban properties whose tax asset value contained in the register, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or greater than (euro) 1 000 000 - on the tax asset value used for purposes of IMI:

28.1 For property with residential designation;

1. (…) From the notion of property in article 2.º of the CIMI, only the autonomous fractions of property in a horizontal co-ownership regime are considered as properties - no. 4 of the cited article 2.º of the CIMI. Therefore,

2. As the properties of which the Respondent is the owner are in a full ownership regime, it does not possess autonomous fractions, to which tax law attributes the qualification of property;

3. Thus, the now Respondent, for purposes of IMI and also of stamp tax, by virtue of the wording of the said item, is not the owner of 23 autonomous fractions, but rather of a single property, according to the property register;

4. (…) what the now Respondent seeks is for AT to consider, for purposes of assessing the present tax, that there is an analogy between the regime of full ownership and that of horizontal co-ownership (…);

5. (…) Now, to claim that the interpreter and applicant of tax law apply, by analogy, to the full ownership regime, the regime of horizontal co-ownership, is what is abusive and illegal (…);

6. (…) the interpreter of tax law cannot equate these regimes, in accordance with the rule according to which the concepts of other branches of law have the meaning in tax law that is given to them in those branches of law, or in the words of article 11.º, no. 2 of the LGT, on the interpretation of tax law: "Whenever, in tax law provisions, terms proper to other branches of law are employed, they must be interpreted in the same sense that they have there, unless another sense directly derives from the law";

7. On the other hand, still bearing in mind that in determining the meaning of tax law provisions and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed, as per article 11.º, no. 1 of the LGT, which thus defers to article 10.º of the Civil Code on the application of analogy, determining that it will only be applicable in the case of gaps in the law;

8. Now tax law has no gap. The CIMI determines, to which the cited item defers, that in the horizontal co-ownership regime the fractions constitute properties. Not being the property subject to this regime, legally the fractions are parts capable of independent use, without common parts;

9. (…) Being the property subject to the full ownership regime, but being physically composed of parts capable of independent use, tax law attributed relevance to this materiality, evaluating these parts individually, in accordance with article 12.º and, consequently, in accordance with article 12º, no. 3 of the CIMI, each floor or part of property capable of independent use is considered separately in the property register entry, but in the same register, proceeding to the assessment of IMI taking into account the tax asset value of each part;

10. (…) The unity of the urban property in vertical co-ownership composed of several floors or units is not, however, affected by the fact that all or some of these floors or units are capable of independent economic use;

11. (…) The fact that IMI has been calculated on the basis of the tax asset value of each part of property with independent economic use does not equally affect the application of item 28, no. 1 of the General Table;

12. This results from the fact that the determining factor for the application of that item of the General Table is the total tax asset value of the property and not separately that of each of its parts;

13. Any other interpretation would violate, indeed, the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in article 103.º, no. 2 of the Constitution of the Portuguese Republic (CRP);

14. (…) A rule of incidence according to which the tax asset value of urban properties on which the application of item 28.1 of the General Table depends is the tax asset value of each floor or unit with independent use and not the total tax asset value of the urban property with residential designation has certainly no expression in the law;

15. It is thus unconstitutional, by offending the principle of tax legality, the interpretation of item 28.1 of the General Table, to the effect that the tax asset value on which its incidence depends is calculated globally and not floor by floor or unit by unit;

16. It is not seen how, on the other hand, the taxation in question could have violated the principle of equality (…) horizontal co-ownership and vertical co-ownership are differentiated legal institutions;

17. (…) The property register entry of each part capable of independent use is not autonomous, by register, but is contained in a description in the register of the property as a whole - see the property register of this property which represents the owner's document containing the register elements of the property;

18. (…) these procedural norms of evaluation, property register entry and assessment of the parts capable of independent use do not permit stating that there is an equation of property in full ownership regime to the horizontal co-ownership regime (…);

19. The taxable event of stamp tax of item 28.1, consisting of ownership of urban properties whose tax asset value contained in the register, pursuant to the CIMI, is equal to or greater than € 1,000,000.00, the tax asset value relevant for purposes of the incidence of the tax is, therefore, the total tax asset value of the urban property and not the tax asset value of each of the parts that compose it, even when capable of independent use;

20. And this interpretation of the rule of incidence to stamp tax results from the combination of another rule of incidence to IMI which is article 1.º, according to which IMI is incidental to the tax asset value of urban properties, considering the notion of property in article 2.º and of urban property contained in article 4.º and also of the categories of urban properties described in article 6.º;

21. (…) All considered, we must necessarily conclude that the tax acts in question, in terms of substance, did not violate any legal or constitutional provision, and should thus be maintained;

22. Given that the matter in dispute is (…) exclusively a matter of law, and is recurrent in this arbitration forum, there is no foreseen need for the arbitral meeting provided for in article 18.º of the RJAT, and likewise the production of pleadings, for which its waiver is requested, with the position of the parties thus being widely and clearly defined;

23. No administrative file is being sent, because the documents attached by the respondents are considered true and instruct the present case fully" (underlined).

The request for constitution of the Arbitral Tribunal was filed with CAAD on 6 April 2015, having been accepted by the Esteemed President of CAAD and automatically notified to AT, on 8 April 2015.

Pursuant to the provisions of no. 1 of article 6.º and paragraph b) of no. 1 of article 11.º, both of the RJAT, the Ethics Council designated as arbitrator of the singular arbitral tribunal His Esteemed Dr. Augusto Vieira, who communicated acceptance of the assignment within the applicable time period, and the Parties were notified of this designation.

The Singular Arbitral Tribunal was regularly constituted on 22 June 2015.

On the same date, the AT was notified in accordance with and for the purposes provided in article 17.º of the RJAT, and its reply was filed in the record on 14 August 2015, with notification to the Singular Arbitral Tribunal and to the Applicant, on the same date.

On 17 August 2015, the parties were notified of the Arbitral Order that determined the waiver of holding the meeting referred to in article 18.º of the RJAT, as well as the production of pleadings, scheduling the adoption of the final decision for 24 August 2015 and inviting the Applicant to, before that date, proceed to payment of the remaining 50% of the arbitration fee.

By Order of His Esteemed President of the Ethics Council of CAAD, notified to the Parties on 9 September 2015, without objection, the undersigned was designated arbitrator in the present case, in replacement of His Esteemed Dr. Augusto Vieira, who requested recusal of his functions; the replacement occurred on 24 September 2015.

In a motion sent to CAAD on 11 September 2015, the Esteemed Counsel for the Applicant communicated her resignation from the mandate, requesting the maintenance thereof in favor of the remaining Esteemed Counsels, Dr. C… and Dr. D…, as per the power of attorney attached to the record. This motion was notified to AT on 14 September 2014, on which the latter made no comment.

In the Arbitral Order delivered on 25 September 2015 and notified to the Parties on the same date, considering the Order of His Esteemed President of the Ethics Council of CAAD, the provisions of article 9.º, nos 1 and 2 of CAAD's Code of Ethics, article 9.º, nos 2 and 3 of the RJAT and article 125.º, no. 1 of the Civil Procedure Code (CPC) (by referral of no. 6 of article 119.º of the same Code), continuation of the proceedings was determined, fixing the date of 15 October 2015 for delivery of the arbitral decision, warning the Applicant to proceed to payment of the subsequent arbitration fee and accepting the maintenance of the mandate in favor of the remaining Esteemed Counsels constituted in the record.

The Parties have legal personality and capacity, are legitimate and are properly represented (articles 4.º and 10.º, no. 2 of the RJAT and article 1.º of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities and no exceptions were invoked. Article 3.º, no. 1 of the RJAT expressly permits "The joinder of claims even if relating to different acts" and joinder of claimants "when the success of the claims depends essentially on the assessment of the same circumstances of fact and the interpretation and application of the same legal principles or rules".

1. FACTUAL MATTERS

2.1. Proven facts, in accordance with the documents attached to the request for arbitral decision:

2.1.1. The Applicant is the owner of the urban property registered under article … of the parish of …, municipality of Loulé, comprising 23 floors or units capable of independent use, all designated for housing;

2.1.2. The sum of the TAVs attributed to the floors or units capable of independent use and residential designation was, at the date of issue of the challenged assessments, in the amount of € 2 577 710.00, this being the value indicated in each of the stamp tax payment notices for the year 2012, issued on 7 November 2012 and 22 March 2013, respectively, as "Tax Asset Value of the property – total subject to tax";

2.1.3. The TAV attributed to each floor or unit capable of separate leasing and residential designation, as appears in the payment notices issued, varied between € 102 040.00 and € 155 170.00;

2.1.4. In the name of the Applicant, assessments of Stamp Tax for the year 2012 were issued, for voluntary payment in a single installment, by 20 December 2012, which appear in the payment notices identified in the table below, based on the TAV of each of the units capable of independent use and the rate of 0.5%, in accordance with the provisions of article 6.º, no. 1, paragraph f), sub-paragraph i) of Law no. 55-A/2012, of 29 October:

2.1.5. The assessments identified in the table above, in the amount of € 12 888.55 (twelve thousand, eight hundred and eighty-eight euros and fifty-five cents), were paid in full on 19 December 2012;

2.1.6. In the name of the Applicant, assessments of Stamp Tax for the year 2012 were issued on 22 March 2013, for voluntary payment by 30 April 2013, 31 July 2013 and 30 November 2013, respectively, which appear in the payment notices identified in the table below, based on the TAV of each of the units capable of independent use, as well as the rate of 1%, in accordance with the provisions of article 6.º, no. 2 of Law no. 55-A/2012, of 29 October:

2.1.7. The assessments identified in the preceding table were paid by the Applicant on 29 April 2013, on 30 July 2013 and on 29 November 2013, respectively, in the amounts of € 8 592.52 the first installment and € 8 592.29 each of the remaining ones, in a total value of € 25 777.10; the assessments issued in 2012 and 2013 total the amount of € 38 665.65;

2.1.8. On 18 April 2013, the Applicant filed a gracious objection with the Tax Office of Loulé 2, under the subject "Gracious objection – Stamp Tax, item 28.1 – Assessments: Dated 7/11/2012 and 22/03/2013", with identification of the property to which the same assessments refer ("matricial article U … of the parish of …"), requesting "the annulment of all assessments in question", as it considered them undue given the wording of item 28.1 of the TGIS;

2.1.9. The gracious objection no. … 2013 …, which only took into consideration the twenty-three assessments made in 2013, in the amount of € 25 777.10, although it expressly states that "Consulting the statement of assessments of item 28 of the General Table of Stamp Tax and respective compensation it appears that (…) [a]s the date of the taxable event 31 October 2012 was considered (…)", was denied by order of the Director of Finance of Faro, of 16 January 2014, decision notified to the Applicant through letter no. … of that Finance Directorate, sent by registered mail with acknowledgment of receipt, and received by the recipient on 20 January 2014;

2.1.10. On 28 November 2013, a new gracious objection was filed with the Tax Office of Loulé 2, under the "Subject: Gracious Objection – Stamp Tax, item 28.1. Assessments relating to the 2nd and 3rd installments with respective payment deadlines in July and November 2013", in which the "annulment of the Assessments and reimbursement of the amounts paid" was requested;

2.1.11. By motion sent to the Finance Directorate of Faro under postal registration no. RC … PT, of 17 February 2014, hierarchical appeal was filed against the decision denying the gracious objection no. … 2013 …; the hierarchical appeal was based "on disagreement with the interpretation made by the Tax Administration regarding the Tax Asset Value (TAV) to be considered for purposes of applicability of item 28.1 of the TGIS and regarding properties in vertical co-ownership (…) ";

2.1.12. The hierarchical appeal no. … 2014 … was subsequently denied by order of the Esteemed Director of Services of IMI, of 16 December 2014, decision notified to the Applicant by letter no. 5 of the Finance Directorate of Faro, of 2 January 2015, received on 5 January 2015;

2.1.13. In the information that served as the basis for the decision denying the hierarchical appeal, it was considered that "The present appeal concerns the assessments of item 28.1 of the General Table of Stamp Tax, relating to the urban matricial article …, of the parish of …, municipality of Loulé, assessed in 2013 (…)" and "On 2013-11-28, following receipt of the payment notices relating to item 28.1, the Fund graciously objected to the assessments requesting their annulment and reimbursement of the amounts paid".

2.2. Substantiation of the proven factual matters:

The Tribunal's conviction regarding the factual matters given as proven resulted from critical analysis of the documentary evidence attached to the request for arbitral decision (copies of the property register of the identified property, of the notifications and proof of payment of the payment notices identified above, of the decisions on the gracious objection and hierarchical appeal and respective notifications to the taxpayer), not contested by the Respondent, which, in its response, expressly considers them "true".

2.3. Facts not proven

It is not proven that the motion sent by the taxpayer to the Tax Office of Loulé 2, on 28 November 2013, served as the basis for the institution of the gracious objection process no. … 2013 ….

1. LEGAL MATTERS – SUBSTANTIATION

3.1. Preliminary issue

In the decision, the judge must rule on all issues that it must assess, refraining from ruling on issues that it need not know about (final segment of no. 1 of article 125.º of the Tax Procedure Code), and the issues on which the tribunal's powers of cognition fall are, in accordance with no. 2 of article 608.º of the CPC, applicable subsidiarily to tax arbitration proceedings, by referral of article 29.º, no. 1, paragraph e) of the RJAT, "the issues that the parties have submitted to its assessment", with no. 1 of article 609.º of the Code lastly cited providing that "The decision cannot condemn for an amount greater or in an object different from what is requested." Of priority knowledge are the "procedural issues that may determine the absolution of the instance", in accordance with no. 1 of article 608.º of the CPC.

The preliminary issue relates to the definition of the object of the present proceedings and its respective economic value, taking into account the factuality described above: (i) whether the request relates to all assessments of the year 2012, issued on 7 November 2012 and 22 March 2013, as appears in the request for gracious objection filed with the Tax Office of Loulé 2, on 18 April 2013, in the global amount of € 38 665.65; (ii) whether it only relates to the assessments of the year 2012, issued on 22 March 2013, for payment in three installments, as appears in the decisions denying the gracious objection no. … 2013 … and the hierarchical appeal no. … 2014 …, in the amount of € 25,777.10.

Effectively, the request for arbitral decision relates to the "annulment of the acts of stamp tax assessment carried out in accordance with item 28 of the TGIS and referring to the year 2012 (1st to 3rd installment) ", although by reference to the global value of € 38 665.65, both expressed in the same request and implicit in the documents attached to the record, which reproduce all the payment notices of the assessments issued in 2012 and 2013 and proof of their respective payment.

The decision on whether to annul the Stamp Tax assessments issued on 7 November 2012 and on the possible correction of the value of the case depends on the answers to these questions.

In the motion presented by the Applicant on 18 April 2013, the request for "Gracious Objection – Stamp Tax, item 28.1 – Assessments: Dated 7/11/2012 and 22/03/2013" was formulated, with identification of the property to which the same assessments relate ("matricial article U … of the parish of …"), with a view to "the annulment of all assessments in question.

It is true that, in that motion, the taxpayer did not identify the tax payment notices, did not attach copies thereof, nor even indicated the global value of the assessments objected to; however, in accordance with no. 2 of article 74.º of the General Tax Law, under the heading "Burden of proof", "2 – When the evidentiary elements of the facts are within the possession of the tax administration, the burden referred to in the preceding paragraph is considered satisfied if the interested party has proceeded to correctly identify it to the tax administration."

Having correctly identified the taxpayer of the tax, the property to which the objected assessments relate and the respective dates of issue, the burden of proof of his right to object should be considered satisfied, concluding that it was by omission of the AT that, in the gracious objection, the assessments of the year 2012, issued on 7 November 2012, were not taken into consideration.

With respect to these, with a payment deadline of 20 December 2012, the gracious objection presented on 18 April 2013 is timely, taking into account the 120-day period provided for in no. 1 of article 70.º, in conjunction with the provisions of article 102.º, no. 1, paragraph a), both of the Tax Procedure Code.

It is equally true that the hierarchical appeal was limited to the decision of the gracious objection; however, "hierarchical appeal is an administrative guarantee that (…) consists of requesting from the superior of the entity that practiced an act a new assessment of this (…)" and "functions as an 'administrative filter, attempting to avoid immediate resort to court and giving the superior the possibility of revoking the act (…)"[1]

It should, therefore, be concluded that the omission of decision on the request for annulment of the Stamp Tax assessments of the year 2012, issued on 7 November 2012, presented in a timely manner, is not due to fact attributable to the taxpayer.

Nevertheless, if it were to be understood that there had been a tacit denial with respect to that annulment request, its formation would necessarily have to coincide with the express denial of the hierarchical appeal no. … 2014 …, notified to the Applicant on 5 January 2015, given its nature of "review" of the appealed act (denial of the gracious objection).

Even if this were to be understood, the request for arbitral decision would still be considered timely, with respect to those assessments.

As regards the contradiction implicit in the request for arbitral decision, between the global value of € 38 665.65 and the reference to the "annulment of the acts of stamp tax assessment carried out in accordance with item 28 of the TGIS and referring to the year 2012 (1st to 3rd installment) ", this arbitral tribunal understands that the same is resolved by the attachment of copies of all payment notices issued on 7 November 2012 and 22 March 2013 and proof of their respective payments, all the more so since such contradiction was not invoked by the AT, which expressly accepted as true all documents attached by the Applicant.

Having resolved the preliminary issue concerning the object of the present proceedings and its respective economic value, there is no obstacle to assessing the merits of the case.

3.2. On the concept of urban property with residential designation

In its initial wording, applicable to the situation under analysis, item 28 of the TGIS provided that the following situations were subject to stamp tax:

"28 – Ownership, usufruct or right of surface of urban properties whose tax asset value contained in the registration, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or greater than € 1 000 000 – on the tax asset value used for purposes of IMI:

28.1 – For property with residential designation – 1 %;

28.2 – For property, when taxpayers other than natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial order of the Minister of Finance – 7.5 %."

In accordance with the rule transcribed, the cumulative requirements of its application are: (i) that the property to be taxed is an urban property "with residential designation", and (ii) that its tax asset value, for purposes of IMI, is equal to or greater than € 1 000 000.00.

It has long been peacefully accepted by doctrine that tax law provisions are interpreted like any other legal provisions, a solution that today expressly appears in no. 1 of article 11.º of the General Tax Law (LGT), by establishing that "1 - In determining the meaning of tax law provisions and in qualifying the facts to which they apply the general rules and principles of interpretation and application of laws are observed".

Among the elements of interpretation, that from which the applicator of the norm must start is, precisely, the grammatical element, that is, the text of the law, though it should be noted that, in determining the meaning and value of the norm, the interpreter cannot fail to consider the logical element or, in accordance with no. 1 of article 9.º of the Civil Code, fail to "reconstruct (…) the legislative intent, having regard above all to the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied".

The rule of incidence contained in item 28.1 of the TGIS uses the expression "property with residential designation", the concept of which is not defined in the Code in which it is inserted, nor in any other legislation of a tax nature.

Being a polysemic expression, which may have more than one meaning and, in order to determine its exact meaning and scope, in respect of the unity of the system, the interpreter must resort to the so-called "parallel places", that is, the "legal provisions that regulate parallel normative problems or related institutions"[2].

Such "parallel places" will necessarily be found, in the case at hand, in the provisions of the Municipal Property Tax Code, to whose subsidiary application, in block, no. 2 of article 67.º of the Stamp Tax Code defers, as added by the same Law no. 55-A/2012 of 29 October, by providing that "2 - To matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI apply, subsidiarily."

However, notwithstanding the express referral to the Municipal Property Tax Code, which the legislator intended to establish in no. 2 of article 67.º of the Stamp Tax Code, by reference to matters relating to Item 28 of the TGIS, it also does not give us the concept of "property with residential designation".

Effectively, its article 6.º, inserted in Chapter I, under the heading "Incidence", does not use that expression when enumerating, in no. 1, the categories of urban properties, which may be classified as: a) Residential; b) Commercial, industrial or service; c) Building land; d) Other, with nos 2, 3 and 4 of the same article defining what should be understood by each of those designations.

The category of urban property that best corresponds to the concept of "property with residential designation" is that of residential properties, as buildings or structures licensed for housing or which, in the absence of a license, have housing as their normal destination (residential purposes).

The Applicant confirms that, effectively, the property of which it is the owner, in vertical co-ownership, composed of 23 units capable of independent use intended for housing, and on which the Stamp Tax assessments for the year 2012 were levied, is a property "with residential designation", seeking the application, to the concrete case, of the rules concerning the taxation of autonomous fractions of properties in horizontal co-ownership.

3.3. On the distinction between floors or units capable of independent use and autonomous fractions, for tax purposes

Notwithstanding the provision of no. 3 of article 12.º of the CIMI, which provides that "Each floor or part of property capable of independent use is considered separately in the property register entry, which also discriminates the respective tax asset value", which is also discriminated in the collection document (cf. no. 1 of article 119.º of the Municipal Property Tax Code), the AT argues that the TAV relevant for purposes of the rule of incidence of item 28.1 of the TGIS is the total tax asset value of the property and not the value of each of the units with independent use.

And it does so by arguing that, if the TAV relevant for application of that rule of incidence were that of each unit with independent use, one would be applying, by analogy, to properties in vertical co-ownership the regime of horizontal co-ownership, in which, in accordance with no. 4 of article 2.º of the Municipal Property Tax Code, each autonomous fraction is considered as constituting a property.

Effectively, from a formal point of view, the AT is right in saying that a property constituted in horizontal co-ownership is a reality distinct from a tax law perspective from an urban property in "full ownership" or "vertical co-ownership"; however, if no. 4 of article 2.º of the Municipal Property Tax Code establishes the legal fiction that each of the autonomous fractions of a property constituted in horizontal co-ownership constitutes a property, the fact is that a part of independent use of an urban property not constituted in horizontal co-ownership continues to be only that – a part of a property and not a property.

So much so that, in the concrete case, the AT issued individualized assessments for each of the units with independent use that make up the Applicant's property, according to their respective TAVs contained in the register and not a single assessment for the "total value" of the property.

3.4. On the tax asset value of urban properties in full ownership

With respect to the determination of the tax asset value of properties not constituted in horizontal co-ownership, article 7.º, no. 2 of the Municipal Property Tax Code applies, but only as regards "urban properties with parts that can be classified in more than one of the classifications of no. 1 of the preceding article" (underlined), in which case, in accordance with its paragraph b), "(…) each part is evaluated by application of the corresponding rules, and the value of the property is the sum of the values of its parts".

And this is the only provision of the Municipal Property Tax Code that makes reference to the "value [total] of the property", without, however, this having any relevance at the level of tax assessment, nor could it have at the level of taxation under Stamp Tax, given the referral to the provisions of the Municipal Property Tax Code, contained in no. 2 of article 67.º of the Stamp Tax Code, by reference to matters relating to Item 28 of the TGIS.

From the combination of the provisions of no. 2 of article 7.º and no. 1 of article 6.º, both of the Municipal Property Tax Code, it results that, if an urban property not constituted in horizontal co-ownership comprises exclusively parts or units "with residential designation", the value of the property does not equal the sum of its parts.

Which is to say that each of those parts capable of independent use is autonomous and that, having not been attributed a TAV equal to or greater than € 1 000 000.00, it will be excluded from the incidence of Stamp Tax – item 28.1 of the TGIS.

Being thus, the literal element of the rules previously cited (no. 2 of article 7.º and no. 1 of article 6.º, both of the Municipal Property Tax Code), is preventative of the AT formulating a rule of incidence ex novo, different from that created by the legislator, seeking to tax parts of properties, even if economically and functionally independent and, as such, separately registered in the register, for the law is clear in subjecting to stamp tax of item 28.1 of the TGIS, urban properties with residential designation, whose TAV, for purposes of IMI, is greater than € 1 000 000.00.

As the Applicant refers in the initial petition and as has already served as the basis for other arbitral decisions, namely that delivered in case no. 50/2013-T, available at https://caad.org.pt/tributario/decisoes/decisao.php?s_selo=1&s_processo=50%2F2013-T&s_data_ini=&s_data_fim=&s_resumo=&s_artigos=&s_texto=&id=66, "The ratio legis underlying the rule of item 28 of the TGIS, introduced by Law no. 55-A/2012 of 29 October, in obedience to the provision of article 9º of the Civil Code, according to which the interpretation of the legal norm should not be limited to the letter of the law, but should reconstruct from the texts and other elements of interpretation the legislative intent, taking into account the unity of the legal system, the circumstances in which it was enacted and the specific conditions of the time in which it is applied.

The legislator, in introducing this legislative innovation, considered as the determining element of contributory capacity urban properties with residential designation of high value, more precisely, 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 demonstrated through ownership, usufruct or right of surface of luxury urban properties with residential designation. The criterion was the application of the new rate to urban properties with residential designation, whose TAV is equal to or greater than € 1000 000.00.

Such logic seems to make sense when applied to "housing", whether it is a "house", "autonomous fraction" or "part of property with independent use" "autonomous unit", because it is assumed to reflect above-average contributory capacity and, in that measure, justifies the need for an additional contributory effort, it would make little sense to proceed to disregard the calculations "unit by unit" when only through the sum of the TAVs of the same, because held by the same individual, would the million euros threshold be exceeded.

This is concluded from the analysis of the discussion of Bill no. 96/XII in the National Assembly, available for consultation in the National Assembly Records, I series, no. 9/XII/2.ª, of 11 October 2012.".

We thus have that, beyond the grammatical and systematic elements of interpretation of the rule of incidence contained in item 28.1 of the TGIS, also the rational or teleological element, the ratio legis or purpose intended by the legislator in enacting that rule, points toward taxation being incidental to urban properties and not to parts of urban properties, even if capable of independent use and with residential designation.

For the reasons that precede, having established the vice of violation of law, resulting from the erroneous interpretation of the rule of incidence contained in item no. 28.1 of the TGIS, the challenged assessments cannot be maintained in the legal order.

3.5. On the request for compensatory interest

The tax arbitration process was conceived as an alternative means to judicial challenge (cf. the legislative authorization granted to the Government by article 124.º, no. 2 (first part) of Law no. 3-B/2010 of 28 April – State Budget Law for 2010). Thus, although article 2.º, no. 1, paragraph a) of the RJAT uses the expression "declaration of illegality" as defining the jurisdiction of arbitral tribunals operating at CAAD, it should be understood that this comprises the powers that, in judicial challenge proceedings, are attributed to tax courts, such as that of assessing error attributable to the services.

On the other hand, paragraph b) of no. 1 of article 24.º of the RJAT provides that the arbitral decision on the merits of the claim, from which no appeal or challenge may be made, binds the tax administration from the end of the period provided for appeal or challenge, and this, in the precise terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for spontaneous execution of sentences of tax judicial courts, "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for this purpose".

Similarly, article 100.º of the LGT, applicable to tax arbitration proceedings by virtue of the provision of paragraph a) of no. 1 of article 29.º of the RJAT, establishes that "The tax administration is obliged, in the event of total or partial success of objections or administrative appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided for by law.".

Article 43.º, no. 1 of the LGT provides that "Compensatory interest is due when it is determined, in a gracious objection or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than that legally due.".

Error attributable to the services may consist of error regarding the factual assumptions, which occurs whenever there is "a divergence between reality and the factual matter used as a premise in practicing the act"[3] or error regarding the legal assumptions, when "in practicing the act there was erroneous interpretation or application of the legal norms, such as the norms of objective and subjective incidence (…)"[4] and "is demonstrated when a gracious objection or judicial challenge of that same assessment is made and the error is not attributable to the taxpayer"[5].

In the case at hand, declared the illegality of the acts of Stamp Tax assessment, by having demonstrated erroneous application of the rule of objective incidence contained in item 28.1 of the TGIS, which justifies its annulment, the Applicant's right to compensatory interest on the amounts unduly paid must be recognized, from the date of the respective payment, as provided for in no. 5 of article 61.º of the Tax Procedure Code, since such illegality is exclusively attributable to the Tax Administration.

3.6. Matters of prejudiced knowledge

In view of the solution given to the issues relating to the determination of the TAV relevant for application of the rule of incidence contained in item 28.1 of the TGIS and to the payment of compensatory interest in favor of the Applicant, knowledge of the alleged unconstitutionality of the said rule is prejudiced, as it is not susceptible to the interpretation that, in the case, was made by the AT.

1. DECISION

Based on the factual and legal grounds set forth above and, in accordance with article 2º of the RJAT, the following decision is rendered, finding the present request for arbitral decision entirely well-founded:

4.1. Declare the illegality of the Stamp Tax assessments for the year 2012 challenged, due to error in the legal assumptions, determining their annulment;

4.2. Condemn the AT to the restitution of the amounts unduly paid by the Applicant, plus compensatory interest, from the dates of the undue payments until the date of issuance of the respective credit notes.

VALUE OF THE CASE: In accordance with the provisions of article 306.º, nos 1 and 2 of the CPC, 97.º-A, no. 1, paragraph a) of the Tax Procedure Code and 3.º, no. 2 of the Regulation of Costs in Tax Arbitration Processes, the case is assigned the value of € 38 665.65 (thirty-eight thousand, six hundred and sixty-five euros and sixty-five cents)

COSTS: Calculated in accordance with article 4.º of the Regulation of Costs in Tax Arbitration Processes and Table I attached thereto, in the amount of € 1 836.00 (one thousand eight hundred and thirty-six euros), to be borne by the Tax and Customs Authority.

Notify the parties.

Lisbon, 15 October 2015.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, in accordance with no. 5 of article 131.º of the CPC, applicable by referral of paragraph e) of no. 1 of article 29.º of Decree-Law 10/2011, of 20 January.

The wording of this decision is governed by the 1990 orthographic agreement.

[1] Thus, ROCHA, Joaquim Freitas da, "Lessons on Tax Procedure and Process", 5th Edition, Coimbra Editor, Coimbra, 2014, pp. 241 et seq.

[2] MACHADO, J. Baptista, "Introduction to Law and Legitimizing Discourse", Almedina, Coimbra, 1995, p. 183.

[3] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented", Volume I, Áreas Editora, 6th Edition, 2011, p. 115.

[4] Ibid, ibid.

[5] CAMPOS, Diogo Leite de, RODRIGUES, Benjamim Silva, SOUSA, Jorge Lopes de, "General Tax Law – Annotated and Commented", Encontro da Escrita, 4th Edition, p. 342.