Stamp Tax on Property in Total Ownership: VPT of Independent Units vs. Total Value (CAAD 255/2016-T)

ARBITRAL DECISION

The Arbitrator Raquel Franco, designated by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the single arbitral tribunal constituted on 14 July 2016, decides as follows:

I. REPORT

1. On 05-05-2016, the company "A…, Lda.", NIPC…, filed an application for constitution of a single arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (AT) is the Respondent.

2. The application for constitution of the Arbitral Tribunal was accepted by the Illustrious President of the CAAD and automatically notified to the AT on 13-05-2016.

3. Pursuant to the provisions of paragraph (a) of Article 6, paragraph 2, and paragraph (b) of Article 11, paragraph 1, 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 designated the signatory as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

4. On 29-06-2016, the parties were duly notified of this designation, having shown no intention to refuse the designation of the arbitrator pursuant to the combined provisions of Article 11, paragraph 1, subparagraphs (a) and (b) of the RJAT and Articles 6 and 7 of the Ethics Code.

5. Thus, pursuant to the provisions of paragraph (c) of Article 11, paragraph 1, of Decree-Law No. 10/2011, of 20 January, as amended by Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 14-07-2016.

6. In the present case, the Claimant seeks to have the Arbitral Tribunal declare the illegality and unconstitutionality of acts of assessment of stamp tax levied under item 28.1 of the General Stamp Tax Schedule (TGIS), referring to the year 2015, in the total amount of € 22,252.20, with reference to the real property in full ownership located at Av…, … to …, registered in the property record of the parish of…, Lisbon, under article….

7. The grounds presented by the Claimant are as follows:

• The assessments in question relate to units susceptible to independent use with residential allocation of the urban real property registered in the property record of the parish of… under article…;

• The real property in question comprises 11 floors and 20 units susceptible to independent use;

• The sum of the tax patrimonial values (TPVs) of the said units susceptible to independent use amounts to € 2,225,220.00, none of which has a TPV equal to or exceeding € 1,000,000.00;

• It was on the total tax patrimonial value of the units allocated to residential use that the AT assessed the stamp tax provided for in item 28.1 of the General Stamp Tax Schedule (TGIS), at the rate of 1%;

• The Claimant contends that the AT's criterion of considering that the global TPV of the units allocated to residential use determines the incidence of stamp tax is illegal, as there should only be incidence of this tax under item 28.1 of the TGIS if any of the floors or units with independent use presented a TPV equal to or exceeding € 1,000,000.00;

• This is because the AT cannot establish as the reference value for the incidence of stamp tax the total value of the real property when the legislator established a different rule under IMI, that being the applicable norm on matters not regulated in the Stamp Tax Code with respect to the incidence of item 28.1 of the TGIS;

• Now, for purposes of IMI, each unit susceptible to independent use has an autonomous and individualizable TPV and the assessment is carried out on that value; consequently, the same should occur in the application of item 28.1 of the TGIS insofar as there is no legal provision that equates the tax patrimonial value of a real property composed of various floors or units susceptible to independent use to the sum of their respective parts;

• Moreover, the underlying objective of the creation of item 28.1 of the TGIS was to tax taxpayers who presented enhanced contributory capacity through the ownership, usufruct, or holding of the right of superficies of luxury residential units, which does not occur in the present case.

1. The Respondent replied to the Claimant's claims by raising preliminary objections and challenging the merits.

8.1 Analysis of Preliminary Objections

The Respondent raises the Tribunal's lack of competence and the unimpugnability of the acts.

As to the first, it alleges that the Claimant does not challenge a tax act, but rather the payment of a tax act contained in a document that is a collection note, that is, the subject matter of the case is the annulment not of a tax act, but rather of collection notes for payment of a tax – a matter that is not included, in any way, in the norm that defines the competence of tax arbitral tribunals, contained in Article 2 of the RJAT, whereby the act subject to the arbitral decision would exceed the competence of the Arbitral Tribunal.

As to the second, it alleges that what the Claimant challenges are not the acts of assessment, but rather the first installments relating to payment of a unit value of tax, and that these are not unimpugnable per se.

Now, unless better advised, the AT errs by oversimplifying the petition presented by the Claimant. In fact, considering both the beginning of its exposition and the value indicated at the end and attributed to the case, it is evident that what is actually challenged is the act of assessment of stamp tax and not merely its first installment, calculated and communicated to the taxpayer through the collection documents relating to each of the units susceptible to independent use. Note that, right from the outset, it states that it intends to "file an application for arbitral decision on a tax matter, with a view to the declaration of illegality of the act of assessment whose number is unknown, since the claimant has not, to this day, been notified thereof, nor does such number appear in the collection notes relating to stamp tax item 28.1 of the TGIS for the year 2015, indicated below. Therefore, it is obliged to presume that the challengeable value will be € 22,252.20, as this corresponds to 1% of the TPV of the real property subject to taxation, as is apparent from the cited collection notes (€ 2,225,220.00 × 1% = € 22,252.20)." On the other hand, in indicating the value of the case, at the end of the application for arbitral decision, the Claimant also indicates the value of € 22,252.20, requesting "the annulment of the act of assessments." The fact that the Claimant alleges not knowing the number of the assessment and does not indicate it does not prejudice the fact that she challenges the act of assessment, referring to it, albeit indirectly, and attributing to the claim its full value. On the other hand, the absence of this indication did not prevent the AT from knowing which assessment was in question and from being able to offer a defense in all its fullness.

Accordingly, the Tribunal does not find merit in the Respondent's invocation of preliminary objections.

8.2 Challenge on the Merits

• The concept of real property is defined in Article 2, paragraph 1, of the IMI Code, and it is provided in paragraph 4 thereof that, in the regime of horizontal ownership, each autonomous unit constitutes a real property.

• In its view, it follows from the analysis of that legal provision that an "urban real property in full ownership with floors or units susceptible to independent use" is, unquestionably, different from a real property in horizontal ownership regime, composed of autonomous units, that is, of various real properties.

• As to the assessment of IMI, in the case of real properties in full ownership, the TPV that serves as the basis for its calculation will be the TPV that the Claimant defines as the "global value of the real property," since although the assessment of Stamp Tax, in the situations provided for in item 28.1 of the TGIS, is carried out in accordance with the rules of the IMI Code, the truth is that the legislator reserves the aspects that require appropriate adjustments, namely those in which, as is the case with real properties in full ownership, albeit with floors or units susceptible to independent use (although IMI is assessed in relation to each part susceptible to independent use) for purposes of Stamp Tax the real property as a whole is relevant, since the units susceptible to independent use are not considered as real property, but only autonomous units in the horizontal ownership regime, as per paragraph 4 of Article 2 of the IMI Code.

• The constitution of horizontal ownership implies a mere legal alteration of the real property, there being no reassessment (official – circular No. 40.025, of 11.08.200, of the DSCA), but the legislator may, however, submit to a distinct tax legal framework the real properties in horizontal ownership and vertical ownership regimes, in particular, benefiting the legally more evolved institute of horizontal ownership, without such discrimination necessarily being considered arbitrary.

• The norms on evaluation procedures, the norms on property registration, and also the norms on the assessment of parts susceptible to independent use do not permit the assertion that there should be an equation of real property in the full ownership regime with the vertical ownership regime.

• The constitution in horizontal ownership determines the scission/division of full ownership and the independence or autonomy of each of the units that compose it, for all legal purposes, pursuant to paragraph 2 of Article 4 of the IMI Code and Articles 1414 and following of the Civil Code, such that a real property in full ownership constitutes, for all purposes, a single legal-tax reality.

• The property registration of each part susceptible to independent use is not autonomous by a separate entry, but consists of a description in the register of the real property as a whole – see the property record of this real property which represents the owner's document containing the registration elements of the real property.

II. SANITATION

1. The Tribunal is competent and is duly constituted, pursuant to Articles 2, paragraph 1, subparagraph (a), 5, and 6, all of the RJAT.

2. The parties have legal personality and capacity, are legitimated, and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Regulatory Decree No. 112-A/2011, of 22 March.

3. The proceedings do not suffer from defects that would render them null and void.

III. FINDINGS OF FACT

Before proceeding to the examination of legal issues, it is necessary to present the factual matter relevant to its comprehension and decision, which, having examined the documentary evidence attached to the file and taking into account the facts alleged, is established as follows:

III.1. Proven Facts

• The Claimant is the owner of the urban real property in full ownership registered in the urban property record of the parish of…, Lisbon, under article…;

• The real property comprises eleven stories and twenty units with independent use, being, at the date of the tax-relevant facts, constituted in full ownership;

• The units susceptible to independent use are allocated to residential use, with the exception of the ground floor shop (cf. property record attached as document 20);

• All units susceptible to independent use have a TPV attributed and separately determined pursuant to subparagraph (b) of paragraph 2 of Article 7 of the IMI Code;

• None of its parts or floors with residential allocation has a tax patrimonial value equal to or exceeding € 1,000,000.00;

• The real property has a total TPV of € 3,021,390.00;

• The sum of the TPVs of the units susceptible to independent use with residential allocation is € 2,225,220.00 (€ 3,021,390.00 – € 796,170.00 TPV of the shop);

• It was on this TPV of € 2,225,220.00 that the AT assessed the stamp tax of item 28.1 of the General Schedule for the year 2015, with the assessment dated 2016/04/05.

III.2. Unproven Facts

There are no facts relevant to the decision that have been found unproven.

IV. ISSUE TO BE DECIDED

The essential question at issue in the present case is to determine, with reference to an urban real property not constituted in the horizontal ownership regime, composed of various areas with independent use, with residential allocation, whether the TPV relevant for purposes of taxation under stamp tax under item 28.1 of the TGIS should be that corresponding to the sum of the tax patrimonial value attributed to the different independent parts or floors with residential allocation, or whether, on the contrary, for purposes of the incidence of stamp tax under item 28.1 of the TGIS, the TPV attributed to each floor or unit with independent use should be taken into account.

V. LEGAL REASONING

Item 28 of the TGIS provided, at the date of the facts, as follows:

1. Ownership, usufruct, or right of superficies of urban real properties whose tax patrimonial value contained in the property record, pursuant to the Municipal Property Tax Code (IMI Code), is equal to or exceeding (euro) 1,000,000 – on the tax patrimonial value used for purposes of IMI: (Added by Article 4 of Law No. 55-A/2012 of 29 October)

28.1 For a residential real property or for land for construction the building of which, authorized or intended, is for residential purposes, pursuant to the provisions of the IMI Code (Amended by Law No. 83-C/2013 of 31 December) – 1%

28.2 For a real property, when the taxpayers that are not natural persons are resident in a country, territory, or region subject to a clearly more favorable tax regime, contained in the list approved by regulatory decree of the Minister of Finance (Added by Article 3 of Law No. 55-A/2012 of 29 October) – 7.5%

In the present case, it must be decided whether the TPV relevant as a criterion for the incidence of stamp tax pursuant to item 28.1 of the TGIS is that corresponding to the sum of the tax patrimonial value attributed to the different independent parts or floors (global TPV) or, rather, the TPV attributed to each of the residential parts or floors.

This question has been examined in various tax arbitration proceedings, and there are no grounds for adopting an understanding different from that adopted in decisions rendered previously[1]. Accordingly:

Pursuant to paragraph 2 of Article 67 of the Stamp Tax Code, as to "matters not regulated in the present code relating to item 28 of the General Schedule, the IMI Code shall apply subsidiarily." As the provision on the incidence of item 28.1 of the TGIS refers to urban real properties, it is necessary to seek the concept of urban real property in the IMI Code.

The IMI Code establishes, in Article 2, paragraph 1, the concept of real property. It defines it as "any fraction of territory, comprising waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a character of permanence, provided it is part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances aforesaid, endowed with economic autonomy in relation to the land on which they are located, although situated in a fraction of territory that constitutes an integral part of assets of a different person or does not have a patrimonial nature."

Article 4 of the IMI Code establishes that urban real properties are "all those that should not be classified as rural, without prejudice to the provisions of the following article."

In turn, Article 6 of the same Code classifies the various types of urban real properties, distinguishing them, in paragraph 1, into four subcategories: "a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others." In turn, paragraph 2 states the criterion used for this distinction, defining that "Residential, commercial, industrial or for services are the buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes."

With regard to the specific question that is the subject of the present decision, it is important to consider Article 12, paragraph 3, of the IMI Code, pursuant to which "each floor or part of a real property susceptible to independent use is considered separately in the property registration, which also discriminates the respective tax patrimonial value."

Finally, pursuant to Article 119, paragraph 1, of the IMI Code, "The services of the Directorate-General of Taxes send to each taxpayer, by the end of the month preceding that of payment, the corresponding collection document, with discrimination of the real properties, their parts susceptible to independent use, respective tax patrimonial value, and the tax collection attributed to each municipality of the location of the real properties."

As legal doctrine recognizes, the fiscal concept of real property diverges from the civil law concept of real property, contrary to what the Respondent contends, such that, "For tax purposes, paragraph 1 of this article [2 of the IMI Code] provides for the existence of three necessary requirements for one to be in the presence of the concept of real property, namely, the physical structure, patrimonial character, and economic value."
(Cf. J. Silvério Mateus and L. Corvelo de Freitas, Taxes on Real Property Assets, Stamp Tax, Annotated and Commented, Engifisco, 1st edition, 2005, p. 101).

Accordingly, "the physical element is defined by reference to 'any fraction of territory,' comprising waters, plantations and constructions of any nature incorporated therein or situated thereon with a character of permanence. On the legal plane, patrimonial character is given relevance. The asset, in the physical sense, must be capable of integration into the assets of a natural or legal person. (…) The requirement of economic value is, naturally, associated with the requirement of patrimonial character, from which derives the susceptibility to generate income or other utilities for its holder." (op. cit.).

In the present case, it appears to us that all three requirements mentioned are present, insofar as the parts or units susceptible to independent use that are the subject of the acts of assessment in question have correspondence with physical reality, integrate the assets of the Claimant, and possess an economic value which, at minimum, derives from the TPV that was attributed to them by the valuation carried out by the AT.

Accordingly, it appears to us that the parts or units susceptible to independent use, fulfilling all the requirements for them to qualify as a "real property," in economic, physical, and patrimonial terms, should be considered autonomously for purposes of the incidence of item 28.1 of the TGIS.

Furthermore, in the rule of incidence contained in item 28.1 of the TGIS, the legislator did not deem it relevant to distinguish between real properties in horizontal ownership and real properties in vertical ownership. And this, in our view, because what is ultimately relevant is the economic destination of the real property, as also follows from Article 6 of the IMI Code, in light of the constitutional principles inherent in Articles 103, paragraph 1, and 104, paragraph 3, of the Portuguese Constitution. In truth, in terms of economic substance, there is no difference whatsoever between a building in horizontal ownership and a building in vertical or full ownership composed of parts or units susceptible to independent use, justifying, therefore, in terms of rules of incidence – and in particular, of the rule contained in item 28.1 of the TGIS – the equal treatment of these two situations. Likewise, the tax legislator provides for such equal treatment in Article 119 of the IMI Code, when it establishes that tax should be assessed individually on each part or unit susceptible to independent use, taking into account the TPV of each part or unit susceptible to independent use, individually considered.

It follows from the foregoing that the rule contained in item 28.1 of the TGIS should be applied indistinctly, both to urban residential real properties constituted in horizontal ownership and to those in full or vertical ownership, such that the tax should be assessed on the TPV attributed by the Respondent, through a general valuation, to each of the parts or units susceptible to independent use (moreover, the Respondent issued, in the case that is the subject of the present proceedings, as many assessment acts as there were parts or units susceptible to independent use allocated to residential use).

In view of the foregoing, and considering the fact that none of the parts or units susceptible to independent use that are the subject of the act of assessment challenged has a tax patrimonial value equal to or exceeding € 1,000,000.00, as was demonstrated in the present proceedings, it is concluded that the Claimant's request has merit, such that the acts of assessment challenged are deemed illegal due to error concerning the factual and legal presuppositions and violation of Article 1, paragraph 1, of the Stamp Tax Code and item 28.1 of the TGIS, such that the said acts should be annulled.

It should be noted, finally, that the understanding herein advocated has been endorsed by the Supreme Administrative Court, as can be seen from the recent Decision No. 47/15, of 9/9/2015, in which it was noted, in a clear manner, that, "where a real property is constituted in vertical ownership, the incidence of Stamp Tax should be determined, not by the TPV resulting from the sum of the TPV of all units or floors susceptible to independent use (individualized in the property record), but by the TPV attributed to each of those floors or units intended for residential purposes." In the same sense, the Supreme Administrative Court Decisions of 2/3/2016 (case 1354/15), and of 29/6/2016 (case 498/16) may be consulted. In yet another decision, the Supreme Administrative Court states that "the question that it is necessary to decide concerns the interpretation of items 28 and 28.1 of the General Stamp Tax Schedule (TGIS) added by Article 4 of Law No. 55-A/2012, of 29/10, in order to define whether it applies to urban real properties with one property record article but composed of parts with independent allocation and use to which independent TPVs were attributed, each of which has a value less than one million euros. This question is no longer new in this Supreme Court and has received a uniform response in the sense advocated in the appealed decision [that is, and as summarized in this holding: 'Where a real property is constituted in vertical ownership, the incidence of Stamp Tax should be determined, not by the TPV resulting from the sum of the TPV of all units or floors susceptible to independent use (individualized in the property record), but by the TPV attributed to each of those floors or units intended for residential purposes.'], in all respects, the decision dated 04.05.2016, appeal No. 0166/16. The Constitutional Court has also pronounced on the constitutional dimension of this norm in light of the principles of tax equality, contributory capacity, and proportionality, having concluded that the norm contained in items 28 and 28.1 of the General Stamp Tax Schedule, added by Article 4 of Law No. 55-A/2012, of 29 October, to the extent that it imposes annual taxation on the ownership of urban real properties with residential allocation whose tax patrimonial value is equal to or exceeding € 1,000,000.00, is not unconstitutional, in all respects the decision 247/2016, dated 04.05.2016. In the present appeal, there is no need for examination of the norm in question in light of such constitutional principles and parameters, rather a teleological and systematic interpretation of the same is required, whereby the judicial orientation that has been followed by the common courts, and which will now be followed, does not impair the sound doctrine imposed by that Constitutional Court." (cf. the Decision of 24/5/2016, rendered in case 1344/15).

VI. DECISION

In accordance with what is set forth above, it is decided to uphold the application for arbitral decision and, in consequence, to declare the illegality of the stamp tax assessment challenged, with the consequent annulment.

Value: in accordance with the provisions of Article 32 of the Code of Administrative Procedure and Article 97-A of the Code of Tax Procedure, applicable by virtue of the provisions of Article 29, paragraph 1, subparagraphs (a) and (b), of the RJAT, and of Article 3, paragraph 2, of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT), the value of the case is set at € 22,252.20.

Costs: pursuant to the provisions of Article 22, paragraph 4, of the RJAT and in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, the amount of costs is set at € 1,224.00, to be borne entirely by the Respondent pursuant to Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the cited Regulations.

Let it be registered and notified.

Lisbon, 13 January 2017

The Arbitrator,

Raquel Franco

[1] Cf., merely by way of example, the decisions rendered in cases 50/2013T; 132/2013-T; 181/2013-T; 182/2013-T; 183/2013-T; 185/2013-T; 240/2013-T; 248/2013-T; 268/2013-T; 272/2013-T; 280/2013-T; 14/2014-T; 26/2014-T; 30/2014-T; 72/2014-T; 88/2014-T; 100/2014-T; 177/2014-T; 193/2014-T; 194/2014-T; 206/2014-T; 238/2014-T; 290/2014-T; 292/2014-T; 372/2014-T; 428/2014-T; 450/2014-T.