Stamp Duty on Vertical Property: VPT Threshold for Verba 28.1 TGIS (Case 261/2017-T)

ARBITRAL DECISION

REPORT

On 9 April 2017, A…, with the NIF…, fiscally represented by B…, with the NIF… and with tax domicile at Rua …, …–…, …-…, in Lisbon (hereinafter referred to as the Claimant), came, pursuant to the combined provisions of articles 2, no. 1, paragraph a), 3, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (RJAT) and article 102, no. 1, of the Code of Tax Procedure and Process (CPPT), to request the constitution of an Arbitral Tribunal, in which the Tax and Customs Authority is the Respondent (hereinafter AT or Respondent), with a view to the declaration of illegality and consequent annulment of the assessments of Stamp Duty (Item 28.1 of the General Table of Stamp Duty - TGIS) relating to the year 2013 and to the property recorded, at the date of such assessments, in the urban property register of the parish of …, municipality of …, district of Lisbon, under the article …, in the total amount of € 10,323.20 (ten thousand, three hundred and twenty-three euros and twenty cents), a value which it attributes to the claim.

Furthermore, the Claimant seeks the declaration of illegality of the act refusing its request for official review of the contested assessments, which was notified to it on 9 January 2017, as well as the condemnation of the Respondent to the restitution of the amount unduly paid, plus compensatory interest.

Summary of the Position of the Parties

Of the Claimant:

To substantiate the request for annulment of the acts of assessment of Stamp Duty (item 28.1 of the TGIS) relating to the year 2013 and to the property identified in the request for arbitral pronouncement, the Claimant invokes the following factual and legal arguments:

The urban property to which the assessments of Stamp Duty contested are related was, in the year 2013, in total or vertical ownership, being composed of 15 floors or divisions capable of independent use, all destined for housing, whose aggregate taxable property value was € 1,032,320.00.

On the Taxable Property Value (VPT) of each one of the floors or divisions capable of independent use, destined for housing, the Tax Authority assessed the Stamp Duty of Item 28.1 of the General Table of Stamp Duty (TGIS), at the rate of 1%, on the grounds that the criterion used by the rule of incidence is to consider the global VPT of the property, provided it exceeds € 1,000,000.00.

By contrast, it is the understanding of the Claimant that the VPT to be taken into account for the purposes of the incidence of Stamp Duty of Item 28.1 of the TGIS is the VPT individually attributed to each one of the floors or divisions of independent use, given the reference in no. 2 of article 67 of the Stamp Duty Code (CIS) to the provisions of the Municipal Property Tax Code (CIMI), in which no global VPT is provided for properties in total ownership, whose divisions of independent use are intended exclusively for housing.

The Claimant concludes that the criterion used by the AT is illegal and even unconstitutional, as it cannot consider as a reference value for the incidence of Stamp Duty of Item 28.1 of the TGIS, a criterion different from that used in the context of Municipal Property Tax (IMI).

Of the Respondent:

Notified in accordance with the terms and for the purposes provided in article 17 of the RJAT, the AT presented its response and attached the administrative file (PA), defending the legality and maintenance of the acts of assessment that are the object of the present request for arbitral pronouncement, with the following grounds:

At the date of the assessments in question in these proceedings, the Claimant was the owner of the urban property identified in the initial petition, under a total ownership regime, with floors or divisions capable of independent use and with a VPT exceeding € 1,000,000.00.

The assessments of Stamp Duty for the year 2013 were issued in compliance with item no. 28.1 of the TGIS, in the wording given by Law no. 83-C/2013, of 31/12, the rule of incidence of which refers to urban properties, valued in accordance with the CIMI, with VPT equal to or greater than € 1,000,000.00, of residential use.

The concept of property is defined in article 2, no. 1 of the Municipal Property Tax Code, and its no. 4 provides that, under the regime of horizontal property, each autonomous fraction is considered to constitute a property, from which it follows that a property in total ownership, with floors or divisions capable of independent use, is, unequivocally, different from an immovable in the regime of horizontal property, constituted by autonomous fractions, that is, by several properties.

Article 12, no. 3 of the CIMI concerns exclusively the manner of registering cadastral data and, as regards the assessment of Municipal Property Tax, where these are properties in total ownership, the value that serves as the basis for its calculation will be that entered in the property record as "total taxable property value", although the collection document is sent to the taxpayer with a breakdown of the parts capable of independent use and their respective taxable property value (article 119, no. 1 of the CIMI).

The thesis defended by the Claimant lacks legal support, as in the situations provided for in item no. 28.1 of the TGIS, the legislator reserves the aspects that require the necessary adaptations, as is the case of properties in total ownership, with floors or divisions capable of independent use in which, although Municipal Property Tax is assessed in relation to each part capable of independent use, for the purposes of Stamp Duty the property as a whole is relevant, as the divisions capable of independent use are not considered as property.

Thus, it results from the fact that Stamp Duty Item 28.1 is levied on the ownership of urban properties whose VPT recorded in the register, in accordance with the CIMI, is equal to or greater than € 1,000,000.00, that the taxable property value relevant for the purposes of the incidence of the tax is, clearly, the total taxable property value of the urban property and not the taxable property value of each one of the parts that compose it, even when capable of independent use.

The fact that the Claimant disagrees with the interpretation given by the AT to the rule of Item 28.1 of the TGIS does not imply a violation of any principle of tax or constitutional law, but rather being what best accords with the principle of legality inherent in article 8 of the General Tax Law.

The AT concludes by requesting the exemption from holding the meeting referred to in article 18 of the RJAT, and from the hearing of the witness called by the Claimant, on the grounds that the facts upon which the decision is requested are settled and the matter is exclusively one of law.

*

Given that the Claimant waived the production of testimonial evidence, as well as the holding of the meeting of the arbitral tribunal, the Parties were invited to produce successive written submissions, for ten days, and the date of 20 November 2017 was set for the pronouncement of the arbitral decision, warning the Claimant that, until that date, it should proceed with payment of the subsequent arbitration fee.

In their written submissions, the Parties reiterated the positions assumed in the initial procedural documents.

II. CASE MANAGEMENT

The sole arbitral tribunal is competent and was regularly constituted on 27 June 2017, in accordance with articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from defects that would invalidate it.

The cumulation of claims is admissible, in accordance with the provisions of no. 1 of article 3 of the RJAT, insofar as the claims and their merit depend on the assessment of the same factual circumstances and the interpretation and application of the same principles or rules of law, in the concrete case, item 28.1 of the General Table of Stamp Duty.

No exceptions were raised that warrant appreciation.

III. GROUNDS

III.1 MATTERS OF FACT

Proven Facts:

The factual matters relevant to the understanding and decision of the case, motivated by critical examination of the documentary evidence attached to the initial petition and the administrative file (PA), are set out as follows:

At the date of the occurrence of the tax event (31 December 2013), the Claimant was the owner of the urban property then registered under the article … of the parish and municipality of …, district of Lisbon, with a Taxable Property Value (VPT) of € 1,032,320.00, corresponding to the current article … of the same parish, after constitution in horizontal property, on 17 February 2014 (see certificate of property registration – Doc. 2, attached to the initial petition);

The said property, which on 31 December 2013 was under the total ownership regime, was composed of 15 floors or divisions of independent use, all destined for housing;

None of the floors or divisions of independent use had a taxable property value equal to or greater than € 1,000,000.00 (see copies of the collection statements attached to the initial petition);

The Claimant was notified by the AT of the issuance of the assessments of Stamp Duty of item 28.1 of the TGIS, at the rate of 1%, on the taxable property value of each one of the floors or divisions of independent use, with each collection document containing "Property Value of the property – total subject to tax: 1,032,320.00" (see copies of the collection statements attached to the initial petition);

The Claimant proceeded with payment of the assessments identified in these proceedings, on 2 April 2014, in the amount of € 3,514.90, on 17 July 2014, in the amount of € 3,514.75 and on 20 November 2014, in the amount of € 3,293.55, for a total amount of € 10,323.20;

On 19 August 2016, a request for review of the tax acts now contested was submitted to the Finance Office of Lisbon …, re-directed to the Finance Office of …, where it arrived on 30 August 2016, and was there registered under no. …;

The final decision refusing the request for official review, in accordance with the order of the Head of the Finance Office of …, dated 22 December 2016, was notified to the Claimant, in the person of its illustrious Representative, through official letter no. …, of that Finance Office, received on 9 January 2017 (CTT Registration no. RD…PT).

Unproven Facts:

There are no material facts relevant to the decision of the case that should be considered as unproven.

III.2 ON THE LAW

The Question to be Decided

The principal question brought before the tribunal by the Claimant is whether the subjection to Stamp Duty, in accordance with item no. 28 of the General Table of Stamp Duty (TGIS), of an urban property not constituted in horizontal property, is determined by the Taxable Property Value (VPT) that corresponds to each one of the parts of the property, economically independent and with residential use, as it contends, or whether it is determined by the global VPT of the property, which would correspond to the sum of all the VPT of the floors or divisions of independent use and with residential use that compose it, in accordance with the interpretation given by the AT to the said rule.

On the Merits of the Stamp Duty Assessments of 2013

Item 28.1 of the TGIS, in its original wording, as given by Law no. 55-A/2012, of 29 October, applicable to the contested assessments, establishes the subjection to Stamp Duty of the "Ownership, usufruct or right of superficies of urban properties whose taxable property value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the taxable property value used for the purpose of Municipal Property Tax:

28.1 - For property with residential use - 1%"

The concepts of urban property and residential urban property are defined in the CIMI, applicable on a subsidiary basis to matters relating to item 28 of the TGIS, by virtue of the reference made by no. 2 of article 67 of the Stamp Duty Code, in the wording introduced by the same Law no. 55-A/2012, of 29 October.

Property is, in the definition of article 2 of the CIMI, "any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or situated therein, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are situated, although situated in a fraction of territory that constitutes an integral part of a patrimony that is different or does not have patrimonial nature" (no. 1) and, also, the autonomous fractions of properties constituted under the regime of horizontal property (no. 4).

Properties may be rural, urban or mixed, with urban properties defined, in a residual manner, by article 4 of the CIMI, as all those that should not be classified as rural, without prejudice to what is provided regarding mixed properties.

There are, however, various kinds of urban properties, whose classification is established by no. 1 of article 6 of the CIMI, such as a) residential, b) commercial, industrial or for services, c) land for construction and, d) others, with nos. 2, 3 and 4 of the same article delimiting what should be understood by each of those designations.

Residential properties or those of "residential use" are, therefore, buildings or constructions licensed for habitation or which, in the absence of a license, have habitation as their normal destination (residential purposes).

Now, the property of which the Claimant is the owner was, at the date of the contested assessments, an urban property not constituted under the regime of horizontal property, which integrated floors or divisions of independent use, all destined for housing.

As regards the determination of the taxable property value of properties with parts that can be classified in more than one of the classifications of no. 1 of article 6 of the CIMI, article 7, no. 2, paragraph b) of the same Code applies, which provides that "If the different parts are economically independent, each part is valued by application of the corresponding rules, the value of the property being the sum of the values of its parts."

And this is the only rule in the Municipal Property Tax Code in which reference is made to the "value [global] of the property", although this has no relevance at the level of the assessment of the tax, as each floor or part capable of independent use "is considered separately in the cadastral registration, which also discriminates its respective taxable property value" (article 12, no. 3 of the CIMI), with the AT having issued individualised assessments for each floor or division of independent use and not a single assessment on the "global value" of each property.

However, as regards the Claimant's property, constituted exclusively by parts or independent divisions with residential use, there is no global VPT, as the provisions of no. 2 of article 7 of the CIMI do not apply to it, which applies only to urban properties "with parts that can be classified in more than one of the classifications of no. 1 of the previous article".

What is judged to result from the ratio legis underlying the rule of item 28 of the TGIS, introduced by Law no. 55-A/2012 of 29 October, is that the legislator intended to tax the ownership, usufruct and right of superficies of residential units with VPT equal to or greater than € 1,000,000.00, as an index of high contributory capacity.

Now, as appears from the proven facts, none of the floors or divisions capable of independent use and of residential use (residential unit) of the urban property of which the Claimant is the owner had a VPT equal to or greater than that defined in the rule of incidence.

Furthermore, there has been constant case law, both of the tax arbitral tribunals and of the Supreme Administrative Court, within the scope of the original wording of item 28.1 of the TGIS, to which it adheres, that "I - As regards properties in vertical ownership, for the purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential use and the VPT recorded in the register equal to or greater than € 1,000,000.

II - Where a property is constituted in vertical ownership, the incidence of Stamp Duty must be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors capable of independent use (individualised in the cadastral article), but by the VPT attributed to each one of these floors or divisions destined for housing." – See the summary of the recent Judgment of the Supreme Administrative Court, of 18/10/2017, Case no. 0826/17, available at http://www.dgsi.pt, in whose operative part it is provided that "If it were the legislator's intention to tax immovables which, having a single cadastral article, are constituted by parts capable of independent use to which different taxable property values are attributed, and intended that for the purposes of taxation under stamp duty in this case, account should be taken of the sum of these different taxable property values, it would not have added the final part of the provision: on the taxable property value used for the purpose of Municipal Property Tax, as, for the purposes of assessment and collection of Municipal Property Tax, such parts with independent use are considered as independent and, the circumstance that they are in fact joined in the same immovable introduces no difference in its determination, there being no total Municipal Property Tax to be assessed by correspondence with the sum of the various VPT to which the same cadastral article relates, as follows from article 12, no. 3 of the Municipal Property Tax Code".

For the reasons set out, having found the defect of violation of law, by error in the application of law, arising from the erroneous interpretation given by the AT to the rule of incidence of item no. 28.1 of the TGIS, it is unavoidable to conclude that the contested assessments are illegal, and cannot be maintained in the legal order.

The same applies to the second-instance act, embodied in the refusal of the request for official review of the assessments now contested, as a subsequent act to the annulled tax acts, which constitute the true object of the tax arbitral proceedings.

On the Request for Compensatory Interest

Article 24, no. 1, paragraph b) of the RJAT provides that the arbitral decision on the merits of a claim from which no appeal or challenge lies binds the tax administration from the end of the period laid down for appeal or challenge, with the latter being required, in the precise terms of the merits of the arbitral decision in favour of the taxpayer and until the end of the period laid down for the spontaneous execution of the sentences of the tax courts, to "restore the situation that would exist if the tax act that is the object of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose", which includes "the payment of interest, regardless of its nature, in accordance with the provisions of the General Tax Law and the Code of Tax Procedure and Process."

Similarly, article 100 of the General Tax Law (LGT), applicable to the tax arbitral proceedings by virtue of the provisions of paragraph a) of no. 1 of article 29 of the RJAT, provides that "The tax administration is obliged, in case of total or partial merit of complaints or administrative appeals, or of judicial proceedings in favour of the taxpayer, to the immediate and complete restoration of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided by law."

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

In situations falling within the scope of no. 1 of article 43 of the LGT, the initial term for counting the compensatory interest in favour of the taxpayer is, in accordance with no. 5 of article 61 of the Code of Tax Procedure and Process (CPPT), "the date of the unduly paid tax".

However, the scope of the right to compensatory interest, in the case of a request for official review of the tax act, is not as broad as that arising from no. 1 of article 43 of the LGT, but rather falls within the scope of no. 3, paragraph c) of the same article, being due "When the review of the tax act at the initiative of the taxpayer is effected more than one year after his request therefor, unless the delay is not attributable to the tax administration".

The justification for the distinction regarding the initial term for counting the compensatory interest due to the taxpayer in one case and in another stems from the fact that, in situations where the illegality of the tax act, due to error attributable to the services, is raised in a request for review, in accordance with article 78, no. 1 of the LGT, even if subsequently a judicial challenge is brought, as happens in the case of these proceedings, there has elapsed "(…) an extensive period in which the restoration of legality could have been provoked by initiative of the taxpayer who did not develop it, which justifies that the right to compensatory interest must have a more limited scope as opposed to the situation in which the taxpayer raises the question of the illegality of the assessment act immediately after the disbursement of the amount in question", for which reason, "The legislator considers that the period of one year is the reasonable period for the Administration to decide the request for review and execute the respective decision, when favourable to the taxpayer, departing from the total indemnification of the damages from the moment they arose in the taxpayer's patrimonial sphere.

Imposing constitutional law on the State the obligation to repair the damages caused by its illegal acts, ordinary law has been establishing limits to this reparation, whether those arising from the assessment of greater or lesser diligence of the injured party, or of the time that it affords to the Tax Administration to decide." – see the Judgment delivered by the Supreme Administrative Court, on 28 January 2015 (Case no. 0722/14, available at http://www.dgsi.pt).

Thus, although considering that the assessments contested in these proceedings suffer from the defect of violation of law, by error in the legal grounds, attributable to the Respondent, which justifies their annulment, only the right to compensatory interest on the amounts paid from the expiry of the period of one year counting from the date of the request for official review thereof is recognised to the Claimant, presented on 16 August 2016.

Questions of Prejudiced Cognisance

In the sentence, the judge must pronounce on all questions that he must appreciate, abstaining from pronouncing on questions which he does not have to know (closing part of no. 1 of article 125 of the CPPT), and the questions on which the powers of cognisance of the tribunal are exercised are, in accordance with no. 2 of article 608 of the Code of Civil Procedure (CPC), applicable on a subsidiary basis to tax arbitral proceedings, by virtue of the reference in article 29, no. 1, paragraph e) of the RJAT, "the questions which the parties have submitted to its appreciation, excepted those whose decision is prejudiced by the solution given to others (…)".

In light of the solution given to the questions relating to the determination of the VPT relevant for the application of the rule of incidence contained in item 28.1 of the TGIS, and to the payment of compensatory interest in favour of the Claimant, the cognisance of the remaining questions raised by the Parties is prejudiced, namely those of the unconstitutionality of the said rule, as it is not susceptible to the interpretation which, in this case, was given by the AT.

DECISION

Based on the grounds of fact and law set out above and, in accordance with article 2 of the RJAT, it is decided that, judging the present request for arbitral pronouncement to be entirely well-founded:

1. To declare the illegality of the assessments of Stamp Duty (item 28.1 of the TGIS) of 2013, contested in these proceedings, by error in the legal grounds, determining their annulment;

2. To condemn the AT to the restitution of the amounts unduly paid by the Claimant under the heading of Stamp Duty for 2013, plus compensatory interest, in accordance with article 43, no. 3, paragraph c) of the LGT.

VALUE OF THE CASE: In accordance with the provisions of article 306, nos. 1 and 2 of the Code of Civil Procedure, article 97-A, no. 1, paragraph a) of the Code of Tax Procedure and Process and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 10,323.20 (ten thousand, three hundred and twenty-three euros and twenty cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 918.00 (nine hundred and eighteen euros), at the charge of the Tax and Customs Authority.

Lisbon, 20 November 2017.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, in accordance with no. 5 of article 131 of the Code of Civil Procedure, applicable by virtue of the reference in paragraph e) of no. 1 of article 29 of Decree-Law 10/2011, of 20 January.

The wording of this decision is governed by the 1990 Orthographic Agreement.