Summary
Full Decision
ARBITRAL DECISION
1. STATEMENT OF FACTS
1.1 A…, S.A., a taxpayer, legal entity, with registration number…, with registered office at …, …, …, ... in Lisbon, filed, pursuant to article 2, no. 1, letter a) and article 10, no. 1, letter a) of Decree-Law no. 10/2011, of January 20 (hereinafter RJAT) and article 102, no. 1, letter d) of CPPT, a request for the constitution of an arbitral tribunal.
1.2 The Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.
1.3 The Ethics Council of the Administrative Arbitration Centre (CAAC) appointed the undersigned to form the Collective Arbitral Tribunal, notifying the parties accordingly, and the Tribunal was constituted on July 4, 2017.
1.4 The request for arbitral pronouncement concerns the alleged tacit dismissal of the request for official revision that the Petitioner filed of the stamp duty assessment acts, item 28.1 of the General Table, relating to the years 2012 and 2013, concerning the urban property registered in the urban land register of the extinct parish of … under article …, currently article … of the parish of …, in the municipality of Lisbon, assessments, revision request and property that are better identified in the Petitioner's request and in the documents attached thereto, to which reference is made here.
1.5 The Petitioner invokes the illegality of the assessment acts, contesting the application of the new item 28.1 of the GTST to urban properties not constituted in condominium ownership, but which include divisions capable of independent use, in which the minimum threshold fixed by law is reached by the sum of the TVM of the separate (or autonomous) property registry records corresponding to those various divisions, but not by any one of them individually considered.
It argues that the fact that the property, although not constituted in condominium ownership, is constituted by parts capable of independent use, the TVM relevant to assess the fulfillment of the requirement on which the incidence of the said item depends is not fulfilled, since each of the parts of the property capable of independent use has a separate registry in the corresponding land register and, therefore, an individualized TVM lower than the said minimum threshold.
The Petitioner thus argues that it is not the owner of a property with a TVM equal to or greater than the said minimum amount, but rather the owner of a property in vertical ownership in which the TVM exceeding that value is only reached by the sum of the TVM of the divisions capable of independent use allocated to residential purposes, without any of them, considered individually, reaching that minimum amount of tax relevance. For that reason, according to the Petitioner, the assessments at issue suffer from a violation of law, which renders them voidable.
It further argues that, on the date of notification of the assessments relating to the year 2012, the right to assessment expired pursuant to article 6, no. 1 of Law 55-A/2012, of October 19.
The Petitioner further alleges that an interpretation of the norm in a different sense would be unconstitutional due to violation of the principle of equality of article 13 and, likewise, of numbers 1 and 3 of article 103 and numbers 1 and 3 of article 104 of the Constitution.
It concludes by requesting the annulment of the assessments at issue and the refund of the amounts paid by it as a consequence of such assessments, as well as those paid as a consequence of the institution of fiscal execution proceedings, plus compensatory interest.
1.6 The TAX AND CUSTOMS AUTHORITY replied, noting that it did not call into question either the possibility of the Petitioner requesting, as an alternative to a gracious claim and direct judicial challenge of the assessment acts, the revision of a tax act, nor the tacit dismissal and, consequently accepted both the timeliness of the request for arbitral pronouncement and the jurisdiction of the Arbitral Tribunal. Furthermore, the Respondent defended itself by challenge, sustaining the maintenance of the assessments, pointing out, in summary, that total, or vertical, ownership corresponds to a property within the concept of article 2 of CIMI, this being the reality to be taken into account to ascertain the verification of the minimum value contained in the incidence norm.
For the Respondent, the TVM relevant for purposes of tax incidence is thus the TVM of the urban property and not the TVM of each of the parts that compose it, although these are capable of independent use, in that they are allocated to residential purposes. In support of this thesis, it also points out that the unity of the property is not affected, and its distinct parts cannot be legally equated to the autonomous units of a property constituted in condominium ownership, especially since their ownership is necessarily assigned to only a single owner (or more than one, but in cases of co-ownership).
It adds that a different understanding (i.e., that the TVM relevant to the incidence norm would correspond to the TVM of each floor or division capable of independent use) would be unconstitutional, due to violation of the principle of tax legality (inherent in art. 103, no. 2 of the Constitution), by differentiating where the legislator did not distinguish.
According to the Respondent, the legislator could have intended to favor a more legally advanced regime (condominium ownership), subjecting it to a distinct tax law framework, and therefore discriminatory, without that discrimination being necessarily considered arbitrary.
With regard to the alleged expiration of the right to assess the tax relating to the year 2012, the Respondent argues that the norm invoked by the Petitioner does not override the general statute of limitations of article 45 of LGT, being a procedural norm, which is addressed to the AT's services, with "the aim of accelerating the collection of stamp duty item 28 in order to comply with the budgetary targets imposed by the Troika with the collection of extraordinary revenue for the year 2012".
It concludes by requesting the waiver of the arbitral hearing provided for in article 18 of RJAT, as well as of pleadings, and concludes that the request should be judged unfounded.
1.7 Notified of the Tribunal's intention to waive the arbitral hearing provided for in article 18 of RJAT, as well as pleadings, the parties not only did not object but manifested their agreement, the Respondent in its reply and the Petitioner at the time of filing the document proving payment of the subsequent court fee.
2. PRELIMINARY RULING
The Tribunal was regularly constituted and has jurisdiction.
The parties have standing and legal capacity, are legitimate, and are regularly represented.
The proceedings are free of any defects that would invalidate them.
3. FACTS OF THE CASE
With relevance to the merits decision, the Tribunal considers the following facts proven:
1) On October 31, 2012 and December 31, 2013, the Petitioner was the owner of the urban property located on Rua …, nos. … to …, intended for residential use, and registered under property registry article no. … of the extinct parish of … (…), current property registry article no.… of the parish of …, municipality of Lisbon;
2) That property – subsequently subjected to the condominium ownership regime – corresponded at those dates to a building in total ownership, composed of 14 divisions of independent use, all allocated to residential purposes;
3) The taxable value of each of those divisions TVM, determined under the Municipal Property Tax Code (CIMI), varies between a minimum of € 196,730.00 and a maximum of € 269,660.00 and totals € 3,162,990.00;
4) The assessments at issue result from the application of stamp duty provided for in item no. 28.1 of the General Table of Stamp Duty (GTST) attached to the Stamp Duty Code (SDC) as amended by art. 4 of Law no. 55-A/2012, of October 29, at the rate of 1% on the taxable property value of € 3,162,990.00 corresponding to the set of independent divisions allocated to residential purposes of the said property with reference to the years 2012 and 2013.
5) On September 23, 2016, the Petitioner filed a request for official revision of the stamp duty assessments relating to 2012 and 2013 at issue;
6) Up to the time of the request for arbitral pronouncement, the Petitioner had not been notified of any decision rendered on its request;
7) The request for constitution of the Arbitral Tribunal was submitted on April 26, 2017.
Facts Not Proven
The parties alleged no other facts relevant to the assessment of the merits of the case that were not proven.
Reasoning for the Decision on the Facts
The conviction regarding the facts found to be proven was based on the allegations of the Petitioner and the Respondent not contradicted by the opposing party, supported by the documentary evidence submitted by both the Petitioner and the Respondent, whose authenticity and correspondence to reality were also not questioned.
4. LEGAL ISSUES - QUESTIONS TO BE DECIDED
The questions to be decided are as follows:
1) With reference to properties not constituted in a condominium ownership regime, comprising various floors and divisions with independent use, some of which with residential allocation, is the TVM relevant as the criterion for the incidence of the tax the one corresponding to the sum of the taxable property value attributed to the different parts or floors (global TVM) or, rather, the TVM attributed to each of the residential parts or floors.
2) Constitutionality:
Is the application of the new item 28.1 of the GTST to urban properties not constituted in condominium ownership, but which include divisions capable of independent use, in which the minimum threshold fixed by law is reached by the sum of the TVM of the separate (or autonomous) property registry records corresponding to those various divisions, but not by any one of them individually considered, which the Tax Authority advocates, unconstitutional due to violation of the principle of equality and, likewise, of that enshrined in articles 103 and 104 of the Constitution? And is the interpretation advocated by the Petitioner, in turn, unconstitutional due to violation of the principle of legality, necessarily leading the decision in the opposite sense?
It is necessary to decide:
1) In properties not constituted in a condominium ownership regime, comprising various floors and divisions with independent use, some of which with residential allocation, what is the TVM relevant as the criterion for the incidence of stamp duty for the purposes of applying item 28.1 of the TGI?
The first question to be decided corresponds to the application, in situations of so-called vertical ownership, of the new stamp duty taxation affecting urban properties with residential allocation and TVM equal to or greater than one million euros. This new taxation was introduced in 2012 to strengthen budgetary control measures on the revenue side, within a framework of financial necessity.
On this question of the determination of the TVM (minimum) relevant for the application of item 28.1 of the GTST in cases of vertical ownership, the CAAC decisions in cases nos. 50/2013-T, 132/2013, 181/2013-T, 183/2013-T, 272/2013-T, 280/2013-T, 26/2014-T, 30/2014-T, 88/2014-T, 177/2014-T, 206/2014-T and 349/2015-T have already ruled, among many others.
In all of them, the question was, as in these proceedings, whether the TVM relevant to the incidence norm (28.1 of the GTST) is the TVM corresponding to each of the divisions capable of independent use separately considered in the land register or whether, on the contrary, the relevant TVM should correspond to the sum of all those divisions capable of independent use, but forming part of the same property and which are allocated to residential purposes.
And the answer in those decisions was always for the first option, with which we agree.
It is important to note that each floor or part of a property capable of independent use is considered separately in the property registry of the entire property, which also discriminates the taxable property value of those (no. 2 of art. 12 of CIMI), with the Municipal Property Tax being assessed individually in relation to each floor or part of a property capable of independent use (art. 119, no. 1 of CIMI).
And if this is the case with Municipal Property Tax, it should also be the case with Stamp Duty, all the more so because the SDC refers to CIMI.
As stated in the decision rendered in case 206/2014-T: "Since the SDC refers to CIMI, it must be concluded that registration in the land register of properties in vertical ownership, comprising different parts, floors or divisions with independent use, follows the same registration rules as horizontal ownership". Since Municipal Property Tax and Stamp Duty are "assessed individually in relation to each of the parts", the "legal criterion to define the incidence of the new tax must be the same". Consequently, there will be incidence of item 28.1 of the GTST (only) if any of those parts, floors or divisions with independent use has a TVM at least equal to the amount provided for in the incidence norm.
As well explained in the decision rendered by the Arbitral Tribunal in case 349/2015-T, "Thus, property shall be the independent area, considered separately and autonomously in the land register, being subject to stamp duty if two requirements are met: being intended for residential purposes and having a TVM equal to or greater than one million euros, the criterion for assessing "luxury" residential properties. Otherwise, it would create a reality not foreseen by the legislator: that of, so to speak, a "residential property", possibly inserted within a larger property, possibly with various purposes, in which the TVM of that property, spurious to the land registry records, would consist in the fiction of a TVM given by the addition of the autonomous TVM of each division (independent and with residential purpose) considered in the property registry. That is, where the legislator considered two realities, the interpreter would now have, without support in the legislative text, to fictionally create a third reality, hybrid, halfway between the urban property and its independent divisions which the legislator of Municipal Property Tax, and of Stamp Duty by reference to CIMI, understood to give tax relevance to.
Likewise, in the decision rendered in case 272/2013-T (CAAC) it is stated that "considering that registration in the land register of properties in vertical ownership, comprising different parts, floors or divisions with independent use, in terms of CIMI, follows the same registration rules as properties constituted in condominium ownership, with the respective Municipal Property Tax as well as the new Stamp Duty, being assessed individually in relation to each of the parts, leaves no doubt that the legal criterion to define the incidence of the new tax must be the same". In fact, it is said, the Tax Authority's position "finds no legal basis and is contrary to the criterion applicable under CIMI and, by reference, under Stamp Duty", which is why "the adoption of the criterion defended by the Tax Authority violates the principles of legality and tax equality, as well as the principle of the prevalence of material truth over legal-formal reality".
And likewise, in the arbitral decision in case 30/2014-T it is stated that in the Tax Authority's doctrine there is found "non-conformity with the literal element of the final part of the incidence norm (item 28 of the GTST) which states that the tax affects "the taxable property value used for the purpose of Municipal Property Tax" and therefore should not affect the sum of taxable property values of properties, parts of properties or floors, with no legal support for the operation of adding taxable property values of floors or parts of property capable of independent use, allocated to residential purposes, separated from the TVM of others with different purposes, in order to reach the threshold of eligible taxation of 1,000,000.00 euros or more".
And as also stated in that arbitral decision, what happens with regard to urban properties with residential allocation, in vertical ownership, with floors or divisions capable of independent use, is that the Tax Authority proceeds, in the operations of stamp duty assessment, to adapt the CIMI rules (adding the taxable property values of the same property, without considering those corresponding to parts of the property with non-residential purpose, thus creating a new and hybrid TVM). In fact, that "adaptation" corresponds to "adding the TVM of each floor or independent division allocated to residential purposes (separated from the TVM of floors or divisions intended for other purposes), creating a new legal reality, without legal support, which is a global TVM of urban properties in vertical ownership, with residential allocation", which goes "against the literal element of the incidence norm".
Thus, "in urban properties with residential allocation, in vertical ownership, with floors or divisions capable of independent use", the taxable property value should be considered "which results exclusively from no. 3 of article 12 of CIMI. Both for Municipal Property Tax and for this Stamp Duty".
To be more specific, as concluded in the decision rendered in case 26/2014-T of the CAAC, "for the purposes of applying item 28 of the GTST to properties in vertical ownership, the same CIMI rules apply as to properties in condominium ownership, and in the same sense the TVM for the purpose of applying the item is the individual TVM of each independent residential unit, and in the present case none of the units exceeds the incidence criterion of 1,000,000.00€", the same occurring in the present proceedings.
Starting from the same position, the arbitral decision rendered in case 349/2015-T concludes that "as clearly emerges from the cited decisions, the literal interpretation of the new item of the GTST cannot fail to be different from that sustained by the Tax Authority, indeed, the opposite, given the clear and indisputable reference made regarding the new item of the GTST to the CIMI rules, the interpreter of the norm not being able to "create" a new concept of property in order to obtain a hybrid TVM, not recognized in the land register and without any support in the text of the law."
And it did so by also invoking the criterion of the economic substance of tax facts: "the expression 'each urban property' used in no. 7 of article 23, for reasons of parity, encompasses not only urban properties in condominium ownership, but also floors, divisions or parts of urban properties in vertical ownership, provided they are allocated to residential purposes, always proceeding in each case from a single tax base for all legal purposes: the taxable property value used for the purpose of Municipal Property Tax (...). The economic reality of the holding of independent parts, e.g. capable of independent use or rental, such as autonomous units in the case of condominium ownership, and therefore capable of allowing use or obtaining income in a similar manner and thus externalizing, equal tax capacity (as would be externalized by the sum of the TVM of several autonomous units of the same property in condominium ownership or of several properties which together exceeded the value of one million euros, without the legislator having considered it as an externalization of tax capacity relevant for the purposes of Stamp Duty)."
Moreover, as stated in the decision rendered in case 26/2014-T of the CAAC, there is no indication of any criticism by the legislator of vertical ownership. In fact, "it may be said, not without reason, that the legislator, for the purposes of taxation under Municipal Property Tax, chose to confer autonomy, independence, on each of the parts or on each floor of a single property, provided that they show independent use, to the point of providing for separate registration in the land register of each of those independent parts and imposing on taxation under Municipal Property Tax also autonomous collection. Despite the legal existence of a single property, it is the legislator itself that not only recommends but imposes autonomous consideration of each of the independent parts, for the purpose of taxation of property".
In fact, as decided in cases 26/2014-T and 272/2014-T and 349/2015-T, "the legislator is indifferent to one or another form of structuring the ownership of urban properties under CIMI, it is unclear why they would now intend to favor one to the detriment of the other, namely by considering one form of structuring more advanced than the other". "The current legal regime does not impose the obligation to constitute condominium ownership", which is why "the discrimination operated by the Tax Authority constitutes an arbitrary and illegal discrimination", because "the Tax Authority cannot distinguish where the legislator itself understood not to do so, on pain of violating the coherence of the tax system, as well as the principle of tax legality provided for in article 103, no. 2 of the Constitution, and also the principles of justice, equality and tax proportionality."
And the fact is that nothing leads the interpreter to the conclusion that the specific legislator of the new item of the GTST, contrary to the legislator of Municipal Property Tax, which moreover remains unchanged, intended to discriminate against vertical ownership in relation to horizontal ownership. As well recalled in the decision rendered in the aforementioned case 26/2014-T of the CAAC, also referred to in the already cited decision of case 349/2015-T "when presenting and discussing in Parliament Bill no. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated: 'The Government proposes the creation of a special tax on residential urban properties of higher value. It is the first time in Portugal that a special tax is created on high-value properties intended for housing. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros' (see Official Journal I Series no. 9/XII -2, of October 11, page 32). Now, as emphasized in that decision, 'the Secretary of State for Tax Affairs presents this bill referring without hesitation to the expression "houses"… with a value equal to or greater than 1 million euros', whereby 'it follows with crystal clarity that item 28.1 of the GTST cannot be interpreted as including each of the floors, divisions or parts capable of independent use when only the respective sum results in a TVM greater than that provided for by the same item'."
It being therefore clear, as referred to in the aforementioned decision 272/2014-T, that for the legislator only that value of one million euros, provided it is allocated "to a housing unit (house, autonomous unit or floor with independent use) translates a tax capacity above average and, as such, susceptible to determining a special contribution to ensure fair distribution of tax burden".
And if this is the case, we must then consider the concept of "house" as a physical reality that enables a residential purpose, a unit capable of independent use, including its rental, because it is in that economic reality that we will find the externalization of the tax capacity associated with "luxury housing" which the legislator considered relevant. Moreover, if this were not the case, the legislator would engage in discrimination that would not be justified, because as we have already seen there is no criticism of vertical ownership in the system when compared to horizontal ownership. Moreover, that distinction would clash with a necessary equity among identical externalizations of the same tax capacity.
Now, the tax capacities externalized by the ownership of a property composed of a set of autonomous units in condominium ownership or by a set of divisions with independent use in the vertical ownership regime cannot fail to be considered identical, if not even, possibly, lesser in the case of the second hypothesis. That is, a property does not, certainly, have a higher market value for being organized as vertical ownership. It is worth the same (allowing equal benefit from its use or equal income through its rental, as mentioned above), or may even have a lower value, since the alternatives for transferability will be possibly fewer. And we know that the TVM intends to be an approximation, precisely, to the market value of properties and will therefore be the measure and limit of the tax capacity relevant to the new item of the GTST. (see the decision we have been citing, rendered in case 349/2015-T).
Thus, the interpretation advocated by the Tax Authority, not finding hermeneutical justification, as we have seen so far, would further lead to manifest inequality between owners of properties in condominium ownership and in vertical ownership (and it has also already been seen that there is no indication of any intent to penalize the latter, even if it were to be admitted that this were constitutionally permissible).
In that same sense, as well emphasized in the decision of case 272/2014-T of the CAAC, the "existence of a property in vertical or horizontal ownership cannot be, in itself, an indicator of tax capacity. On the contrary, it follows from the law that both should receive the same tax treatment in obedience to the principles of justice, tax equality and material truth".
In conclusion, "material truth is what imposes itself as the determinant criterion of tax capacity and not mere legal-formal reality of the property, since the constitution of condominium ownership implies only a legal alteration of the property not even imposing a new valuation", and this fact "does not appear consistent with the Tax Authority's decision to tax the residential parts of a property in vertical ownership, based on the global TVM of the property and not what is actually attributed to each part." Thus, "the Tax Authority cannot distinguish where the legislator itself understood not to do so, on pain of violating the coherence of the tax system, as well as the principle of tax legality … and also the principles of justice, equality and tax proportionality" (see the decision rendered in case 26/2014-T of the CAAC).
In conclusion, according to the foregoing, the tax acts at issue suffer from a violation of law, due to error in the legal and factual premises, because no part of the property has a TVM of a value equal to or greater than the threshold resulting from the applicable norm, which renders the said tax acts voidable.
2) Constitutionality:
As to the second question to be decided, the conclusion we reached above renders moot the analysis of the unconstitutionality of the norm, whether based on a violation of the principle of equality or also based on the principle of legality (grounds that would lead to opposite conclusions).
This is because the interpretation advocated derives precisely from the text of the law, and not from a divergent application of its immediate normative command, by indirect and subsequent intervention of any constitutional principle, or by innovative intervention of the interpreter.
The illegality of the acts results from the invoked norm not being applicable to the situation at issue, since none of the assessments relates to the minimum threshold required by the said item no. 28, and should therefore be annulled on that ground, which constitutes a conclusion prior to the analysis of the constitutionality of the norm.
And, on the other hand, it corresponds to the choice of the legislator, not to that of the interpreter who would substitute for that with a different interpretation, wherefore the observance of the principle of legality is likewise not at stake.
Neither party raised any question that corresponds to what the Constitutional Court has been considering, in its jurisprudence and consistently, as constituting a question of normative constitutionality.
In fact, according to the settled jurisprudence of the Constitutional Court, in order to consider that a question of constitutionality is at issue it is not sufficient to state that the interpretation of a given legal provision in a sense contrary to that advocated by the interested party violates the Constitution.
It is necessary that the autonomization of the question of constitutionality of the norm be discernible with respect to the subject of its interpretation and application to the facts of the case.
Which clearly does not occur in this case.
In fact, neither the Petitioner nor the Respondent raised a question of unconstitutionality of the norm at issue, which would be appropriate to assess, rather they limited themselves, both of them, albeit in opposite senses, to arguing that an interpretation different from that which they embrace would be contrary to the principle of equality, on the one hand, and legality, on the other.
Wherefore it is understood that no question of unconstitutionality of the norm at issue that would be appropriate for the Tribunal to assess was raised.
Finally, with regard to the implementation of the Petitioner's request, there is not, in the Tribunal's view, a question of the right to compensatory interest, there is the question of whether the Petitioner has the right, in these proceedings and as a consequence of the annulment of the assessments, to the refund of the amounts relating to interest and court fees related to the fiscal execution proceedings instituted against it. And here the Tribunal explicitly understands that the annulment of the assessments is not an adequate ground for the requested refund, which would moreover exceed the jurisdiction of this Tribunal insofar as it would have to be argued and decided in proceedings for opposition to fiscal executions and never in proceedings for the review of the legality of the assessments.
5. DECISION
In these terms and with the reasoning above, it is decided:
a) To hold the Petitioner's request well-founded and, consequently, to annul the assessment acts at issue, on the ground of violation of law, resulting from error in the legal premises;
b) To condemn the Respondent to indemnify the Petitioner for the amounts the latter has borne as a result of the now annulled assessments, plus compensatory interest calculated from payment until full and complete reimbursement at the legal rates in force; and
c) To absolve the Respondent of the request for refund – and compensatory interest – of the amounts borne by the Petitioner as a result of the institution of fiscal execution proceedings.
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Value of the Proceedings
The value of the proceedings is set at € 66,576.09 (sixty-six thousand five hundred seventy-six euros and nine cents) in accordance with articles 3, no. 2 of the Rules of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, letter a) of CPPT and 306 of CPC.
Court Costs
The amount of court costs is set at € 2,448.00 pursuant to article 22, no. 4 of RJAT and Table I attached to RCPAT, and shall be borne by the Respondent.
§ Let notice be given.
Lisbon, December 22, 2017
The Collective Arbitral Tribunal,
José Poças Falcão
(President)
Amândio Silva
(Adjunct Arbitrator)
Eva Dias Costa
(Adjunct Arbitrator)
[Document prepared by computer, pursuant to article 131, no. 5 of the Code of Civil Procedure, applicable by reference from article 29, no. 1, letter e) of RJAT].
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