Stamp Tax on Vertical Property Under Verba 28 TGIS – CAAD Arbitration 256/2016-T

ARBITRAL DECISION

I. Report

1. A… (hereinafter "Claimant"), with tax identification number … and tax residence at Rua …, n.º…, …-… Linda-a-Velha, filed, on 5 May 2016, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, i.e., the Legal Regime of Arbitration in Tax Matters ("RJAT"), a request for constitution of an arbitral tribunal in order to declare illegal the stamp duty assessments ("IS") set out below, in the total amount of € 10,862.30 (see table below);

The Tax and Customs Authority ("Respondent" or "AT") being the defendant.

A) Constitution of the Arbitral Tribunal

1. Pursuant to the provisions of subparagraph (a) of article 6(2) and subparagraph (b) of article 11(1) of the RJAT, the Deontological Council of this Administrative Arbitration Center ("CAAD") designated the undersigned as sole arbitrator, who communicated acceptance of the appointment within the applicable period, and notified the parties of such appointment on 29 June 2016.

2. Thus, in accordance with what is provided in subparagraph (c) of article 11(1) of the RJAT, and through the communication of the President of the Deontological Council of CAAD, the Sole Arbitral Tribunal was constituted on 14 July 2016.

B) Procedural History

1. In the request for arbitral ruling, the Claimant petitioned for a declaration of illegality of the IS assessments mentioned above, concerning the year 2015, with reference to an urban property with a Tax Patrimonial Value ("VPT") of € 1,086,230, held in absolute ownership, located at Rua…, n.º…, registered in the property registry of the parish of … under article… .

2. It should be noted that, within the scope of the request for arbitral ruling mentioned above, the Claimant has already paid the amounts relating to the 1st installment of IS, in the total amount of € 3,736.25.

3. The AT filed a response, petitioning for dismissal of the request for arbitral ruling, first, by exception, since, in its view, arbitral tribunals do not have competence to decide on the request filed by the Claimant and, also, because there is no defect of violation of law, requesting that the tax acts under analysis, as they do not violate any legal or constitutional provision, be maintained.

4. On 30 September 2016, the Claimant filed a request in response to the AT's reply, defending itself from the dilatory exception raised by the latter.

5. By order of 5 December 2016, the Sole Arbitral Tribunal, pursuant to the provisions of subparagraph (c) of article 16 of the RJAT, and following what was requested by the AT, decided, without opposition from the parties, that it was not necessary to hold the meeting referred to in article 18 of the RJAT, as a result of the simplicity of the issues at hand, as well as considering that it had at its disposal all the necessary elements to render a clear and impartial decision.

6. It also decided, in accordance with article 18(2) of the RJAT, that oral arguments were not necessary, since the positions of the parties were clearly defined in their respective pleadings, and set the deadline for issuance of the arbitral decision as 17 January 2017.

7. The Tribunal was properly constituted and is competent to appraise the issues indicated (article 2(1)(a) of the RJAT), the parties have legal personality and capacity and have full standing (articles 4 and 10(2) of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March). There are no nullities, so nothing prevents judgment on the merits.

8. Thus, the present proceedings are in a position for a final decision to be rendered.

II. Issues to be Decided

1. As a preliminary matter, and following the issue raised by the AT, it is necessary to determine whether, as the latter suggests, there is the exception of non-contestability of the challenged act with respect to the assessments that the Claimant seeks to challenge.

2. In this sense, should that be the understanding of the present tribunal, it will necessarily have to refrain from examining the respective request for arbitral ruling, due to its lack of competence ratione materiae, pursuant to article 2 of the RJAT.

3. Subsequently, should the above not apply, the central issue to be examined and decided with respect to the merits of the case, as is evident from the procedural documents of the parties, is the following: with reference to properties not held under horizontal property regime, comprised of various floors and divisions susceptible of independent use (and with residential allocation), what is the relevant VPT for purposes of determining the IS to be paid, pursuant to item no. 28 of the General Table of IS ("TGIS")?

4. That is, the present tribunal seeks to determine whether, as the Claimant alleges, the amount to be considered is the VPT assigned individually to each part susceptible of independent use, or, conversely, the total value resulting from the sum of the VPTs of those autonomous portions, as suggested by the Respondent.

III. Decision on Factual Matters and its Reasoning

1. Having examined the documentary evidence produced, the tribunal finds proven, with relevance to the decision of the case, the following facts:

I. The Claimant is the owner of an urban property, with a VPT of € 1,086,230, held in absolute ownership, located at Rua…, n.º…, registered in the property registry of the parish of … under article …;

II. The Claimant received, with respect to the fiscal year 2015, and as a result of what is stated in item no. 28 of the TGIS, the assessment notices from the AT, mentioned above, relating to the 1st installment, in the amount of € 3,736.25 (amount already paid in full);

III. Within the scope of the assessments received, with respect to the 1st installment, the Claimant could know from the outset the total amount due, as IS, in 2015, of € 10,862.30.

1. The Tribunal's conviction regarding the facts found proven resulted from the documents attached to the file and contained in the request and the uncontested allegations of the parties, as specified in the points of the factual matters set out above.

2. From the documents appended to the present proceedings, it is not established that the total value of the IS assessment was € 11,232.75, as referenced by the Claimant.

IV. Law

A) Legal Framework

1. Taking into account the subject matter under discussion in the present proceedings, it is important, first, to list the rules that comprise the relevant legal framework, as of the date of occurrence of the facts.

2. The subjection to IS of properties with residential allocation resulted from the addition of item no. 28 to the TGIS, effected by article 4 of Law 55-A/2012, of 29 October, which typified the following tax facts:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value registered in the matrix, pursuant to the Municipal Property Tax Code (IMI Code), is equal to or exceeds € 1,000,000.00 – on the tax patrimonial value for purposes of IMI:

28.1 – Per property with residential allocation – 1%

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

1. The aforementioned law also added, in the IS Code, article 23(7), concerning the assessment of IS: "in the case of tax due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the IMI Code", and article 67(2) which provides that "to matters not regulated in the present code concerning item 28 of the General Table, the IMI Code applies subsidiarily".

2. In this context, and taking into account the indication above, let us now turn our attention to the IMI Code.

3. First, note article 2(4) of the IMI Code which provides that "for purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property".

4. In turn, article 12(3) of the IMI Code establishes that "each floor or part of a property susceptible of independent use is considered separately in the matriculation registration, which also discriminates its respective tax patrimonial value".

5. Thus, it is within the present legal framework that it is important to examine the issues set out above (see II. Issues to be Decided).

B) Arguments of the Parties

1. In this regard, the Claimant, in its request, initially alleges the following: "prior to the analysis of the (il)legality of the contested acts, it should be said that the tax acts subject of the present proceedings consist of the Stamp Duty assessments for the year 2015 and which affect the property located at Rua…, n.º…, registered in the property registry of the parish of … on article… .

As is known, Stamp Duty assessments are not autonomously notified to taxpayers but only payment notices (divided into three installments). In this sense, and as is well-established jurisprudence of CAAD, taxpayers should use the payment deadline of one of these installments for purposes of beginning the period for using any contentious means.

However, this does not invalidate that the contested tax acts and, therefore, subject of the present proceedings, are the Stamp Duty assessments".

1. Subsequently, and now in the analysis of the actual issue, the Claimant states that "the subjection to IS contained in item no. 28.1 of the TGIS is determined by the combination of two criteria. Residential allocation and the VPT registered in the matrix equal to or exceeding € 1,000,000.00".

2. In that sense, "in the case of an urban property with characteristics identical to those described in the present proceedings, the subjection to IS is determined not by the VPT of the property, but by the VPT assigned to each one of the floors or divisions".

3. This is because, in the opinion of the Claimant, the legislator made no distinction between properties held under absolute ownership and horizontal property. Therefore, "in the case at hand only the material truth underlying the property and its respective use can be relevant".

4. From the point of view of the Claimant, "the AT cannot consider as the reference value of the new tax the total value of the property, since the legislator itself established a different rule in the IMI Code, which is the Code applicable to matters not regulated with respect to item no. 28 of the TGIS".

5. In parallel, the Claimant considers that it is "illegal and unconstitutional to consider as reference value the sum of the tax patrimonial values assigned to each one of the floors, to the extent that it results in a clear violation of the principle of equality and fiscal proportionality. The fiscal legislator cannot treat equal situations differently, for if it were a property subject to the horizontal property regime, none of the fractions would be subject to the new IS".

6. In conclusion, the Claimant then petitioned that the previously mentioned assessments be annulled, "as they are manifestly illegal, with all the legal consequences thereof", namely the payment of compensatory interest.

7. Additionally, and already in the context of final arguments, the Claimant also challenged the exception raised by the AT, considering that "1. In the response presented, the tax authority invokes the exception of incompetence of the Arbitral Tribunal, stating that the Claimant disputes 'a payment notice' (1st installment and not a tax act). 2. Concluding, consequently, that such act could not be subject of challenge in the present proceedings. (…) 6. Likewise, in the present proceedings, the disputed tax act was correctly identified (…) 7. What is disputed are, effectively the assessments. 8. And note that this could not be otherwise since assessments are not notified autonomously, but rather through 3 installments".

8. The Claimant thus considered that the AT, within the scope of its response, committed several errors, as this is the only way to understand the exception raised and the reference to an arbitral decision which, in this particular case, has no relevance whatsoever.

9. For its part, the Respondent, after being duly notified for such purpose, filed its response in which it began by considering that "the Arbitral Tribunal is materially incompetent, in light of the provision of article 2 of the RJAT, to examine the legality of a payment of an assessment act, which is not in itself any tax act, there being no doubt whatsoever, even by all the documents attached to it, that the Claimant disputes exclusively the payment notices that constitute the 1st installment of the tax for the year 2015, relating to the property".

10. In this sense, the Respondent extensively cites the decision regarding arbitral proceedings no. 726/2014-T, which, in its view, concerns a matter similar to the one now being examined by the present tribunal.

11. In the decision mentioned above, cited by the Respondent, it was concluded that "as each one of the installments of the IS assessments identified in the proceedings is not autonomously contestable, for the reasons previously set out, one is faced with a case of incompetence of the Arbitral Tribunal to examine and declare their illegality and consequent annulment".

12. Thus, the Respondent preliminarily concluded that, by virtue of the aforementioned, the incompetence of the Arbitral Tribunal to examine the issue at hand was manifest, and it should proceed with the exception raised by it.

13. In parallel, and as a precaution (in its own words), the Respondent also set forth its understanding regarding the illegality of the assessments issued by it, considering that "the AT has reiterated the understanding that if the building is held in absolute ownership with parts susceptible of independent use (so-called absolute ownership), it integrates the tax law concept of 'property', that is, a single unit and the tax patrimonial value thereof is determined by the sum of the parts with residential allocation and, if this is equal to or exceeds € 1,000,000.00, there is subjection to stamp duty of item 28 of the General Table annexed to the IS Code.

In other words, with respect to a property not held under horizontal property regime, the criterion for determining the incidence of stamp duty is the global tax patrimonial value of the fractions and other divisions intended for habitation".

1. Thus, the Respondent brought to bear the Binding Information issued within the framework of Process 2013… – IVE no.…, in which it was established that "(…) 3. For purposes of taxation under Stamp Duty, by item 28 of the respective general table, the distinction between properties held in absolute ownership and properties held in horizontal property regime is determinative.

(…)

1. (…) Properties held in absolute ownership are considered in their entirety as a single property.

(…)

1. For purposes of IMI and consequently for purposes of subjection to Stamp Duty, item 28 of the General Table annexed to the IS Code, by referral from that Code, the property in absolute ownership with parts or divisions susceptible of independent use (so-called absolute ownership) and the property under horizontal property regime, are, as regards the concept of 'tax property', distinct in that in the latter case the autonomous fraction, for purposes of IMI, integrates the concept of property.

This is an exception to the general rule, given that each autonomous fraction of a building subject to the horizontal property regime belongs to an independent owner, who is the owner of his autonomous fraction and co-owner of the common parts of the property.

1. As regards the first case (absolute ownership), even though the property has parts or divisions susceptible of independent use, the tax law concept is that this property constitutes a single unit, since its ownership, without prejudice to co-ownership, belongs only to a single owner".

2. As to the unconstitutionality of that item, the Respondent made reference to the Judgment of the Constitutional Court handed down on 11 November 2015, in which it is held that the aforementioned taxation complies "with the criterion of adequacy, to the extent that it aims at the taxation of wealth embodied in the ownership of high-value real estate, arising in a context of economic crisis that cannot be entirely ignored".

3. With regard to the payment of compensatory interest, the Respondent considers that, following what was set out above, no amounts are owed to the Claimant.

4. Thus, the Respondent understands that the assessments it issued result from a correct interpretation and application of the law to the facts, requesting, in that manner, that, should the exception raised by it not be considered well-founded, then the claim advanced by the Claimant be judged unfounded and the Respondent be absolved from the request.

C) Court's Appraisal

1. As a preliminary matter, it is important to note that, as it is not established that the value of the case amounts to € 11,232.75, as previously explained, the aforementioned value should be adjusted to € 10,862.30, the amount which, based on the elements provided, corresponds to the total of the IS assessments for 2015.

2. In parallel, it is incumbent on the present tribunal to examine the exception raised by the Respondent within the scope of the present proceedings.

3. Now, in this regard, note the words of the Claimant, already previously transcribed, "as is known, Stamp Duty assessments are not autonomously notified to taxpayers but only payment notices (divided into three installments).

In this sense, and as is well-established jurisprudence of CAAD, taxpayers should use the payment deadline of one of these installments for purposes of beginning the period for using any contentious means.

However, this does not invalidate that the contested tax acts and, therefore, subject of the present proceedings, are the Stamp Duty assessments."

1. Thus, the present tribunal considers that the exception raised by the AT has no relevance whatsoever to the issue sub judice, it being presumed that it was mentioned perhaps in error.

2. Indeed, it is considered that the Claimant correctly identified the act it intended to challenge (the IS assessment), it not being necessary to delve deeper into the exception invoked, since the same does not materialize.

3. In this context, the present tribunal cannot agree with the exception raised by the Respondent, thus considering itself competent to analyze, below, the Claimant's request.

4. By way of introduction, it should be noted that, in the understanding of the present tribunal, and taking into account the legal framework previously presented, the essential normative proposition to be taken into account for the decision of the case is that which results from item no. 28 of the TGIS.

5. It should also be noted that, in the eyes of the arbitral tribunal, the question to be decided relates exclusively to a matter of law, namely understanding, for purposes of the application of the aforementioned item, which VPT is relevant.

6. First, let it be clarified that it is clear, from the letter of the law, that the VPT to be considered, for purposes of the application of item no. 28 of the TGIS, can only be the one determined within the framework of the IMI Code.

7. This is, moreover, what the aforementioned item tells us, in the exact words, "(…) whose tax patrimonial value registered in the matrix, pursuant to the Municipal Property Tax Code (IMI Code), is equal to or exceeds € 1,000,000.00".

8. Thus, let note again what follows from article 2(4) of the IMI Code which provides that "for purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property".

9. Reinforced, nevertheless, by article 12(3) of the same Code, which establishes that "each floor or part of a property susceptible of independent use is considered separately in the matriculation registration which also determines its respective tax patrimonial value".

10. It is concluded, thus, that, for purposes of calculating the IMI to be paid, the VPT is considered individually for each floor or part susceptible of independent use.

11. And if this is the method of determination followed for the IMI, it must necessarily be the model equally applied within the scope of item no. 28 of the TGIS, in the terms explained above.

12. Nevertheless, and should the doubts raised still persist, the present tribunal relies on some arbitral decisions previously rendered, which addressed the matter under analysis.

13. Thus, first, let us note decision no. 50/2013-T, of 29 October, also mentioned by the Claimant, and which provides the following.

14. "Law no. 55-A/2012 says nothing about the qualification of the concepts at hand, namely, concerning the concept of 'property with residential allocation'. However, article 67(2) of the IS Code, added by the aforementioned Law, provides that 'to matters not regulated in the present code concerning item 28 of the General Table, the IMI Code applies subsidiarily'.

The rule of incidence thus refers to urban properties, the concept of which is what results from the provision of article 2 of the IMI Code, with the determination of the VPT being governed by the terms of article 38 et seq. of the same code.

Upon consultation of the IMI Code, it is verified that its article 6 only indicates the different species of urban properties, among which it mentions residential ones (…).

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

(…)

Using the criterion that the law itself introduced in article 67(2) of the IS Code, 'to matters not regulated in the present code concerning item 28 of the General Table, the IMI Code applies subsidiarily'" (emphasis in original).

1. That is, taking into account that the registration in the property matrix of properties in vertical ownership, for purposes of the IMI Code, follows the same rules as the registration of properties held in horizontal property regime, with the respective IMI, as well as the new IS, being assessed individually in relation to each one of the parts, it does not seem, to the present tribunal, that there is any doubt that the legal criterion for defining the incidence of the new tax must be the same.

2. In this context, if the law requires, with respect to IMI, the issuance of individualized assessment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal property regime, it will require, in the same terms, with respect to the rule of incidence of item no. 28 of the TGIS.

3. Thus, the IS, within the scope of item no. 28 of the TGIS, could only affect a given fraction if this fraction, possibly, had a VPT exceeding €1,000,000.00.

4. And, furthermore, that was indeed the understanding adopted by the AT.

5. In fact, the AT also issued individualized assessment notices, relating to each one of the fractions susceptible of autonomous use, demonstrating that, in its opinion, the aforementioned fractions, despite not legally being held in horizontal property regime, would, for all purposes, be independent of one another.

6. However, the AT overlooked that it could not, by virtue of the framework previously set forth, proceed with the sum of the individual VPTs of the previously mentioned fractions, seeking a value that would already fall within the basis of incidence of item no. 28 of the TGIS.

7. This when the legislator itself established a different rule within the framework of the IMI Code which, as previously mentioned, is the Code applicable to matters not regulated in the IS Code, with respect to item no. 28 of the TGIS.

8. In summary, the criterion established by the AT, of considering the value of the sum of individual VPTs assigned to the parts, floors or divisions with independent use, making use of the fact that the property is not held under horizontal property regime, does not find, in the eyes of the present tribunal, legal support, being, in particular, contrary to the criterion applicable in IMI and, by referral (in the terms mentioned above), in IS.

9. In this context, the present tribunal considers that the criterion defended by the AT violates the principles of legality and fiscal equality, and likewise, that of the prevalence of material truth over legal-formal reality.

10. In parallel, note that article 12(3) of the IMI Code makes no distinction regarding the regime of properties held in horizontal or vertical ownership.

11. As such, and given that if the property were held under horizontal property regime, none of its residential fractions would be subject to the incidence of the new tax, the AT cannot treat materially equal situations differently.

12. In this regard, see what was said on this subject in the arbitral decision rendered within the framework of proceedings no. 132/2013-T, of 16 December, the understanding of which the present tribunal endorses.

"Indeed, it makes no sense to distinguish in the law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Moreover, distinguishing in this context between properties held in horizontal ownership and absolute ownership would be an 'innovation' without associated legal support, especially because, as has been stated here, nothing indicates, neither in item no. 28, nor in the provision of the IMI Code, a justification for that particular differentiation.

Note, for example, what is stated in article 12(3) of the IMI Code: each floor or part of a property susceptible of independent use is considered separately in the matriculation registration, which also discriminates its respective tax patrimonial value.

The uniform criterion that is imposed is thus the one that determines that the incidence of the rule in question only takes place when any of the parts, floors or divisions with independent use of a property in horizontal or absolute ownership with residential allocation possesses a VPT exceeding €1,000,000.00.

To set as the reference value for the incidence of the new tax the global VPT of the property in question, as the now-respondent was seeking, does not find a basis in the applicable legislation, which is the IMI Code, given the referral made by the cited article 67(2) of the IS Code.

(…)

Moreover, to admit the differentiation of treatment could produce results incomprehensible from a legal standpoint and contrary to the objectives that the legislator claimed to have for adding item no. 28. By way of example, suppose the following hypothesis, which appears plausible in light of the interpretation made by the now-respondent: a citizen who is the owner of a property held in absolute ownership intended for habitation, with the global value of the autonomous units equal to or exceeding €1,000,000.00 and the VPT of each one below €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who owns a property with the exact same characteristics as the aforementioned one but which has been held in horizontal ownership, with equally, the global value of the autonomous fractions equal to or exceeding €1,000,000.00 and the VPT of each one below €1,000,000.00, will not be subject to taxation pursuant to the aforementioned 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, their respective VPTs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each one of his 20 fractions possesses a VPT below €1,000,000.00, would be subject to taxation if – should such aggregation be admitted – the global VPT exceeded that value; whereas another citizen with identical 20 fractions distributed across 5, 10 or 20 properties would not be subject to any taxation pursuant to the aforementioned item no. 28.

If this line of reasoning makes sense – thus justifying the non-aggregation of VPTs of fractions of properties in horizontal ownership – no plausible reason is seen for why the same is not applied to the autonomous units of properties in absolute ownership.

Observing now the case under analysis, it is found that the VPTs of the floors (autonomous units) of the property with residential allocation vary between (…), whereby each one of them is below €1,000,000.00.

From this it is concluded, as a result of what was stated, that the IS referred to in item no. 28 of the TGIS cannot affect the same, being thus illegal the assessment acts challenged by the claimant" (emphasis in original).

1. Notwithstanding the previous framework being sufficient to recognize the illegality of the assessment acts practiced by the AT, it is also important to highlight the understanding advocated both by the legislator and by the government itself, when adding item no. 28 to the TGIS.

2. In this regard, let us now focus on the arbitral decision rendered within the framework of proceedings no. 48/2013-T, of 9 October, which extensively analyzes the objectives underlying the addition of the aforementioned item.

3. "Law no. 55-A/2012, of 29/10, has no preamble whatsoever, such that from the same it is not possible to extract the intention of the legislator.

Such law of the Assembly of the Republic had its origin in the bill no. 96/XII (2nd), which, in the statement of reasons, speaks of the introduction of tax measures inserted in a broader set of measures to combat budget deficit.

In the statement of reasons of the aforementioned bill, it is stated that, 'these measures are fundamental to reinforce the principle of social equity in austerity, guaranteeing an effective sharing of the sacrifices necessary to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of those sacrifices will be made by all and not only by those who live from the income of their work. In keeping with that goal, this bill expands the taxation of capital and property, equitably encompassing a broad set of sectors of Portuguese society'.

In that statement of reasons it is also stated that, beyond the increase in taxation of capital income and capital gains, a rate is created under IS affecting urban properties of residential allocation whose tax patrimonial value equals or exceeds one million euros.

That is, in such statement of reasons, it is also not clarified what is meant by urban properties with residential allocation.

In its intervention in the Assembly of the Republic, in the presentation and discussion of the aforementioned bill, the Secretary of State for Tax Affairs stated the following:

'The Government has elected social equity as the priority principle of its tax policy. This is even more important in times of austerity as a way to ensure the fair distribution of fiscal effort.

In the demanding period that the country is going through, during which it is obliged to comply with the program of economic and financial assistance, it becomes even more urgent to assert the principle of equity. It cannot always be the same – employees and pensioners – who bear the fiscal burdens.

For the tax system to be fairer, it is crucial to promote the expansion of the tax base requiring increased effort from taxpayers with higher incomes and thus protecting Portuguese families with lower incomes.

For the tax system to promote more equality, it is fundamental that the budget consolidation effort be distributed across all types of income, encompassing with special emphasis capital income and high-value properties. This matter, it should be recalled, was extensively addressed in the judgment of the Constitutional Court.

Finally, for the tax system to be more equitable, it is crucial that all be called upon to contribute according to their ability to pay, giving the tax administration enhanced powers to control and supervise situations of fraud and tax evasion.

In this sense, the Government presents, today, a set of measures that effectively reinforce a fair and equitable distribution of adjustment effort by a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties valued at over 1 million euros; the increase in taxation on capital income and capital gains and the reinforcement of the rules to combat fraud and tax evasion.

First, the Government proposes the creation of a special rate on the highest-value residential urban properties. This is the first time in Portugal that special taxation has been created on high-value properties intended for habitation. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will affect properties valued at or above 1 million euros. With the creation of this additional tax rate, the fiscal effort required from these owners will be significantly increased in 2012 and 2013'".

1. Next, it is necessary to compile the conclusions that allow, without any doubt, the decision on the subject matter under discussion (that is, whether, for purposes of the application of item no. 28 of the TGIS, in cases in which a property with several autonomous fractions susceptible of independent use is not held under horizontal property regime, the relevant VPT is determined by the sum of individual VPTs, or alternatively, is individually considered).

2. In this sense, it should first be noted that the present subject matter is, from the outset, by virtue of article 67(2) of the IS Code, subject to the rules of the IMI Code, "to matters not regulated in the present code concerning item 28 of the General Table, the IMI Code applies subsidiarily".

3. As such, and as has been mentioned so many times, in the understanding of the present tribunal, the mechanism for determining the relevant VPT for purposes of the aforementioned item is the one provided for in the IMI Code.

4. Now, article 12(3) of the IMI Code establishes that "each floor or part of a property susceptible of independent use is considered separately in the matriculation registration, which also discriminates its respective tax patrimonial value".

5. The legislator, in the terms previously mentioned, downplaying any prior constitution of horizontal or vertical ownership.

6. Indeed, for the legislator, what matters is the material truth underlying its existence as an urban property and its use.

7. It should be noted that the AT itself appears to agree with the criterion set out, which is why the assessments it itself issues are very clear in their essential elements, from which it results that the value subject to incidence is the corresponding to the VPT of each one of the floors and the individualized assessments.

8. 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 defining the rule of incidence of the new tax.

9. Thus, there would only be place for incidence of IS (within the scope of item no. 28 of the TGIS) if any of the parts, floors or divisions with independent use presented a VPT exceeding € 1,000,000.00.

10. The AT cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in IMI (and, as previously mentioned, this is the code applicable to matters not regulated with respect to item no. 28 of the TGIS).

11. In conclusion, the current legal regime does not impose the obligation to constitute horizontal property, thus the conduct of the AT results in arbitrary and illegal discrimination.

12. Indeed, 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 of the Portuguese Republic, and also the principles of fiscal justice, equality and proportionality.

13. In the case at hand, the property in question was, as of the relevant date of the facts, held in absolute ownership and had 20 fractions with independent use, as results from the documents submitted by the Claimant, of which 17 had residential allocation.

14. Given that none of these fractions, individually considered, has a tax patrimonial value equal to or exceeding €1,000,000.00, as results from the documents attached to the proceedings, it is concluded that the legal requirement for incidence is not met.

V. Decision

1. For these reasons, this Arbitral Tribunal decides:

A) To adjust the value of the case, fixing it at € 10,862.30;

B) To judge the request for arbitral ruling well-founded and, consequently, to declare illegal and annul the IS assessments mentioned above, with reference to the fiscal year 2015, from which resulted tax to be paid in the amount of € 10,862.30, concerning the taxation of urban properties with VPT equal to or exceeding €1,000,000, pursuant to what is provided in item no. 28 of the TGIS;

C) To condemn the Respondent to reimburse the amount of € 3,736.25, already paid by the Claimant;

D) To condemn the Respondent, pursuant to article 43(1) of the General Tax Law and articles 61(2) and (5) of the Administrative Tax Procedure Code, to the payment of compensatory interest, at the rate resulting from article 43(4) of the General Tax Law, calculated on the amount paid, from the day the aforementioned assessments were paid and until full reimbursement of the aforementioned amount; and

E) To condemn the Respondent to payment of costs.

VI. Value of the Proceedings

1. The value of the proceedings is fixed at € 10,862.30, pursuant to article 97-A(1)(a) of the Administrative Tax Procedure Code, applicable by virtue of articles 29(1)(a) and (b) of the RJAT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT").

VII. Costs

1. In accordance with the provision of article 22(4) of the RJAT, the arbitration fee is fixed at € 918, pursuant to Table I of the aforementioned Regulation, to be borne by the Respondent, given the complete success of the request.

Notify the parties.

Lisbon, CAAD, 11 January 2017

The Arbitrator

(Sérgio Santos Pereira)