Stamp Tax on Property in Total Ownership Regime: CAAD Decision on Verba 28.1 TGIS Annulment

ARBITRAL DECISION

I – REPORT

A) The Parties and Constitution of the Arbitral Tribunal

1. A…, taxpayer number … and B…, taxpayer number …, residents at … no. …, … – …, Lisbon, hereinafter designated as "Claimants", requested the constitution of a collective Arbitral Tribunal, under the terms of article 2, no. 1, subparagraph a) and article 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January, hereinafter designated as "RJAT" and of Order no. 112–A/2011, of 22 March, for the challenge and declaration of illegality of the dismissal dispatch of the hierarchical appeal concerning Stamp Duty (IS) assessments, issued in application of item 28.1 of the General Table of Stamp Duty (TGIS), relating to the year 2012, equally challenged, in the total amount of €1,260.50, seeking its annulment, with reference to the urban property under full ownership regime located at …, no. …, in the parish of …, Municipality of …, described under no. … in the … Land Registry Office of … and registered under matrix article no. … of the respective tax service, as shown in documents nos. 3 and 4 attached to the arbitral petition (PA).

2. The following tax acts are at issue:

Tax assessment acts of stamp duty

Documents nos. 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012… ; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012…; 2012… .

Dismissal of hierarchical appeals nos. …2013… and …2013… .

1. These assessments gave rise to the respective collection notices and are duly identified in the case file and confirmed in the dismissal dispatches of the hierarchical appeals that gave rise to the present arbitral petition, as well as in the response presented by the ATA.

2. The request for constitution of the Arbitral Tribunal was presented by the Claimant on 04-05-2015, was accepted by the Esteemed President of CAAD and notified to the Tax and Customs Authority. The Claimant chose not to designate an arbitrator, whereby, under the terms of no. 1, article 6 of RJAT, the undersigned was designated by the Deontological Council of the Centre for Administrative Arbitration, on 19-06-2015, as arbitrator, to make up the Singular Arbitral Tribunal.

3. Thus, in conformity with the provisions of subparagraph c), no. 1, article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Singular Arbitral Tribunal was constituted on 06-07-2015. On 13-07-2015 an arbitral dispatch was issued to the Tax and Customs Authority (ATA) to present a response within the legal timeframe, in the terms and for the purposes of nos. 1 and 2, article 17 of RJAT.

4. On 23-09-2015 the Respondent submitted its response to the case file, which is deemed fully reproduced herein.

5. On 19-10-2015, an arbitral dispatch was issued, for the Claimant to pronounce itself on the possibility of waiving the holding of the meeting provided for in article 18 of RJAT and the presentation of arguments, as requested by the ATA in its response. On 22-10-2015 the Claimant pronounced itself favorably on waiving the holding of the meeting provided for in article 18 of RJAT, as well as the presentation of arguments, as requested by the ATA. On 28-10-2015 an arbitral dispatch was issued, under the terms of articles 16, subparagraph c), 19 and 29, no. 2 of RJAT, waiving the holding of the aforementioned meeting, the presentation of arguments and fixing the date for issuing the decision until 30-12-2015. The Claimant was also notified to pay the subsequent arbitration fee until the date fixed for issuing the decision.

B) THE PETITION FORMULATED BY THE CLAIMANT:

1. The Claimant formulates the present petition for arbitral pronouncement, with cumulation of claims, in which it challenges the dismissal dispatches of the hierarchical appeals presented and argues for the illegality of the IS assessments, determined under item 28.1 of the TGIS, relating to the year 2012 and 14 of the 16 divisions susceptible of independent use that make up the property located in the Parish of …, Municipality of …, already above identified, of which the claimants are co-owners, respectively, in the proportion of 5/24 and 1/24, which is under a full ownership (or vertical) regime, namely:

• Urban property located in the Municipality of …, Lisbon district, registered in the urban land matrix with registration U-…, described in the Land Registry Office under no. …, composed of 16 divisions susceptible of independent use, of which 14 are intended for residential use, with total Tax Patrimonial Value (VPT) of €1,021,120.00;

1. On this property the ATA assessed IS, with reference to the year 2012, under item 28.1 of the TGIS, which fell on the VPTs assigned to 14 of the 16 divisions susceptible of independent use with residential use. The basis for said tax assessments is founded on the fact that the global value of the property, calculated on the basis of the sum of the VPTs assigned to each part or independent division, exceeds €1,000,000.00. In conformity with this understanding the IS due, in the year 2012, was €1,260.50.

2. In summary, to support its petition the Claimant alleges that it is illegal to assess IS on the sum of the VPT of the divisions susceptible of independent use that make up each of the properties, under full ownership or vertical regime, identified in the present case file.

It thus challenges the dismissal dispatches of the hierarchical appeals presented and, in consequence, petitions for the annulment of all tax assessments challenged, whether of amounts already assessed, with reference to the year 2012, with all legal consequences, namely, the reimbursement of amounts paid, increased by compensatory interest, owed under the terms of article 43 of the General Tax Law (LGT) and 61 of the Code of Tax Procedure and Process (CPPT).

C) On the Cumulation of Claims

1. The assessments in question concern the same property, already above identified, of which the claimants are co-owners, composed of various floors / units or divisions susceptible of independent use and which is under a vertical ownership regime.

The basis that supports the challenged assessments is founded on items 28 and 28.1 of the TGIS, with which the Claimant does not agree.

The prerequisites for the requested cumulation of claims thus appear to be met, under the terms provided for in article 104 of the Code of Tax Procedure and Process (CPPT), since there is "identity of the nature of taxes, the grounds of fact and law invoked and of the competent tribunal for the decision". Therefore, the cumulation of claims is accepted in the terms requested by the Claimant.

D – THE RESPONSE OF THE RESPONDENT

1. The Respondent ATA, duly notified for such purpose, presented timely its response in which, by way of challenge, it alleged, in summary, the following:

a. The tax acts in question did not violate any legal or constitutional provision, and thus should be maintained.

b. It does not attach the administrative files considering that the case is already duly instructed with the documents submitted by the Claimants, by considering true and uncontroverted the facts alleged in the arbitral petition, the subject matter in litigation being exclusively one of law.

c. It considers, in summary, that the rule of taxable event as it results from article 6, no. 2 of Law no. 55-A/2012, of 29/10, which added item no. 28 to the TGIS, with the amendment made by Law no. 83-C/2013 of 31/12 refers, literal and objectively, to urban properties, evaluated under the terms of the Municipal Property Tax Code (CIMI), with VPT equal to or greater than €1,000,000.00 and, under its no. 28.1, with residential use allocation. Therefore, the ATA proceeded to assess the tax subject of the present petition for arbitral pronouncement by direct application of the legal norm, which translates into objective elements, without any subjective or discretionary assessment.

d. It concludes that a property under full ownership with floors or divisions susceptible of independent use is, unequivocally, distinct from a property under horizontal ownership regime, constituted by autonomous units, that is, by several properties. What the claimants seek is based on the assumption that there is analogy between the full ownership and horizontal ownership regime, and that there should be no differentiation of treatment between the two cases, which from the ATA's perspective is not acceptable. The regime of vertical and horizontal ownership are completely distinct and tax law respects them as such.

e. In sum, "the claimants are not co-owners of 16 autonomous units, but rather of one property."

It concludes arguing for the legality of the challenged IS assessments and the dismissal of the arbitral petition.

II - PROCEDURAL REQUIREMENTS

1. The Arbitral Tribunal is regularly constituted. It is materially competent, under the terms of article 2, no. 1, subparagraph a) of RJAT.

2. The Parties enjoy legal personality and capacity, are legitimate and are legally represented (cf. articles 4 and 10 no. 2 of RJAT and article 1 of Order no. 112/2011, of 22 March).

3. The case does not suffer from vices that would invalidate it.

4. Taking into account the tax administrative case, the documentary evidence attached to the case file, and what is alleged by the parties in the case file, it is necessary to establish the material facts relevant to understanding the decision, which is fixed as follows.

III – Material Facts

A) Proven Facts

1. As relevant material facts, this tribunal establishes as certain the following facts:

a) The Claimants, at the date of the tax event in question in the present case, were co-owners of the urban property, under full or vertical ownership regime, located at Avenue of …, no. …, in the parish of …, Municipality of …, described under no. … in the … Land Registry Office of … and registered under matrix article no. … of the respective Tax Service, in the proportion of 5/24 to the 1st Claimant and 1/24 to the 2nd Claimant;

b) On this property the ATA assessed IS, with reference to the year 2012, under item 28.1 of the TGIS, because the total VPT of the property composed of 16 divisions with independent use, calculated on the basis of the sum of the VPTs assigned to each part or division, has a value exceeding €1,000,000.00;

c) The amount of IS, determined under the terms above set forth, with reference to the year 2012, determined on the basis of the VPT assigned to each of the independent divisions with residential use was €1,260.50.

d) The property in question is composed of 7 floors and 16 units with divisions susceptible of independent use, namely: Sub-basement, intended for warehouse storage and the remaining intended for residential use, whose VPT was determined separately, under the terms of article 7, no. 2, subparagraph b) of CIMI;

e) The assessed Stamp Duty was based on the following VPTs, assigned to each of the independent divisions;

f) Each of the floors or independent divisions of this property had, at the date of the tax events in question in the present case, a VPT assigned, determined under the terms of CIMI, between €38,190.00 and €84,290.00, the sum of their respective VPTs totaling €1,021,120.00;

g) The ATA, for the year 2012, assessed IS, with reference to item 28.1 of the TGIS, with reference to the property above described, on the patrimonial value of each of the floors/parts or divisions with residential allocation;

h) In this manner IS was assessed, with reference to the year 2012, was €1,260.50, which the Claimants paid;

i) The Claimants submitted Gracious Complaints, which proceeded under case numbers …2013… and …2013…, which were dismissed;

j) From this dismissal the Claimants submitted the respective Hierarchical Appeals, which were dismissed and notified to the Claimants by Official Letters of 25/02/2015 and 26/02/2015, respectively.

k) For purposes of IMI each part or division susceptible of independent use has an individual VPT assigned, as shown in the respective property ledger attached to the case file, as document no. 4, which is deemed fully reproduced herein.

B) UNPROVEN FACTS

1. With relevance to the decision, there are no facts that should be considered as unproven.

C) REASONING OF THE PROVEN FACTS

1. The facts above described were established as proven on the basis of the documentary evidence that the parties attached to the present case.

Regarding the material facts, the Tribunal does not have to pronounce on everything that was alleged by the parties, it being incumbent upon it, rather, the duty to select the facts that matter for the decision and discriminate between the proven and unproven material [cf. article 123, no. 2, of CPPT and article 607, no. 3 of the Code of Civil Procedure (CPC), applicable ex vi article 29, no. 1, subparagraphs a) and e), of RJAT].

In this manner, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) [cf. former article 511, no. 1, of CPC, corresponding to current article 596, applicable ex vi article 29, no. 1, subparagraph e), of RJAT].

Thus, taking into account the positions assumed by the parties and the documentary evidence attached to the case file, the above-listed facts were considered proven, with relevance to the decision, moreover consensually recognized and accepted by the parties.

IV – ON THE LAW: reasoning of the merits decision

1. The material facts being established, as above set forth, it is necessary to address the legal question raised by the Claimant, which consists of assessing the terms of the configuration of the subjective taxable event of IS provided for in item 28 of the TGIS, in the concrete case of the file, that is, of a property under full (or vertical) ownership regime, composed of various floors, with divisions or parts susceptible of independent use.

It is necessary to decide.

1. At issue in the case file is, first and foremost, the question of whether the owner(s) or co-owner(s) of a property under full (or vertical) ownership, constituted by divisions susceptible of independent use, whose VPT was determined separately, under the terms of article 7, no. 2, subparagraph b) of CIMI, is subject to the taxable event of IS, by force of the provision of item 28.1 of the TGIS, on the sum of the VPTs of those divisions, when none of said divisions possesses a VPT exceeding €1,000,000.00, but the sum of their respective VPTs exceeds this amount.

From the argumentative framework presented by the parties, it is concluded that for the ATA, the criterion for determination of the taxable event of IS, provided for in item 28.1 of the TGIS, of properties under full (or vertical) ownership, with floors and divisions with independent use and residential allocation, corresponds to the sum of their respective VPTs assigned to the parts or divisions. It was this understanding that led to the dismissals of the hierarchical appeals and the IS assessments here challenged and which the Claimant challenges, by considering that such judgment is illegal, which motivated the submission of the present petition for constitution of an Arbitral Tribunal.

In the opposite sense, come the Claimants defending that in the property under vertical ownership, for purposes of the taxable event of IS, the value assigned to each independent part or division should be considered, as occurs for purposes of IMI and as results from the law itself which refers to CIMI the resolution of all matters not expressly provided for in the IS Code.

Let us see, then, whether the Claimants are correct in the position they defend in the present arbitral petition.

1. This question has already been the subject of recurring assessment in arbitral proceedings, with consistent arbitral jurisprudence, in the sense opposite to the ATA and in the sense favorable to the position defended by the Claimants, as can be seen, by way of example, in the decisions issued in cases no. 50/2013-T, 53/2013-T, 48/2013-T, 49/2013-T, 132/2013-T, 181/2013, 183/2013-T 248/2013-T and 280/2013-T, 30/2014-T, among others.

In the same sense, that is, favorable to the position defended by the Claimants, recently pronounced the Supreme Administrative Court (STA), in a Decision in which the Esteemed Judge Counselor Francisco Rothes was the Reporter, in which it was decided that:

"I - Regarding properties under vertical ownership, for purposes of the taxable event of Stamp Duty (Item 28.1 of the TGIS, as amended by Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential allocation and the VPT listed in the matrix equal to or exceeding € 1,000,000.00.

II - In the case of a property constituted under vertical ownership, the taxable event of IS should be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors susceptible of independent use (individualized in the matrix article), but by the VPT assigned to each of those floors or divisions intended for residential use." [1]

1. Notwithstanding the above, the Respondent ATA has continued to maintain the understanding reflected in the present case file, arguing for an interpretation of the norm contained in items 28 and 28.1 of the TGIS, based on formal concepts, in particular with respect to the concept of property for purposes of the taxable event of IS. Now, on the fundamental question at issue it will be said that the first limit of interpretation is the letter of the law, although not the only one. The interpretative task demands something more, that is, starting from the text of the norm it is necessary to discover the underlying ratio legis, "a task of interconnection and valuation that escapes the literal domain" [2], in other words "the jurist must always have before his eyes the purpose of the law, that is, the practical result it proposes to achieve".[3]

Thus, the question centers on the interpretation of the norm of taxable event, as it is expressed in the legal provision of items 28 and 28.1 of the TGIS, which applies to "the ownership, usufruct or right of superficies of urban properties, with residential allocation (28.1) whose tax patrimonial value listed in the matrix, under the terms of CIMI be equal to or exceeding 1,000,000.00 euros – on the tax patrimonial value used for purposes of IMI". (underlined in original)

Now, given the literal tenor of the norm above referred to, it is to be concluded that such legal provision does not embrace the understanding followed by the ATA, according to which regarding "residential allocation" properties under vertical ownership, with floors or divisions susceptible of independent use, the VPT on which the IS tax rate should be applied should be the total VPT, corresponding to the sum of the VPTs individually assigned to each fraction, part or independent division.

Such understanding is, immediately, contradicted by the very letter of the law, when it unequivocally refers to the application of the principles in effect for purposes of IMI, which means that the taxable event for purposes of IS – items 28 and 28.1 of the TGIS – should be applied to each floor or division susceptible of independent use (similarly to what happens with properties under horizontal ownership regime), as occurs for purposes of IMI. And this conclusion derives from the law itself, in which the legislator expressed clear and unequivocal its intention, in particular, in the reference to the application of the rules of CIMI.

Now, for purposes of IMI, each part or division susceptible of independent use is, as we know, taxed individually, according to the individual VPT assigned for this purpose. The reference to CIMI, which the legislator introduced, expressly and unequivocally, in the letter of the law (items 28 and 28.1 of the TGIS) can only have one meaning, which offers no doubt: it is that same VPT (individual, of each independent part or division) that is the reference for purposes of the taxable event of IS enshrined in items 28 and 28.1 of the TGIS.

1. For convenience, and with due respect, the reasoning contained in Arbitral Decision no. 280/2013-T is transcribed here, as it is particularly concise and precise:

"The legal question to be resolved in the first place is whether according to item 28.1 of the TGIS the sum of the VPT of each of the parts or divisions susceptible of independent use should or should not be considered, since none of them has a value equal to or greater than €1,000,000.00;

Taking into account that the IS Code refers to CIMI the regulation of the concept of property and of matters not regulated regarding item 28 of the TGIS (no. 6 of article 1 and no. 2 of article 67, both of the IS Code), it is in CIMI that we must observe the concepts that allow us to settle the question; (underlined in original)

The generalist concept of property is contained in article 2 of CIMI. In article 3 of the same statute the legislator, using criteria of allocation and location established the concept of rural properties, coming later, in a classification by negation, in its article 4, to establish that urban properties will be all those that should not be classified as rural;

In no. 2 of article 5 of the same Code the legislator establishes the concept of mixed properties which will be those in which there exist distinct rural and urban economic realities and there is no subordination of one to the other;

Article 6 of the cited CIMI divides urban properties into: residential, commercial, industrial or for services, land for construction and others;

In the concrete case we are in the presence of urban property with parts or divisions susceptible of independent use with residential allocation and others with commercial allocation, it is a property with parts that can be classified in the residential division of subparagraph a) of no. 1 of article 6 and with parts that can be classified in subparagraph b) of the same no. and article, but in no way will it be a mixed property in the concept established in the already cited article 5 of CIMI;

Each of the parts or divisions susceptible of independent use that compose the property in question fills the concept of property established in article 2 of CIMI, they are physically and economically independent and form part of the patrimony of a legal entity;

Indeed, the AT in excluding the VPT of the parts or divisions with allocation other than residential, for purposes of taxation in IS, did nothing more than use the criterion defined in no. 4 of article 2 of CIMI for properties under horizontal ownership regime;

In other words, the AT, in order to make that exclusion, considered that the parts or divisions susceptible of independent use were true autonomous parts of property under vertical ownership filling the concept of property;

And did nothing more than observe what article 12, no. 3 of CIMI provides: "each floor or part of property susceptible of independent use is considered separately in the matrix inscription, which also discriminates its respective tax patrimonial value.

Equally the AT in making the taxation in IMI did so by taxing separately the VPT of each of the parts or divisions susceptible of independent use;

The AT used the same criterion in the taxation in IS, in making its calculation on the VPT of each of the parts or divisions with independent use with residential allocation, except that in the end it considered the global VPT, verifying that it exceeded €1,000,000.00 and summed the IS values assessed individually;

But this procedure has no legal basis, since none of the parts or divisions with independent use with residential allocation, each one of them filling the concept of property enunciated in article 2 of CIMI, has a VPT equal to or greater than € 1,000,000.00, the requirement demanded for there to be taxation in IS;

Making the taxation in IS considering the global VPT of the property, even if cleared of the VPT of the parts or divisions not allocated to residential use, as the respondent argues, finds no support in CIMI, as per the reference in no. 2 of article 67 of the IS Code;

Nor should it be said that there is a different valuation and taxation of a property under full ownership with parts or divisions susceptible of independent use, compared to a property under horizontal ownership. In fact, it does not exist in IMI just as it cannot exist in IS, since, as already stated, the applicable legislation is the same;

In this perspective and considering that none of the parts or divisions susceptible of independent use with destination or residential allocation has VPT equal to or greater than €1,000,000.00 it is necessary to conclude that the acts of IS assessment are illegal because the conditions defined in item 28 of the TGIS were not observed."

1. What is set forth above is, by itself, sufficiently clear to demonstrate that the thesis defended by the ATA cannot prevail. An adequate reading of the scope of the provision of the norm of taxable event of items 28 and 28.1 of the TGIS, in light of what no. 7 of article 23 of the IS Code allows to be concluded regarding the determination of the taxable matter and subsequent tax assessment operation:

"For the 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, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in CIMI."

It also provides, no. 3 of article 11 of the LGT, that:

"If doubt persists regarding the meaning of the taxable event norms to be applied, regard must be had to the economic substance of the tax facts".

In the case at hand, the correct interpretation of the legal norm contained in items 28 and 28.1 of the TGIS should also regard the "economic substance of the tax facts" in order to properly realize the "necessary adaptations of the rules contained in CIMI", for the adequate assessment of the matter of law under discussion. Not forgetting the respect for the "unity of the legal system", which is imposed, from the start, by the evaluative or axiological coherence of the legal order". This is, without doubt, a determining factor for a correct interpretation of the legal norm.

Now, the legislator expressed coherently its intention on this matter, by introducing a comprehensive reference to the principles contained in CIMI.

1. Given this, the delimitation of the scope of the norm of taxable event of this new tax should follow the orientation of the letter and spirit of the law.

In the first place, regard should be had, therefore, to what is expressly provided in items 28 and 28.1 of the TGIS, with the "necessary adaptations of the rules contained in CIMI", as results from no. 7, article 23, of the IS Code. It is thus important to note that the subjection to IS of properties with residential allocation resulted from the addition of item 28 to the TGIS, effected by article 4 of Law 55-A/2012, of 29/10, which typified the following tax facts:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value listed in the matrix, under the terms of the Municipal Property Tax Code (CIMI), be equal to or exceeding € 1,000,000.00 – on the tax patrimonial value for purposes of IMI:

28-1 – For property with residential allocation – 1%

28.2 – For property, when the passive subjects that are not natural persons and are resident in a country, territory or region, subject to a clearly more favorable tax regime, listed in the list approved by order of the Minister of Finance – 7.5%."

1. Law 55-A/2012 says nothing regarding the qualification of the concepts involved, in particular, regarding the concept of "property with residential allocation." But article 67, no. 2 of the IS Code, added by the aforementioned Law, provides that "to matters not regulated in the present code regarding item 28 of the General Table, CIMI applies subsidiarily."

The norm of taxable event refers, thus, to urban properties, whose concept is what results from article 2 of CIMI, with the determination of VPT obeying the terms of article 38 and following of the same code. Consulting CIMI it is verified that its article 6 only indicates the different types of urban properties, among which it mentions residential (see subparagraph a) of no. 1), clarifying in no. 2 of the same article that "residential, commercial, industrial or for services are buildings or constructions licensed for such or, in the absence of license, which have as their normal destination each of these purposes."

From the aforementioned norms we can conclude that, from the legislator's point of view, what matters is not the legal-formal rigor of the concrete situation of the property (it is indifferent whether it is under vertical or horizontal ownership) but rather its normal use, the purpose to which the property is effectively intended.

We also conclude that for the legislator the situation of the property under vertical or horizontal ownership was not relevant, since no reference or distinction is made between one and the other. An identical conclusion is drawn from the reference that the legislator introduced regarding IS to CIMI. Now, this tax establishes as a criterion for properties under vertical ownership the assignment of a VPT to each of the independent parts or divisions. What matters is, thus, the material truth underlying its existence as an urban property and its use, that is, "with residential allocation".

Using the criterion that the law itself introduced in article 67, no. 2 of the IS Code, "to matters not regulated in the present code regarding item 28 of the General Table, CIMI applies subsidiarily."

From no. 4, article 2 of CIMI, it results that:

"For purposes of this tax, each autonomous fraction, under horizontal ownership regime, is deemed to constitute a property."

Further adding no. 3 of article 12 of CIMI:

"Each floor or part of property susceptible of independent use is considered separately in the matrix inscription which also determines its respective tax patrimonial value". (underlined in original)

1. Given the provisions of the aforementioned norms, the criterion of "opportunity" adopted by the ATA in opting (without legal basis) for the criterion of the sum of the VPTs assigned to each division susceptible of independent use, does not appear to conform to the law, nor to the principle of fiscal legality, therefore the challenged assessments are tainted by a vice of violation of law, by manifest error regarding the factual and legal prerequisites.

Thus, the interpretation defended by the ATA violates the principle of fiscal legality, beyond which, its application to the concrete case would also violate the principles of equality, justice and proportionality, all enshrined in the Constitution of the Portuguese Republic. Its practical result would lead, for example, to the taxation of a property under vertical ownership by force of the sum of the individual values of its independent parts or divisions (as happens in the present case) and to the non-taxation of units of properties constituted under horizontal ownership regime, even if each unit had a VPT of €999,999.00. It is further added that, by the ATA's criterion, many of the urban properties existing under vertical ownership, despite being older, can easily reach the reference value for the taxable event of IS, while properties of recent and sometimes luxury construction, under horizontal ownership regime, but whose VPT per unit does not equal or exceed the value of €1,000,000.00 would not be subject to the tax. Now, it offends the sensitivity and the fundamental ethical minimum underlying the interpretation and application of the legal norm that would lead to such a solution. Finally, such interpretation (as the ATA argues) would also translate, a clear offense to the principle of interpretation in conformity with the Constitution, bearing in mind the principles of equality and fiscal equity, legality, proportionality and justice, enshrined in articles 13, 103, 104, no. 3, of the CRP, as well as in article 5, nos. 1 and 2, of the LGT.

But, having said this, it is important to note that the problem does not lie in the norm contained in item 28 and 28.1 of the TGIS, which, unless better advised, does not appear to violate the aforementioned principles, but rather solely in the interpretation that the ATA has been making of the same and in the concrete application that it has been promoting, that yes, far beyond what the letter and spirit of the norm permit to achieve.

Recall in this regard the understanding set forth in Arbitral Decision no. 50/2013-T, of CAAD, of 29-10-2013:

"There continues to be a question to resolve which has to do with the determination of the value relevant for the taxable event of IS on properties under vertical ownership, as happens in the present case, which the AT considers as a whole despite being constituted by various autonomous parts for residential use, with independent use and which, in this manner, can easily exceed one million euros.

Well, this criterion of opportunity adopted by the AT does not appear to be acceptable, nor in conformity with the principle of fiscal legality.

Using the criterion that the law itself introduced in article 67, no. 2 of the Stamp Duty Code, "to matters not regulated in the present code regarding item 28 of the General Table, CIMI applies subsidiarily."

Now, being thus, considering that the inscription in the land registry of properties under vertical ownership, constituted by different parts, floors or divisions with independent use, under the terms of CIMI, obeys the same rules of inscription of properties constituted under horizontal ownership, their respective IMI, as well as the new IS, being assessed individually in relation to each one of the parts, there is no doubt that the legal criterion for defining the taxable event of the new tax must be the same.

Indeed, the AT admits that this is the criterion, which is why the assessment issued is very clear in its essential elements, from which it results that the value of taxable event is the corresponding to the VPT of the 2nd floor and the individualized assessment on the part of the property corresponding to that same floor.

Therefore, if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties under vertical ownership, in the same manner as it establishes for properties under horizontal ownership regime, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of taxable event of the new tax.

Thus, there would only be place for taxable event of the new stamp duty if any of the parts, floors or divisions with independent use had a VPT exceeding € 1,000,000.00. (…)

The legislator in introducing this legislative innovation considered as a determining element of tax capacity the urban properties, with residential allocation, of high value (luxury), more rigorously, of value equal to or exceeding €1,000,000.00, on which it began to impose a special rate of stamp duty, seeking to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies of luxury urban properties with residential allocation. Therefore, the criterion was the application of the new rate to urban properties with residential allocation, whose VPT be equal to or exceeding €1,000,000.00.

This same conclusion is drawn from the analysis of the discussion of bill no. 96/XII in the Parliament, available for consultation in the Parliamentary Minutes, Series I, no. 9/XII/2, of 11 October 2012.

The basis for the measure designated "special rate on urban properties with residential allocation of higher value" is based on the invocation of the principles of social equity and fiscal justice, calling those holding properties of high value intended for residential use to contribute in a more intense manner, with the new special rate being applied to "properties of value equal to or exceeding 1 million euros."

Clearly the legislator understood that this value, when imputed to a residence (house, autonomous unit or floor with independent use) translates a tax capacity above average and, as such, susceptible of determining a special contribution to ensure the fair distribution of fiscal effort." [4]

1. In sum, the fiscal legislator could not treat equal situations differently, did not wish to nor expressed it in the letter of the law, on the contrary, took care to expressly refer to CIMI, within the scope of which each independent division is taxed according to its assigned VPT. But if there were doubts, the recourse to the ratio legis and the interpretation principles above set forth would always lead us in the opposite sense to what has been argued by the Respondent. If the properties in question in the present case were under horizontal ownership regime, none of its residential units would suffer the taxable event of the tax seeking to tax luxury properties or residences.[5]

Moreover, as already stated, the legislator's intention expressed in the norm of taxable event, in referring to the application of CIMI, was clear and unequivocal, following the principle of the prevalence of material truth over legal-formal reality and the uniformity of the legal system.

1. To all that has been said, it will be added only this: even if, hypothetically, it were concedible that in cases of properties under full (or vertical) ownership, constituted by divisions susceptible of independent use, one could deem IS exigible for the entire property, if the value fixed in item 28.1 of the TGIS were reached, always such value would have to be fixed autonomously, through its own evaluation, and not through the sum of the values in which each of the parts susceptible of independent use was autonomously evaluated. Indeed, and as it is clear to see, the "market value" of the whole will not necessarily – and will not be, as a rule – equal to the sum of the parts, it being well known and more easy and profitable (which may even constitute part of the economic foundation of the horizontal ownership institution) the sale "to the parts" than the sale of the whole, from the outset by the broadening of the market, which the substantially lower price of the parts in relation to the whole brings.

2. Indeed, and moreover, it will be this increment of economic value resulting from the division, that will justify an independent evaluation of each autonomous part of the property under vertical ownership, in order to ensure that there is no less fiscal revenue, for purposes of IMI and IMT, by the fact that the division of the property does not have a legal correspondence in the form of horizontal ownership. In other words, the partition of the property always brings an increment of value of the whole, since the "market value" of the whole will be, (at the least) as a rule, less than the "market value" of the parts, separately. Therefore, and in the limit, if the ATA intended, legitimately, to apply item 28.1 of the TGIS to a property under full (or vertical) ownership, constituted by divisions susceptible of independent use, it would always be obligated to an evaluation of the same as a whole (which would be a credible approximation to its "market value" by "wholesale") and not as a sum of the parts (by "retail"), from the start because these are not susceptible of being, in a valid manner, placed in the "market" separately.

3. In the present case the property in question is under vertical ownership and contains floors and divisions with independent use, intended for warehouse storage and residential use, as was established above. Given that none of the floors intended for residential use has tax patrimonial value equal to or exceeding €1,000,000.00, as results from the documents attached to the case file, it is concluded that the legal prerequisite for the taxable event of IS provided for in item 28.1 of the TGIS is not met.

Thus, the ATA not presenting, and there not appearing officiously any reason to substantively differ from the arbitral jurisprudence cited, as well as from the STA jurisprudence above mentioned, one adheres without further consideration to the jurisprudence above cited, judging the arbitral petition formulated in the present case to be well-founded.

In this manner, the dismissal dispatches of the hierarchical appeals and the underlying stamp duty assessments, tax acts challenged in the present arbitral petition, suffer a vice of violation of law, by error regarding the factual and legal prerequisites, therefore they must be annulled.

V - Compensatory Interest

1. The Claimant cumulates, with the petition for annulment of the tax acts subject of the present case, the petition for condemning the ATA to payment of compensatory interest.

In light of the well-foundedness of the petition for annulment, the amounts that, with regard to the tax acts annulled, are verified as paid by the Claimant should be refunded, if necessary in execution of the decision. In the case at hand, it is manifest that the illegality of the assessment acts, whose amount the Claimant paid, is imputable to the ATA, which, by its initiative, carried them out without legal support.

Consequently, the Claimant has the right to compensatory interest, under the terms of articles 43, no. 1, of the LGT and 61 of the CPPT. Compensatory interest is owed, from the date of the payments shown as having been made, and calculated on the basis of their amount, until their full refund to the Claimant, at the legal rate, under the terms of articles 43, nos. 1 and 4, and 35, no. 10, of the LGT, 61 of the CPPT and 559 of the Civil Code and Order no. 291/2003, of 8 April (without prejudice to any subsequent amendments to the legal rate).

1. Furthermore, in accordance with the provision of subparagraph b) of article 24 of RJAT the arbitral decision on the merits of the claim that cannot be the subject of appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, the latter being obligated, in the exact terms of the well-foundedness of the arbitral decision in favor of the taxpayer and until the end of the period provided for spontaneous execution of decisions of judicial tax tribunals, to "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose", which is in keeping with the provision of article 100 of the LGT [applicable by force of the provision of subparagraph a) of no. 1 of article 29 of RJAT] which establishes that "the tax administration is obligated, in case of total or partial success of a complaint, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject of the litigation, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although article 2, no. 1, subparagraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the jurisdiction of arbitral tribunals operating in CAAD, making no reference to condemnatory decisions, it should be understood that they are comprised in its jurisdiction the powers that in judicial challenge proceedings are assigned to tax tribunals, this being the interpretation that aligns with the sense of the legislative authorization on which the Government based itself in approving RJAT and in which it proclaims, as a first guideline, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

1. The judicial challenge process, despite being essentially a process of annulment of tax acts, admits the condemnation of the tax administration to payment of compensatory interest, as is apparent from article 43, no. 1, of the LGT, in which it is established that "compensatory interest is owed when it is determined, in a gracious complaint or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount greater than legally due" and from article 61, no. 4 of the CPPT (as amended by Law no. 55-A/2010, of 31 December, corresponding to no. 2 in the original wording), which states "if the decision recognizing the right to compensatory interest is a judicial one, the period for payment is counted from the start of the period of its spontaneous execution".

2. Thus, no. 5 of article 24 of RJAT in stating that "payment of interest is owed, regardless of its nature, under the terms provided for in the general tax law and in the Code of Tax Procedure and Process" should be understood as permitting the recognition of the right to compensatory interest in the arbitral process. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the challenged assessment acts, there is place for refund of the tax, by force of the aforementioned articles 24, no. 1, subparagraph b), of RJAT and 100 of the LGT, as such is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out", in the part corresponding to the correction that was deemed illegal.

Thus, the ATA should give execution to the present Arbitral Decision, under the terms of article 24, no. 1, of RJAT, determining the amount to be refunded to the Claimant and calculating the respective compensatory interest, at the supplemental legal rate for civil debts, under the terms of articles 35, no. 10, and 43, nos. 1 and 5, of the LGT, 61 of the CPPT, 559 of the Civil Code and Order no. 291/2003, of 8 April (or the statute or statutes that succeed it).

Compensatory interest is owed from the dates of payments made until the date of processing of the credit note, in which they are included (article 61, no. 5, of the CPPT).

VI - DECISION

The undersigned Singular Arbitral Tribunal hereby agrees to:

a) Judge wholly well-founded the arbitral petition formulated and, in consequence, annul the tax acts subject of the present case and condemn the ATA to refund to the Claimant the amounts of tax that have been paid, increased by compensatory interest, counting from the date on which the respective payment was made until the day of the actual refund of the amounts wrongfully paid.

b) Condemn the ATA to the costs of the process, in the amount of €306.00.

VALUE OF THE CASE

The value of the case is fixed at €1,260.50, under the terms of article 97-A, no. 1, a), of the CPPT, applicable by force of subparagraphs a) and b) of no. 1 of article 29 of RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

COSTS

The value of the arbitration fee is fixed at €306.00, under the terms of Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent ATA, since the petition was wholly well-founded, under the terms of articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Notice is hereby given.

Lisbon, 28 December 2015

The Singular Arbitral Tribunal,

Maria do Rosário Anjos

(Arbitrator: Prof. Doctor Maria do Rosário Anjos)

[1] See Decision of STA, of 09-09-2015, issued in case no. 047/15, available at www.dgsi.pt)

[2] In this sense, see BAPTISTA MACHADO (1983) Introduction to Law and to Legitimizing Discourse, Almedina Coimbra, pages 181 et seq.

[3] In this sense, see FRANCESCO FERRARA, Interpretation and Application of Laws – translated by Manuel A. Domingues de Andrade (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, page 137 et seq. Or also, in the same sense, see Manuel A. Domingues de Andrade, in Essay on the Theory of Interpretation of Laws. Collection STVDIVM, Philosophical, Legal and Social Themes (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, page 23 et seq.

[4] Also in this regard, see recent Decision of the Constitutional Court No. 590/2015, of 11-11-2015, in case 542/2014, 2nd section. From this Decision it results that the norm contained in item 28 and 28.1 of the TGIS is not affected by unconstitutionality, provided that its concrete application respects the limits contained in the norm itself. In this regard, moreover, the Constitutional Court cites part of Arbitral Decision no. 50/2013-T, to corroborate this understanding of the meaning and scope of the norm in question, placing the question in the plane of interpretation and concrete application of the legal norm, which must respect the canons of legal hermeneutics. (See cited Decision, pages 16 et seq.)

[5] This same conclusion is drawn from the analysis of the discussion of bill no. 96/XII in the Parliament, available for consultation in the Parliamentary Minutes, Series I, no. 9/XII/2, of 11 October 2012. The basis for the measure designated "special rate on urban properties with residential allocation of higher value" is based on the invocation of the principles of social equity and fiscal justice, calling those holding properties of high value intended for residential use to contribute in a more intense manner, with the new special rate being applied to "properties of value equal to or exceeding 1 million euros."