CAAD 279/2016-T: Stamp Tax Verba 28.1 on Vertical Property Units – Annulment of Assessments

ARBITRAL DECISION

1. REPORT

1.1. A…, as head of household of the estate opened by the death of B…, taxpayer no. … (hereinafter referred to as the Applicant), filed on 19/05/2016, a request for arbitral pronouncement, in which she requests the annulment of assessment acts for Stamp Tax relating to the year 2015, in the total amount of € 10,118.30 due to errors in both factual and legal grounds.

1.2. The Honorable President of the Deontological Council of the Administrative Arbitration Center (CAAD) appointed on 08/07/2016 as arbitrator, Francisco Nicolau Domingos.

1.3. On 09/08/2016 the arbitral tribunal was constituted.

1.4. In compliance with the provision of art. 17, no. 1 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 16/08/2016 to, if willing, present a response, request the production of additional evidence and attach the Administrative Process (PA) to the case file.

1.5. On 28/09/2016 the Respondent presented her response in which she invokes the tribunal's lack of jurisdiction and the unimpugnability of the acts and, subsidiarily, argues that the assessments in dispute should be upheld in the legal order, given that they correctly apply item 28.1 of the General Table of Stamp Tax (TGIS).

1.6. The tribunal determined on 28/09/2016, given the objection raised by the Respondent, that the Applicant, if willing, should comment thereon.

1.7. The Applicant on 11/10/2016 presented a pleading in which she argues that the objection raised is manifestly unfounded, insofar as the assessment acts were challenged.

1.8. The tribunal on 11/10/2016, considering that the objection raised may be addressed in the arbitral decision, decided to dispense with the holding of the meeting to which art. 18, no. 1 of the RJAT refers, based on the principle of the tribunal's autonomy in conducting the process and in determining the rules to be observed in order to obtain, within a reasonable timeframe, a decision on the merits of the claims filed, cf. art. 16, para. c) of the RJAT, granted a 10-day period for the parties, if willing, to present final written submissions and scheduled as the deadline for issuing the arbitral decision 16/11/2016.

1.9. The parties did not present final written submissions.

2. POSITION OF THE PARTIES

The Applicant contends that the assessments of Stamp Tax based on item 28.1 of the TGIS relating to the floors: 1st D, 1st E, 1st F, 2nd D, 2nd E, 2nd F, 3rd D, 3rd E, 3rd F, 4th D, 4th E, 4th F, 5th D, 5th E, 5th F, 6th D, 6th E, 6th F, 7th D, 7th E and 7th F of the property registered under no. … (deriving from art. …) of the parish of … and relating to the year 2015 are unlawful.

More specifically, she argues that the assessments in dispute embody a misinterpretation by the Tax and Customs Authority (AT) of item 28.1 of the TGIS, given that they are based on the understanding that the taxable patrimonial value (TPV) relevant for tax purposes will be that which results from the sum of the TPV of the divisions capable of independent use and allocated to housing.

In fact, she concludes that the property subject to the incidence of item 28.1 of the TGIS is, in this case, each one of the divisions capable of independent use and the TPV to be considered is that of each one of those divisions, and there does not exist, in the concrete case, the existence of any one with a value exceeding € 1,000,000 and allocated to housing.

She further adds to her argument that the aforementioned conclusion is also reached when recourse is had to the ratio legis that underlaid the legislative provision of item 28.1 of the TGIS. Or, in other words, creating a special taxation on high-value properties, affecting "…houses of a value equal to or exceeding 1 million euros".

Finally, the Applicant also states that the interpretation which concludes that the incidence of item 28.1 of the TGIS, in the case of vertical property, is determined by the sum of the taxable patrimonial values of the floors or divisions capable of independent use conflicts with the Portuguese Constitution (CRP), more specifically, with the principle of equality and proportionality in tax matters, insofar as it would authorize the AT to treat equal situations differently.

For its part, the Respondent begins by defending itself by exception, invoking that the Applicant does not challenge tax acts, but collection notices for payment of the tax, a matter which, in its judgment, is not contained in art. 2 of the RJAT. A circumstance which would determine the arbitral tribunal's lack of jurisdiction.

Similarly, she argues that the Applicant does not challenge assessment acts of a tax, but the first installments relating to payment of a single unit value of tax and, as such, concludes that the acts are unimpugnable.

On the other hand, the Respondent also defends herself by refutation when she argues that the property which is the subject of this case under the regime of full or vertical property ownership does not have autonomous units, to which tax law attributes the qualification of property. Consequently, the Applicant would not be the owner of 21 autonomous units, but of a single property.

She further adds in her response that the Applicant seeks the existence of analogy between the regime of vertical property and that of horizontal property, when there is no lacuna. For this reason, she argues that one cannot accept that, for purposes of item 28.1 of the TGIS, parts capable of independent use be given the same tax treatment as autonomous units under the horizontal property regime. In fact, in her opinion, with the property being subject to the regime of full property ownership, but being physically constituted by parts capable of independent use, tax law attributed relevance to such materiality, evaluating these parts individually, pursuant to art. 12, no. 3 of the CIMI.

In this manner, she contends that the determining factor for the application of item 28.1 of the TGIS is the total TPV of the property and not that of each one of the units (floors or divisions).

Thus, she observes that any different interpretation would violate both the letter and the spirit of item 28.1 of the TGIS and the principle of legality of essential elements of the tax, provided for in art. 103, no. 2 of the CRP.

Furthermore, she concludes that there is no violation of the alleged constitutional principle of equality, given that horizontal property and vertical property constitute distinct realities valued differently by the legislator.

In summary, she contends for the complete dismissal of the request for arbitral pronouncement.

Thus, the tribunal must address the following question: whether the assessments of Stamp Tax are unlawful due to errors in factual and legal grounds.

3. PRELIMINARY MATTERS AND CASE MANAGEMENT

The Respondent, in her response, defends herself by exception, invoking the tribunal's lack of jurisdiction, given that, in her judgment, the Applicant does not challenge tax acts, but collection notices for tax and additionally argues that the challenge undertaken by way of the request for arbitral pronouncement does not respect assessment acts, but the 1st installment of a single unit value of tax.

In this vein, the tribunal must ex officio address the dilatory exceptions provided for in art. 16 of the Tax Procedure and Process Code (CPPT) and in articles 577, para. a) and 578, both of the Civil Procedure Code (CPC), applicable by virtue of art. 29, no. 1, para. a) of the RJAT.

Thus, it is imperative to address, at the outset, the tribunal's jurisdiction to consider the Applicant's claim.

In this regard and in annotation to art. 16 of the CPPT, legal doctrine sustains that: "Questions of absolute jurisdiction are of ex officio knowledge and their examination precedes that of any other question (…) Thus, lack of jurisdiction ratione materiae and ratione hierarchiae, in judicial proceedings, must be examined ex officio, preceding the examination of any other questions and may be raised by the interested parties…"[1].

Consequently, it is necessary to mobilize the relevant normative framework, that is, the RJAT. More specifically, art. 2, no. 1 of the RJAT provides that: "The jurisdiction of arbitral tribunals comprises the appraisal of the following claims: a) The declaration of unlawfulness of assessment acts for taxes, self-assessments, withholding at source and payments on account; b) The declaration of unlawfulness of acts fixing taxable matter when they do not give rise to the assessment of any tax, acts determining collectible matter and acts fixing patrimonial values; ".

Moreover, art. 97, no. 1 of the CPPT provides that: "The tax judicial process comprises: a) The challenge of tax assessments, including parafiscal taxes and self-assessment acts, withholding at source and payments on account;".

The first conclusion to be drawn is that the claim for declaration of unlawfulness of assessment acts may be subject to judicial challenge or, alternatively, a request for arbitral pronouncement.

Thus, the question of the exception regarding unimpugnability of acts must be addressed depending on whether the Applicant challenges assessment acts, or limits her claim to the annulment of the 1st installment of Stamp Tax. That is, will the Respondent be correct when she states: i) that the object of this request for arbitral pronouncement are collection notices? and ii) that in this case the first installments relating to the assessment of a single unit value of tax are being challenged?

To answer such questions, it is important, at the outset, to delimit the concept of assessment in order to determine the tribunal's jurisdiction.

In concretization of such concept, VÍTOR FAVEIRO taught[2]: "…it is an administrative act, applying the tax incidence rule and its respective rate of quotity, to the previously or supposedly determined collectible matter; the arithmetic expression of the pecuniary value of the corresponding tax obligation, and its imputation to the person of the taxpayer; and the declaration, substantive and formal, of such operation and its notification to the taxpayer, with definitive and executory effects of actual obligation of the taxpayer and subjective right of credit of the State". In this line, ANTÓNIO BRAZ TEIXEIRA adds: "It is necessary not to confuse periodic payments, which, although carried out by successive acts, at different moments, originate from the same obligation and constitute the various portions of the same payment that has been divided, with payments that must be effected periodically, not due to a global payment, but rather due to the birth, also periodic, of new obligations, by the permanence of the factual presuppositions of taxation".[3]

Now, such definitions share a common denominator, that is, that there will be a single assessment for each tax fact, through which the amount of the tax will be determined. Consequently, if this is so, each assessment can be the subject of only one challenge.

Under the Stamp Tax Code (CIS) it is possible to see what was stated above in art. 23, no. 7 when providing that: "In the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, (…) applying, with the necessary adaptations, the rules contained in the CIMI". Article 113, no. 1 of the CIMI provides that: "The tax is assessed annually…" and no. 2 adds that: "The assessment referred to in the preceding number is effected in the months of February and March of the following year".

Thus, the fact that the assessment can be paid in installments does not mean that, as a rule, several assessments have been carried out. Strictly speaking, the assessment is unique and, if so, can only form the basis for a single challenge[4]. Although collection notices are issued at different chronological moments of the year, they all respect the same assessment.

Reverting such interpretation to the case sub judice, it is important at the outset to determine what was the object of challenge. In such scope, the Applicant proceeds with the following delimitation: "In March 2016, the Applicant was notified by the AT, under the terms and for the purposes of item 28.1 of the General Table of Stamp Tax of the assessments relating to the floors or divisions with independent use of the urban property identified above, which is held in full property ownership, and for the year 2015, in the amount corresponding to 1% of its Taxable Patrimonial Value …" and continues "The assessments issued, to be paid in two installments total the global amount of € 10,118.30…".

Now, it is clear that the Applicant intends to challenge the assessments – materialized in the collection notices – because she delimits the object of challenge with: "The assessments issued, to be paid in two installments total the global amount of € 10,118.30…". That is, she unequivocally intends to attack the assessments and not the 1st installment of tax. In fact, if this were not so, she would not have made any reference to the amount of the tax for each one of the divisions, but to that which corresponds to the 1st installment and the economic value of the claim would be that corresponding to the sum of the values entered in the collection notices of the 1st installment. Which, it is repeated, did not occur.

Consequently, the acts underlying the request for arbitral pronouncement constitute "assessment acts for taxes" described in art. 2, no. 1, para. a) of the RJAT, which is why the tribunal is materially competent to consider the request for arbitral pronouncement.

The accumulation of claims underlying the present proceedings is admissible, because it has as its object assessment acts of the same tax, that of Stamp Tax. As there also is identity between the factual matter and the admissibility of the claim depends on the interpretation of the same principles and rules of law, cf. art. 3, no. 1 of the RJAT.

The process is not affected by nullities, no questions have been raised that would prevent the consideration of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to know and decide the claim, and the conditions are therefore met for the final decision to be rendered.

4. FACTUAL MATTER

4.1. Facts Deemed Proven

4.1.1. The Applicant is the owner of the building registered in the property matrix under art. … (deriving from art. …), urban, parish of …, Lisbon.

4.1.2. Such building comprises, in particular, 21 floors or divisions with independent use, registered as follows:

a) 1st D, with a TPV of € 48,920.00, housing;

b) 1st E, with a TPV of € 48,920.00, housing;

c) 1st F, with a TPV of € 46,090.00, housing;

d) 2nd D, with a TPV of € 48,920.00, housing;

e) 2nd E, with a TPV of € 48,920.00, housing;

f) 2nd F, with a TPV of € 46,090.00, housing;

g) 3rd D, with a TPV of € 48,920.00, housing;

h) 3rd E, with a TPV of € 48,920.00, housing;

i) 3rd F, with a TPV of € 46,090.00, housing;

j) 4th D, with a TPV of € 48,920.00, housing;

k) 4th E, with a TPV of € 48,920.00, housing;

l) 4th F, with a TPV of € 46,090.00, housing;

m) 5th D, with a TPV of € 49,410.00, housing;

n) 5th E, with a TPV of € 49,410.00, housing;

o) 5th F, with a TPV of € 46,550.00, housing;

p) 6th D, with a TPV of € 49,410.00, housing;

q) 6th E, with a TPV of € 49,410.00, housing;

r) 6th F, with a TPV of € 46,550.00, housing;

s) 7th D, with a TPV of € 49,410.00, housing;

t) 7th E, with a TPV of € 49,410.00, housing;

u) 7th F, with a TPV of € 46,550.00, housing.

4.1.3. The Applicant was notified of the assessments of Stamp Tax, relating to the year 2015, in relation to each one of such floors or divisions, with housing allocation, in the total amount of € 10,118.30 and which break down as follows:

a) 1st D, in the amount of € 489.20;

b) 1st E, in the amount of € 489.20;

c) 1st F, in the amount of € 460.90;

d) 2nd D, in the amount of € 489.20;

e) 2nd E, in the amount of € 489.20;

f) 2nd F, in the amount of € 460.90;

g) 3rd D, in the amount of € 489.20;

h) 3rd E, in the amount of € 489.20;

i) 3rd F, in the amount of € 460.90;

j) 4th D, in the amount of € 489.20;

k) 4th E, in the amount of € 489.20;

l) 4th F, in the amount of € 460.90;

m) 5th D, in the amount of € 494.10;

n) 5th E, in the amount of € 494.10;

o) 5th F, in the amount of € 465.50;

p) 6th D, in the amount of € 494.10;

q) 6th E, in the amount of € 494.10;

r) 6th F, in the amount of € 465.50;

s) 7th D, in the amount of € 494.10;

t) 7th E, in the amount of € 494.10;

u) 7th F, in the amount of € 465.50.

4.1.4. The building identified in 4.1.1 was not constituted under the regime of horizontal property ownership on 31 December 2015.

4.1.5. The request for arbitral pronouncement was filed on 19/05/2016.

4.2. Facts Deemed Not Proven

There are no facts with relevance to the arbitral decision that have not been deemed proven.

4.3. Justification of the Factual Matter Deemed Proven

The factual matter deemed proven originates in the documents used for each one of the facts alleged and whose authenticity was not questioned.

5. ON THE LAW

The first question which the tribunal must address consists in determining whether the subjection to the tax incidence rule of item 28.1 of the TGIS should be implemented by the TPV corresponding to each one of the divisions capable of independent use, or whether, on the contrary, by the sum of the TPV of each one of such divisions.

To accomplish this task, it is necessary to seek the rule whose interpretation the parties dispute.

Article 1, no. 1 of the Stamp Tax Code (CIS) and item 28 of the TGIS provide that the following are subject to taxation: "Ownership, usufruct or right of surface of urban properties whose taxable patrimonial value registered in the matrix, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or exceeding € 1,000,000 – on the taxable patrimonial value used for purposes of IMI:

28.1 - For residential property (…) – 1%...".

Thus, it is necessary to examine the concept of "residential property" to which the rule under interpretation refers and that of "taxable patrimonial value used for purposes of IMI". Now, as it is not possible to resolve the question by recourse to the CIS, by virtue of the provision of art. 67, no. 2 of such statute, it is necessary to apply the rules of the CIMI.

Consequently, art. 2 of the CIMI provides on the concept of property:

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

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

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

4 - For purposes of this tax, each autonomous unit, under the regime of horizontal property ownership, is regarded as constituting property".

The concept of property under IMI is, as is known, endowed with greater scope in relation to that expressed in art. 204, no. 2 of the Civil Code (CC) and encompasses three elements, more specifically, one of a physical nature, the second of a legal character and the last of an economic nature, J. SILVÉRIO MATEUS/L. CORVELO DE FREITAS, The taxes on immovable property. The Stamp Tax, Engisco, 2005, p. 101 to 103 and JOSÉ MARTINS ALFARO, Code of Municipal Property Tax – Annotated and Commented, Áreas Editora, 2004, p. 118 to 123. The first requires reference to a portion of territory, comprising, in particular, buildings and constructions incorporated therein with a character of permanence. The element of a legal character requires that the thing, movable or immovable, belong to the assets of a natural or legal person. In the third place, the element of an economic nature requires that the thing have economic value.

As regards the concept of urban property, art. 6 of the CIMI describes its various categories, and fundamental to the subsumption in each of them is the nature of use, that is, the purpose to which it is intended. And nothing in the economy of art. 6, no. 1, para. a) of the CIMI prevents the classification of parts of a property in vertical ownership, with floors or divisions capable of independent use, with a housing use, as "residential property".

What is relevant is, it is repeated, its use. And a different conclusion is not possible to reach by interpretation of art. 2, no. 4 of the CIMI which elevates each autonomous unit, under the regime of horizontal property ownership, to the category of property. In fact, in this latter rule either, no foundation can be found to discriminate between properties in horizontal ownership and properties in vertical ownership, with floors or divisions capable of independent use, as regards their subsumption as urban and residential properties, in accordance with the entire economy of item 28 of the TGIS. In other words, if the legislator did not treat properties in vertical ownership differently from those constituted in horizontal ownership, the interpreter should not do so[5].

On the contrary, the registration in the matrix and the determination of TPV demonstrate the similarity of legislative treatment. In effect, parts endowed with economic independence must, each one of them, be subject to separate matrix registration and, consequently, the respective TPV should equally be recorded autonomously, cf. art. 2, no. 4, art. 7, no. 2, para. b) and art. 12, no. 3, all of the CIMI. This has repercussion in terms of assessment, in that there will be one for each floor or division subject to separate use.

Reverting such interpretation to the present proceedings, there are 21 divisions of the building with independent housing use which, on the date of the tax fact, that is, 31 December 2015, was not constituted in horizontal property ownership and, therefore, from the outset, there can be no doubt that they should be classified as residential urban properties.

It is further necessary to elucidate the other graphic segment of the CIS item under interpretation, that is, the "taxable patrimonial value used for purposes of IMI".

In this regard, as already described, the CIMI provides for the individualization of parts of urban property capable of independent use as regards matrix registration and the specification of the respective TPV. Such observation is equally valid with respect to the resulting assessment, as provided by art. 113, no. 1 and art. 119, no. 1, both of the latter statute cited. In effect, if the tax is assessed "…based on the taxable patrimonial values of the properties (our emphasis) and in relation to the taxpayers registered in the matrices (our emphasis)…" and the collection document must contain the "…specification of the properties, their parts capable of independent use, respective taxable patrimonial value and the tax…", this means that, not only is the TPV for purposes of applying item 28.1 of the TGIS to be considered that subject to separate matrix registration, but also nothing prevents the qualification as "residential property" of floors or divisions with independent use.

Now, if none of the divisions with housing allocation exceeded the TPV of € 1,000,000.00, the tax incidence rule in dispute cannot be applied to the case sub judice, on pain of unlawfulness. It is repeated, what is relevant, to delimit the scope of such rule, as the parties dispute its interpretation: i) that the floor or division capable of independent use has a TPV exceeding € 1,000,000.00 and ii) that it has a housing allocation.

This is also the conclusion of state case law regarding the delimitation of the incidence of item 28.1 of the TGIS when it observes that: "In the case of a property constituted in vertical ownership, the incidence of Stamp Tax must be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors capable of independent use (individualized in the matrix article), but by the TPV attributed to each one of those floors or divisions intended for housing", as per the Judgment of the Supreme Administrative Court of 09/09/2015, rendered in the scope of process no. 047/15 and in which the Reporting Judge was Counselor FRANCISCO ROTHES.

Such interpretation is also found in the following: "I – Item 28 of the General Table of Stamp Tax (TGIS) added by art. 4 of Law no. 55-A/2012, of 29/10, does not apply to urban properties, with one matrix article but constituted by parts with independent allocation and use to which independent TPV were attributed, each one of these of a value less than one million euros...", Judgment of the Supreme Administrative Court of 04/05/2016, rendered in the scope of process no. 0166/16 and in which the Reporting Judge was Counselor ANA PAULA LOBO.

Thus, the assessments which are the object of these proceedings suffer from the vice of violation of law and, as such, cannot subsist in the legal order, which is declared.

6. DECISION

In these terms and with the justification described above, it is decided to judge the request for arbitral pronouncement to be wholly well-founded, with the consequent annulment of the acts which are the object of pronouncement, with all legal consequences.

7. VALUE OF THE CASE

The value of the case is fixed at € 10,118.30 (corresponding to the sum of the assessments which are the object of pronouncement), pursuant to art. 97-A of the CPPT, applicable by virtue of the provision of art. 29, no. 1, para. a) of the RJAT and art. 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne by the Respondent, in the amount of € 918, cf. art. 22, no. 4 of the RJAT and Table I attached to the RCPAT, insofar as the claim was wholly successful.

Notify accordingly.

Lisbon, 15 November 2016

The Arbitrator,

Francisco Nicolau Domingos

[1] JORGE LOPES DE SOUSA, Code of Tax Procedure and Process – annotated, 4th edition, Vislis Editores, 2003, p. 141.

[2] The status of the taxpayer. The person of the taxpayer in the Social State of Law, Coimbra Editora, 2002, p. 683.

[3] Principles of Tax Law, volume I, 3rd edition, Almedina, 1993, p. 244, footnote 3.

[4] See in this sense the arbitral decision rendered in the scope of process no. 346/2015-T, in which Master MARIANA VARGAS performed the function of arbitrator and that relating to process no. 736/2014-T, in which Master MARCOLINO PISÃO PEDREIRO performed the function of arbitrator.

[5] See in this sense the arbitral decision rendered in process no. 50/2013 – T, in which Dr. MARIA DO ROSÁRIO ANJOS performed the function of arbitrator.