Stamp Tax Verba 28.1 on Mixed-Use Vertical Property: CAAD Arbitration 257/2016-T

ARBITRAL DECISION

I. REPORT

1. On 5 May 2016, the commercial company A..., S.A., NIPC ... (hereinafter, Claimant), with registered office at ..., filed a request for establishment of an arbitral tribunal, pursuant to the combined provisions of articles 2, no. 1, paragraph a), and 10, nos. 1, paragraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework of Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated LFATM), seeking the declaration of illegality and annulment of the Stamp Tax assessments [Item 28.1 of the General Table of Stamp Tax (hereinafter, GTST)] relating to the year 2015 and concerning an urban property in vertical ownership with floors or units capable of independent use, registered under article ... in the urban property register of the Union of Civil Parishes of ... and ..., municipality of ..., district of Porto, of which it is the owner, in the total amount of € 12,208.00.

The Claimant attached 42 (forty-two) documents and listed one witness, having not requested the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. In essence and in brief summary, the Claimant alleged as follows:

• It is the owner and legitimate possessor of an urban property in vertical ownership with floors or units capable of independent use, allocated to housing, services, and covered parking;

• On 20 April 2016, it was notified by the AT of the Stamp Tax assessments relating to the floors or units capable of independent use, allocated to housing, relating to the year 2015, made under Item 28.1 of the GTST;

• For purposes of the Stamp Tax assessment, the AT considered only part of the total taxable property value of the urban property in question, namely the corresponding amount to the sum of the taxable property values of the floors or units capable of independent use, allocated to housing;

• The legislator did not intend to include within the scope of Item 28.1 of the GTST situations of properties that are not exclusively allocated to housing, namely properties with mixed allocation;

• Considering that the urban property in question is not exclusively residential, the same (or rather, its floors or units with independent use intended for housing) is not covered by the provisions of Item 28.1 of the GTST;

• Consequently, the assessments whose declaration of illegality is sought are vitiated by violation of that Item 28.1 of the GTST, due to error as to the legal and factual assumptions, which justifies the declaration of its illegality and annulment;

• For purposes of Municipal Property Tax, immovable properties in vertical ownership constituted by units capable of independent use are subject to the same registration rules as properties constituted in horizontal ownership, and the Municipal Property Tax is assessed individually in relation to each one of the units and based on their respective taxable property values, as if they were autonomous fractions;

• Since the Municipal Property Tax, like the Stamp Tax to which they may be subject, is assessed individually in relation to each one of the units, it is beyond doubt that the legal criterion for defining the scope of Item 28.1 of the GTST must be the same;

• Item 28.1 of the GTST could only apply if any of the units with independent use presented a taxable property value exceeding € 1,000,000.00, which, in the case of the property in question, does not occur;

• It makes no sense for the AT to consider as the reference value for the scope of the new tax the total value of the property, since the legislator itself established a different rule under the Municipal Property Tax Code, whereby the criterion used by the AT, supported by the argument that the property is not constituted in the regime of horizontal ownership, has no legal basis whatsoever;

• The adoption of the criterion defended by the AT, if it were to prevail, would violate the principles of legality and tax equality, as well as the principle of prevalence of substantive truth over formal legal reality and also the principles of justice and tax proportionality;

• The existence of a property in vertical or horizontal ownership cannot be, by itself, an indicator of tax capacity, as it follows from the law that one and the other must receive the same tax treatment in compliance with the principles of justice, tax equality, and substantive truth;

• Thus, it is illegal/unconstitutional to consider as the reference value the amount corresponding to the sum of the taxable property values attributed to each unit or division;

• The legislator treats situations of horizontal and vertical ownership in an equitable manner, requiring the application of the same criteria in both cases.

The Claimant concludes its initial pleading by requesting the following:

"Wherefore, the present request must be adjudged well-founded, as proven, and in consequence annulled, due to error as to the factual and legal assumptions, violation of law and consequent lack of legal basis, the tax assessment acts challenged herein, with all lawful and proper consequences."

1. The request for establishment of an arbitral tribunal was accepted and automatically notified to the AT on 13 May 2016.

2. The Claimant did not proceed to nominate an arbitrator, whereby, pursuant to the provisions of no. 1 of article 6 and paragraph a) of no. 1 of article 11 of the LFATM, the President of the CAAD Deontological Council designated the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the assignment within the applicable time frame.

3. On 29 June 2016, the parties were duly notified of this designation and did not manifest the will to refuse the arbitrator's designation, in accordance with the combined provisions of article 11, no. 1, paragraphs b) and c), of the LFATM and articles 6 and 7 of the CAAD Deontological Code.

4. Thus, in conformity with the provision in paragraph c) of no. 1 of article 11 of the LFATM, the singular Arbitral Tribunal was constituted on 14 July 2016.

5. On 23 September 2016, the Respondent, duly notified for that purpose, filed its Reply in which it specifically contested the arguments put forward by the Claimant, concluding for the lack of merit of the present action, with its absolution from the claim.

The Respondent attached no documents, nor requested the production of any other evidence, nor did it attach its administrative file.

6.1. In essence and also briefly, it is important to extract the most relevant arguments on which the Respondent based its Reply:

• The property in question is constituted by 8 stories and composed of 42 units or parts capable of independent use, with residential and service allocation, having the current taxable property value, determined in 2015, of € 1,614,990.00;

• It was on the residential part, with a taxable property value of € 1,220,800.00, that the AT assessed the Stamp Tax of Item 28.1 of the GTST;

• The subjection to the Stamp Tax of Item 28.1 of the GTST results from the combination of residential allocation with the fact that the taxable property value of the urban property registered in the property register is equal to or greater than € 1,000,000.00, whereby the situation of the property in question is literally subsumed in the provision of the said Item of the GTST;

• Having the Stamp Tax assessment as its basis the property register and this one, on 31 December 2015, referring to the residential allocation of the property – mixed allocation is not provided for by law – and it was on this that the tax was assessed, the assumptions of taxation of Item 28.1 of the GTST are met;

• Thus, the property in question being, for tax purposes, allocated to housing, the acts of assessment of the Stamp Tax of Item 28.1 of the GTST are not illegal because they did not violate this scope provision;

• The aforesaid property being in full ownership regime, the Claimant, for purposes of Municipal Property Tax and also of Stamp Tax, is not the owner of 42 autonomous fractions, but rather of a single property;

• The interpreter of tax law cannot equate the regimes of full and horizontal ownership, in accordance with the rule that concepts from other branches of law have the meaning in tax law that is given to them in those branches of law;

• Horizontal and vertical ownership are differentiated legal institutions;

• The fact that the Municipal Property Tax was calculated according to the taxable property value of each part of the property with economically independent use does not affect the application of Item 28.1 of the GTST, since the determinant fact of the application of this Item is the total taxable property value of the property and that of each of its units;

• A type of scope pursuant to which the taxable property value of the urban properties on which the application of Item 28.1 of the GTST depends is the taxable property value of each floor or unit capable of independent use and not the total taxable property value of the property with residential allocation has no expression whatsoever in the law and would result in an unconstitutional interpretation, as offensive to the principle of tax legality, of that Item of the GTST;

• The legislator may subject to a different legal-tax framework, hence, discriminatory, properties in the regime of horizontal and vertical ownership, in particular, benefiting the more legally developed institution of horizontal ownership, without such discrimination being necessarily considered arbitrary;

• Thus, the Claimant's request does not prevail that the regime of horizontal ownership be applied, by analogy, to its property, considering that each one of the units capable of independent use constitutes a property, since that would not be interpreting the norms of the Municipal Property Tax Code and, consequently, of the Stamp Tax Code, that would be subverting the entire regime established therein;

• Whereby the tax acts in question did not violate any legal or constitutional provision.

1. On 7 October 2016, the Claimant, duly notified for that purpose, waived the production of witness evidence, the holding of the meeting referred to in article 18 of the LFATM, the attachment to the file of the administrative process, and the submission of arguments.

2. On 7 October 2016, given the converging positions assumed by the Parties in that regard, a decision was issued dispensing with the holding of the meeting referred to in article 18 of the LFATM, as well as the submission of any arguments and fixing 20 December 2016 as the deadline for issuing the arbitral decision.

II. SANITATION

The Arbitral Tribunal was regularly constituted and is competent.

The process is not vitiated by any nullities.

The parties enjoy legal personality and capacity, are duly represented, and are legitimate.

The cumulation of claims is admitted – multiple acts of assessment of Stamp Tax are at issue, and the declaration of illegality and annulment of each one of them is requested – in virtue of the fact that the merit of the claims formulated by the Claimant depends essentially on the assessment of the same factual circumstances – rooted in the Claimant's ownership of an urban property in vertical ownership with floors or units capable of independent use – and on the interpretation and application of the same legal principles or rules – in the present case, of Item 28.1 of the GTST (cf. article 3, no. 1, of the LFATM).

There are no other exceptions or preliminary issues that preclude knowledge of the merits and of which it is necessary to know.

III. GROUNDS

III.1. OF FACT

§1. PROVEN FACTS

The following facts are considered proven:

a) In the year 2015, the Claimant was the owner of the urban property, in full ownership with floors or units capable of independent use, located at ..., .../.../ ..., no. ..., Union of Civil Parishes of ... and ..., municipality of ..., district of Porto, registered in the respective property register under article ... . [cf. Doc. no. 1 attached to the Initial Pleading.]

b) In that same year, the said urban property was thus described in its respective property register [cf. Doc. no. 1 attached to the Initial Pleading.]:

[Table describing the property]

c) The floors or units capable of independent use forming part of that same urban property have their own taxable property value, determined according to the provisions of the Municipal Property Tax Code, and for the floors or units with independent use allocated to housing, the following unit taxable property values were determined in 2015 [cf. Doc. no. 1 attached to the Initial Pleading.]:

[Table with the list of units and their taxable values]

d) In addition to those listed in the preceding proven fact, the said urban property is still composed of the following floors or units with independent use, whose individual taxable property values were equally determined in the year 2015 [cf. Doc. no. 1 attached to the Initial Pleading.]:

[Table with additional units]

e) On 5 April 2016, the AT assessed Stamp Tax, in the total amount of € 12,208.00, reported to the year 2015 and concerning the floors or units with independent use, allocated to housing, listed in proven fact c). [cf. Docs. 2 to 39 attached to the Initial Pleading.]

f) The Stamp Tax assessments referred to in the preceding proven fact resulted from the application of Item 28.1 of the GTST to each and every one of the floors or units with independent use, allocated to housing, listed in proven fact c). [cf. Docs. 2 to 39 attached to the Initial Pleading.]

g) Following the Stamp Tax assessments referred to in proven fact e), the Claimant was notified of the single collection documents subsequently itemized, in the total amount of € 6,216.10 [cf. Docs. 2 to 39 attached to the Initial Pleading.]:

[Table with payment details for each unit]

h) On 5 May 2016, the Claimant filed the request for establishment of an arbitral tribunal that gave rise to the present process. [cf. CAAD procedural management system]

§2. UNPROVEN FACTS

With relevance for the assessment and decision of the case, there are no facts that were not proven.

§3. REASONING AS TO MATTERS OF FACT

As to the matters of proven fact, the Tribunal's conviction was based on the facts alleged by the Parties, whose correspondence to reality was not contested, and on the documents attached to the file.

III.2. OF LAW

The essential issue to be resolved on the merits of the dispute concerning the claim for declaration of illegality of the Stamp Tax assessments in question, relates to determining whether, for purposes of the scope of Item 28.1 of the GTST, in cases of a property in full ownership with floors or units capable of independent use, one should have regard to the total value of the property resulting from the sum of the taxable property values of the various floors or units with residential allocation, as underlies the assessments in question, or whether one should instead give relevance to the taxable property value of each floor or unit with residential allocation.

Considering and deciding.

§1. ON THE INTERPRETATION AND DELIMITATION OF THE OBJECTIVE SCOPE OF ITEM 28.1 OF THE GTST

At the epicenter of the disagreement that opposes the Parties in this process is the tax scope provision contained in Item 28.1 of the GTST, whereby it is necessary, naturally, to proceed with the interpretation of this provision, with a view to assessing its purpose and, thereby, delimiting what is its field of application.

Law no. 55-A/2012, of 29 October, introduced various amendments to the Stamp Tax Code and added Item 28 to the GTST (cf. article 4), with the following wording:

"28 — Ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the property register, according to the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 — on the taxable property value used for purposes of Municipal Property Tax:

28.1 — For property with residential allocation — 1%;

28.2 — For property, where the tax subjects who 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 order of the Minister of Finance — 7.5%."

Subsequently, Law no. 83-C/2013, of 31 December (State Budget Law 2014), amended the wording of Item 28.1 of the GTST (cf. article 194), which then took on the following content [applicable ratione temporis to the situation sub iudice]:

"28.1 — For residential property or for construction land whose authorized or planned building is for housing, in accordance with the provisions of the Municipal Property Tax Code — 1%"

The interpretation of the scope provision contained in Item 28.1 of the GTST cannot fail to be carried out on the basis of the hermeneutical guidelines that emanate from article 11 of the General Tax Law (LGT) and article 9 of the Civil Code, norms which state the following:

"Article 11 [General Tax Law]

Interpretation

1. In determining the meaning of tax norms and in the qualification of the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

2. Whenever, in tax norms, terms proper to other branches of law are employed, they must be interpreted in the same sense as that which they have there, unless otherwise directly follows from the law.

3. If doubt persists as to the meaning of the scope provisions to be applied, the economic substance of the tax facts should be considered.

4. The gaps resulting from tax norms encompassed in the reserve of law of the Assembly of the Republic are not susceptible to analogical integration."

"Article 9 [Civil Code]

Interpretation of the law

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

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

3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator consecrated the most appropriate solutions and knew how to express its intent in adequate terms."

For the purposes of this interpretative task, with due respect, we appropriate here the following considerations set out in the arbitral decision issued in process no. 53/2013-T of the CAAD:

"The relevance of the text of the law is especially accentuated in matters of interpretation of provisions establishing the scope of the Stamp Tax, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on assets, on acts, etc.), which leaves no appreciable margin for the application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of the Stamp Tax is particularly exuberant in the case of this Item no. 28.1, hastily included on the margins of the General State Budget, by a fiscal legislator without perceptible overall fiscal orientation, which is successively implementing norms of fiscal aggravation as a result of budgetary reversals, the impositions of international institutional creditors (represented by the "troika") and the oversight of the Constitutional Court.

In fact, although in the 'Explanatory Memorandum' of the Bill no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the laudable concern of the Government to 'reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program' and its commitment 'to ensure that the distribution of those sacrifices will be made by all and not just by those who live on the income of their work', it is manifest, on the one hand, that those reasons for equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of Item no. 28.1, in imposing additional tax on properties with residential allocation and not also on properties that do not have such allocation, reveals that the concerns of social equity and the proclaimed intention to distribute the sacrifices among all, affects far more some than properly all.

In this context, not existing sure interpretative elements that permit detection of legislative coherence in the solution adopted in the said Item no. 28.1 or the correctness or incorrectness of the adopted solution (relevant for interpretative purposes in light of no. 3 of article 9 of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by that same no. 3 of article 9, that the legislator knew how to express its intent in adequate terms."

That said. Having analyzed the wording – both the original and the current – of Item 28.1 of the GTST, we find that this provision has a fundamentally referential character, since its relevant regulatory content depends on the normativity ad quam contained in the Municipal Property Tax Code.

In fact, whether as to the objective scope, with the reference to "urban properties" and to "the taxable property value contained in the property register, according to the Municipal Property Tax Code", or as to the fixing of the taxable matter, with the reference to "the taxable property value used for purposes of Municipal Property Tax", the regulatory content of this Item 28 of the GTST results from a delegation – pursuant to a general referral – to the regulatory set contained in the Municipal Property Tax Code.

In fact, this aspect is reinforced by no. 2 of article 67 of the Stamp Tax Code, which provides that matters not regulated in the Stamp Tax Code concerning Item 28 of the GTST are, subsidiarily, governed by the provisions of the Municipal Property Tax Code.

In this framework, it is therefore necessary to gather the norms of the Municipal Property Tax Code that appear pertinent for the understanding and, consequently, for the application of Item 28.1 of the GTST.

In the Municipal Property Tax Code, the concept of "property" is defined as follows in its article 2:

"1. For the purposes of this Code, property is any parcel of land, including waters, plantations, buildings and constructions of any nature incorporated therein or established thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the circumstances above, endowed with economic autonomy in relation to the land where they are located, although located in a parcel of land that constitutes an integral part of a different asset or does not have a property nature.

1. Buildings or constructions, although movable by nature, are considered as having a character of permanence when allocated to non-transitory purposes.

2. The character of permanence is presumed when buildings or constructions are established in the same location for a period exceeding one year.

3. For purposes of this tax, each autonomous fraction, in the regime of horizontal ownership, is considered as constituting a property."

Subsequently, in articles 3 to 5 of the Municipal Property Tax Code, the types of existing properties are enumerated, namely:

Rural properties (article 3):

"Rural properties are lands situated outside an urban agglomeration that are not to be classified as construction land, in accordance with no. 3 of article 6, provided that:

a) They are allocated or, in the absence of concrete allocation, have as their normal purpose an allocation generating agricultural income, as considered for purposes of the personal income tax (IRS);

b) Not having the allocation indicated in the preceding paragraph, they are not built upon or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Rural properties are also lands situated within an urban agglomeration, provided that, by virtue of a legally approved provision, they cannot have an allocation generating any income or may only have an allocation generating agricultural income and are actually having this allocation.

3 – Rural properties are further:

a) Buildings and constructions directly allocated to the production of agricultural income, when located in the lands referred to in the preceding numbers;

b) Waters and plantations in the situations referred to in no. 1 of article 2.

4 – For purposes of this Code, urban agglomerations are considered, beyond those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public use roads, the perimeter thereof being delimited by points distanced 50 m from the axis of the roads, in the transverse sense, and 20 m from the last building, in the sense of the roads."

Urban properties (article 4):

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

Mixed properties (article 5):

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

1. If neither of the parts can be classified as principal, the property is considered mixed."

Subsequently, in article 6 of the Municipal Property Tax Code, the types of urban properties are indicated:

"1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Construction land;

d) Others.

1. Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose by the municipalities or, in the absence of licensing, that have as their normal purpose each of these uses.

2. Construction land is considered as land situated within or outside an urban agglomeration for which building or authorization licensing has been granted, prior communication admitted or favorable prior information issued for a subdivision or construction operation, and also those thus declared in the acquisition title, with the exception of lands in which the competent entities prohibit any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal land planning plans, are allocated to public spaces, infrastructure or facilities.

3. Encompassed in the provision of paragraph d) of no. 1 are lands situated within an urban agglomeration that are not construction land nor are covered by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of licensing, that have as their normal purpose other uses than those referred to in no. 2 and also those in the exception of no. 3."

On "taxable property value", article 7 of the Municipal Property Tax Code provides as follows:

"1. The taxable property value of properties is determined according to the provisions of this Code.

1. The taxable property 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 are merely accessory, by application of the valuation rules of the principal part, taking into account the increase in value resulting from the existence of the accessory parts;

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

1. The taxable property value of mixed properties is the sum of the values of their rural and urban parts determined by application of the corresponding rules of this Code."

Under the heading "concept of property registers", article 12 of the Municipal Property Tax Code provides as follows:

"1. Property registers are records containing, in particular, the characterization of properties, the location and their taxable property value, the identity of the owners and, where appropriate, of usufructuaries and holders of superficial rights.

1. There are two registers, one for rural property and another for urban property.

2. Each floor or part of a property capable of independent use is considered separately in the matricial registration, which also discriminates the respective taxable property value.

3. The registers are updated annually with reference to 31 December.

4. Matricial registrations only for tax purposes constitute a presumption of ownership."

Still concerning property registers, it is important to consider no. 1 of article 13 of the Municipal Property Tax Code, from which it follows that "[t]he registration of properties in the register and the updating thereof are carried out based on a declaration presented by the tax subject".

With respect to the determination of taxable property value, it is important here to invoke article 38 of the Municipal Property Tax Code, entitled "Determination of taxable property value":

"1. The determination of the taxable property value of urban properties for housing, commerce, industry and services results from the following formula:

Vt = Vc x A x Ca x Cl x Cq x Cv

where:

Vt = taxable property value;

Vc = base value of built properties;

A = gross construction area plus the area exceeding the implantation area;

Ca = allocation coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = age coefficient.

1. The taxable property value of the urban property assessed is rounded up to the nearest ten euros."

As norms that specify the values and coefficients referred to in this legal provision, we have articles 39 ("Base value of built properties"), 40 ("Types of areas of built properties"), 40-A ("Area adjustment coefficient"), 41 ("Allocation coefficient"), 42 ("Location coefficient"), 43 ("Quality and comfort coefficient") and 44 ("Age coefficient") of the Municipal Property Tax Code.

In light of the literal content of Item 28.1 of the GTST (wording applicable ratione temporis to the situation sub iudice), subject to this tax scope provision are urban properties with residential allocation with taxable property value equal to or greater than € 1,000,000.00.

Having regard to the norms of the Municipal Property Tax Code cited above, we have that residential properties are buildings or constructions licensed by the municipalities for that purpose or, in the absence of licensing, that have as their normal purpose that use (article 6, no. 2, of the Municipal Property Tax Code); thus, residential properties are these buildings or constructions referred to, and these are therefore subject to Item 28.1 of the GTST.

The correctness of this interpretation, as to the scope of Item 28.1 of the GTST, is confirmed by the ratio legis perceptible from the restriction of the field of application of the norm to residential properties – a restriction that was maintained regarding the allocation (housing) in the legislative amendment that came to extend the scope to construction land – in the context of the "circumstances under which the law was elaborated and the specific conditions of the time in which it is applied", which article 9, no. 1, of the Civil Code also establishes as interpretative elements.

In effect, the limitation of the application of the tax to residential properties and, subsequently, to construction land in which the construction of housing is foreseen or authorized, reveals the intent not to burden the productive sector and businesses in general and, in that sense, it was not intended to include within the scope of the tax neither properties allocated to services, industry or commerce, that is, properties allocated to economic activity, nor construction land for which the construction is foreseen or authorized for those other purposes. This is comprehensible in a context in which the economy was in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historical levels, with an avalanche of business closures due to economic unsustainability. On the ratio legis of the introduction of Item 28 of the GTST, see, among others, the decisions issued in processes nos. 50/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/2014-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of the CAAD.

Taking into account this situation and being well known and public that the reanimation of economic activity and the increase in exports are the exits from the crisis, it is comprehensible that, despite the pressing need to increase tax revenues, legislative measures that would hinder economic activity were not taken, in particular the aggravation of the tax burden that hinders it and affects competitiveness in international terms.

Therefore, it is to be concluded that the interpretative elements available, including the "circumstances under which the law was elaborated and the specific conditions of the time in which it is applied", clearly point to the fact that it was not intended to include within the scope of Item 28.1 of the GTST non-residential properties and, subsequently, also construction land for which the construction is authorized or foreseen for purposes other than housing.

To conclude this exegesis of Item 28.1 of the GTST, it is important to note that the cited articles 38 to 46 of the Municipal Property Tax Code have no relation to the classification of urban properties, since in those norms only the factors to be considered in the respective valuation are indicated (in this sense, see the decision issued in process no. 53/2013-T of the CAAD).

That said. It results from the combined analysis of the cited provisions of the Municipal Property Tax Code that in this legal compendium no distinction is made between properties constituted in the regime of horizontal or full ownership. In fact, although no. 4 of article 2 expressly refers to the fact that the autonomous fractions of properties constituted in the regime of horizontal ownership constitute, each one of them, a property, the truth is that it does not exclude from such classification the units with independent use of properties constituted in the regime of full or vertical ownership.

And where the law did not distinguish, the interpreter cannot do so.

Having analyzed, therefore, the definition of property contained in no. 1 of article 2 of the Municipal Property Tax Code, we do not perceive any reason not to include therein the units with independent use of properties constituted in the regime of full ownership, since these constitute a parcel of land that forms an integral part of the assets of a natural or legal person and that has economic value.

Note that each one of these units or fractions is assigned a taxable property value.

Being settled that the classification of the units with independent use of properties constituted in the regime of full ownership as "properties", in accordance with and for the purposes of the Municipal Property Tax Code, it seems to us evident that each one of these units, when that is the purpose to which they are destined, are residential properties.

In the case before us, all 42 floors or units of the urban property in question are capable of independent use, of which 38 are allocated to housing.

Moreover, had the floors or units in question in these proceedings not been individually classified as "properties", it would have made no sense or logic in the elaboration, in this case, of an assessment of Stamp Tax for each one of those units.

It is certain that the subsidiary application of the Municipal Property Tax Code could inculcate the idea that only autonomous fractions, in the regime of horizontal ownership, are considered as properties in light of the provision of no. 4 of article 2 of the Municipal Property Tax Code.

However, if one attends to the wording of that legal norm, one immediately verifies that the prerequisite of the constitution of the regime of horizontal ownership is only necessary for purposes of taxation in Municipal Property Tax.

Note further that, in light of the provision of article 12, no. 3, of the Municipal Property Tax Code, "each floor or part of a property capable of independent use is considered separately in the matricial registration, which also discriminates the respective taxable property value".

It further appears that, as stated above, the introduction of Item 28 in the GTST was intended to target the taxation of urban properties of high value with residential allocation, taxing the wealth, externalized in the ownership, usufruct or superficial rights, of luxury urban properties, or their autonomous fractions or divisions, with residential allocation.

Now, if the objective of the law was to adapt the taxation under the Stamp Tax to the tax capacity of the taxpayers, it seems to lack any relevance the distinction between properties constituted in the regime of horizontal or vertical ownership.

Manifestly, it is not in that regard that one reveals the greater or lesser tax capacity, all the more so in that, as is known, horizontal ownership is a relatively recent legal institution, it being certain that a large part of old properties are not even constituted in this regime, although in practice they function as such.

Thus, the principle of prevalence of substance over form imposes that the AT must valorize substantive truth. And in the case before us, the substantive truth consists in the non-existence of any substantive difference between the units owned by the Claimant and the fractions of a property constituted in horizontal ownership.

Or, to put it differently, the constitution of horizontal ownership being a merely legal and not factual operation, no reasons are discerned for differences in taxation in this regard, since what will always be relevant is the individual value of each one of the fractions, whether or not the property is constituted in the regime of horizontal ownership.

In light of all that has been set out, there is no doubt that the taxable property value relevant for purposes of the scope of the Stamp Tax in cases of properties constituted in the regime of full ownership, composed of several units with independent use, of which some have residential allocation, is the taxable property value of each one of the units of the property and not the total taxable property value of the property, corresponding to the sum of all the taxable property values of the units that compose it.

Thus, in conclusion, for properties in full ownership with floors or units capable of independent use, exclusive regard must be given to the taxable property value of each floor or unit with residential allocation, contained in the property register, for purposes of the application of Item 28.1 of the GTST.

This interpretation is shown to be "particularly peremptory in a case such as the present one in which the property in question has parts capable of independent use with residential allocation and parts capable of independent use with allocation to services (...).

In such circumstances, there is not contained in the property register nor used for purposes of Municipal Property Tax a 'taxable property value' corresponding to the sum of the taxable property values of the units of independent use with residential allocation (...). In fact, what is established in the Municipal Property Tax Code, according to the cited art. 7, no. 2, al. b), and contained in the property register (...) is that the 'value of the property' is 'the sum of the values of its parts', therefore, of all its parts, whatever their respective allocation.

In consequence, the 'taxable property value of the property – total subject to tax' (...) on which the assessments challenged rest does not have correspondence with the legal category consecrated in Item 28 of the GTST of the 'taxable property value contained in the property register, in accordance with the Municipal Property Tax Code'.

Insist upon this, in fact, that the Municipal Property Tax Code only refers, as results from art. 7, no. 2, al. b) cited above, to the 'value of the property' as the sum of all its parts subject to separate valuation, not legitimizing, therefore, to configure partial property values by attending only to certain economically independent parts of the property (those that have residential allocation), disregarding the parts with other allocations (for commerce, industry or services). In such a context, the property value as foreseen in art. 7, no. 2, al. b) of the Municipal Property Tax Code is not embodied, but rather the value of the set of certain parts of the property, a value that is not the subject of any provision in accordance with the Municipal Property Tax Code (nor is it the taxable property value used for purposes of Municipal Property Tax).

It is therefore advanced that it is considered that in the assessments challenged there is verified the adoption, for purposes of fixing the scope of Item 28.1 of the GTST, of a taxable property value that finds no reception in the law." (arbitral decision issued in process no. 518/2014-T).

§2. OF THE CASE SUB JUDICE

As was proven, none of the floors or units with independent use, described in the property register as allocated to housing, of the urban property in question, possesses a taxable property value equal to or greater than € 1,000,000.00 (cf. proven fact c)).

To that extent and having regard to what has been set out above, since the taxable property value of each of the said floors or units with independent use allocated to housing is less than the value to which Item 28.1 of the GTST refers, it follows that such floors or units do not fall within the tax scope provision contained in that Item 28.1, whereby the assessments challenged are vitiated by violation of law, due to error as to the legal assumptions, consisting in the erroneous interpretation and application of Item 28.1 of the GTST, which implies the declaration of its illegality and consequent annulment, with all the inherent legal consequences (cf. article 24, no. 1, paragraph b), of the LFATM).

Having regard to the merit of the petition for declaration of illegality of the Stamp Tax assessments challenged, due to a defect that prevents renewal of the act, the consideration of the remaining issues and defects invoked by the Claimant is rendered unnecessary and moot.

IV. DECISION

On the grounds set out, this Arbitral Tribunal decides:

a) Adjudge the petition for arbitral pronouncement well-founded and, in consequence, due to violation of law, due to error as to the legal assumptions, consisting in the erroneous interpretation and application of Item 28.1 of the GTST, declare illegal and annul the Stamp Tax assessments challenged in these proceedings, in the total amount of € 12,208.00, relating to the year 2015 and concerning the urban property registered under article ... in the urban property register of the Union of Civil Parishes of ... and ..., municipality of ..., district of Porto, with the legal consequences;

b) Condemn the Tax and Customs Authority to payment of the costs of the present process.

VALUE OF THE PROCESS

In accordance with the provisions of arts. 306, no. 2, of the Civil Procedure Code, 97-A, no. 1, paragraph a), of the Tax Procedure Code, and 3, no. 2, of the Regulation of Costs in Tax Arbitration Processes, the process is assigned the value of € 12,208.00 (twelve thousand two hundred and eight euros).

COSTS

In accordance with article 22, no. 4, of the LFATM, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Processes, charged to the Tax and Customs Authority.

Lisbon, 31 October 2016.

The Arbitrator,

(Ricardo Rodrigues Pereira)