Stamp Tax on Vertical Property: CAAD Rules Against Aggregating Unit Values Under Verba 28 TGIS (Case 295/2014-T)

ARBITRAL DECISION

Process No. 295/2014-T

I. REPORT

1. A… - ADMINISTRAÇÃO E SERVIÇOS, LDA., NIPC …, with registered office in … Lisbon, and share capital of € 50,000.00 (fifty thousand euros), (hereinafter referred to as the "Claimant"), came, pursuant to the provisions of article 10 of Decree-Law No. 10/2011, of 20 January (RJAT), as amended by Law No. 66-B/2012, of 31 December, to request the constitution of the arbitral tribunal with a view to reviewing the legality of the assessments of Stamp Duty (item No. 28 of the General Schedule), relating to the year 2012, in the total amount of € 10,527.80, attaching as evidence documents numbered 1 to 7.

2. The request having been accepted, and the Claimant having opted not to appoint an arbitrator, it was, pursuant to No. 1 of article 6 of RJAT, by decision of the President of the Deontological Council, appointed as sole arbitrator the undersigned, who accepted the position within the legally stipulated deadline.

3. The singular arbitral tribunal was constituted on 4 June 2014.

4. The highest official of the service of the Tax and Customs Authority (also referred to as AT or Respondent) having been notified pursuant to article 17 of RJAT, a Response was filed on 7 July 2014, by the legal advisors appointed for that purpose.

5. In response to an arbitral order of 24 September 2014, concerning the need to hold the meeting provided for in article 18 of RJAT and the submission of written arguments, the Claimant and Respondent declared that they waived both the meeting and the submission of written arguments.

6. The Tribunal also decided that the decision would be rendered by the deadline for issuance of the award.

7. The Request for Arbitral Award

Summarizing, the grounds presented by the Claimant are as follows:

• The Claimant, owner of an urban property in Lisbon, divided into 7 floors or divisions with independent use including 5 floors (1st floor to 5th floor) with residential use, was notified of assessments of Stamp Duty (item 28 of TGIS) in the amounts of €2,084.70, € 2,084.70, € 2,105.60, € 2,126.40 and € 2,126.40 (in a total of € 10,527.80), corresponding to the different floors, with patrimonial values for tax purposes of € 208,470.00, € 208,470.00, € 210,560.00, € 212,640.00 and € 212,640.00.

• The notifications relating to each of the floors refer to a "patrimonial value of the property - total subject to tax: 1,052,780.00" but contain no justification for disregarding the patrimonial values for tax purposes of each of the floors in question for purposes of item 28 of the General Schedule - all of them clearly below €1,000,000.00.

• The Claimant made full payment, within the periods set for it, of all amounts assessed as Stamp Duty referred to above but does not accept the legality of such assessments, as it considers that they are vitiated by violation of law, as demonstrated hereinafter.

• According to item No. 28 of the General Schedule of Stamp Duty and article 67, No. 2, of the Stamp Duty Code, as a result of the amendments introduced by Law No. 55-A/2012, of 29 October, and article 12, No. 3, of the Municipal Real Estate Tax Code, it is on the basis of the patrimonial value for tax purposes of each floor or part of property capable of independent use and with residential use that its subjection to tax is determined or not – as occurs in the present case – under item No. 28 of the General Schedule, so that the assessments affecting autonomous units with independent use, whose patrimonial value is below the minimum threshold of the tax's scope of application, are based on error as to the factual and legal assumptions of taxation under Stamp Duty, in violation of the provisions of item No. 28 of TGIS, and should be annulled.

• This interpretation has been reiterated in several Arbitral Decisions (decisions 48/2013-T; 50/2013-T and 132/2013-T are cited), highlighting the reference to the preparatory works of Law No. 55-A/2012, even emphasizing the violation by the contested assessment acts of constitutional principles, namely the principle of equality (see article 13 of the Portuguese Constitution), and in particular equality in the taxation of property (see article 104, No. 3, of the Portuguese Constitution) by treating the properties in question (units capable of independent use) differently from those others that are in a substantially equal situation, despite being constituted in condominium ownership, since if the property in question had been divided into condominium ownership, none of the autonomous units would be taxed in this regard.

• Being illegal the contested assessments, the Claimant is entitled to compensatory interest, in accordance with articles 35, No. 1, of the LGT, 61, No. 5, of CPPT and 43, No. 1, of LGT.

8. The Response of the Tax and Customs Authority

The Respondent replied, in summary:

• The urban property in question was assessed pursuant to the CIMI, within the context of the general assessment, being described as "property in sole ownership with floors or divisions capable of independent use," 2 basements, ground floor, and 5 floors or divisions capable of independent use and allocated to residential use, with patrimonial value for tax purposes (VP) exceeding € 1,000,000.00 (€1,425,370.00).

• The concept of property is defined in article 2, No. 1, of CIMI, whose No. 4 provides that in the condominium ownership regime, each autonomous unit is deemed to constitute a property, but the case of the property in this action is a "property in sole ownership with floors or divisions capable of independent use."

• Article 12 of CIMI, No. 3, provides exclusively as to the manner of recording the matrix data, regarding the assessment of Municipal Real Estate Tax, whereas in this case, the VP serving as the basis for its calculation is unquestionably the VP that the now Claimant defines as "global value of the property."

• Although the assessment of Stamp Duty, in the situations provided for in item No. 28.1 of TGIS, is carried out according to the rules of CIMI, the legislator reserves the aspects that require the necessary adaptations: such is the case of properties in sole ownership, although with floors or divisions capable of independent use (although Municipal Real Estate Tax is assessed in relation to each part capable of independent use).

• For purposes of Stamp Duty, the property as a whole is relevant because the divisions capable of independent use are not all deemed to be property, only autonomous units in the condominium ownership regime are, as per No. 4 of art. 2 of CIMI.

• The subjection to Stamp Duty of item 28.1 of the General Schedule annexed to the Stamp Duty Code results from the conjunction of two facts: residential use and the patrimonial value of the urban property registered in the matrix being equal to or exceeding € 1,000,000.00.

• It appears from the property register that the property is in sole ownership, composed of several parts capable of independent use, and the Stamp Duty assessments, relating to the year 2012, take into account article 23, No. 7, of the Stamp Duty Code, and article 113, No. 1 - the assessment is made on the basis of the patrimonial values for tax purposes of properties and in relation to the taxable persons appearing in the matrices on 31 December of the year to which they relate (in the case of the 2012 tax, 31 December of that year).

• The property being in sole ownership, not possessing autonomous units to which tax law attributes the qualification of property, because from the notion of property in article 2 of CIMI, only autonomous units of property in condominium ownership are deemed to be properties (No. 4 of said article 2), there is no violation of law due to error as to the legal assumptions.

• There is also no violation of the principle of tax equality and contributive capacity: there is no discrimination in the taxation of properties constituted in condominium ownership and properties in sole ownership with floors or divisions capable of independent use, or between properties with residential use and properties with other uses.

• Condominium ownership and fee simple ownership are legal institutions with differentiated civil law regimes, justifying the benefit to the more legally evolved condominium ownership institute.

• Item 28.1 is a general and abstract rule, applicable indiscriminately to all cases in which the respective factual and legal assumptions are verified, taxation under Stamp Duty obeys the criterion of adequacy, insofar as it aims at the taxation of wealth embodied in the ownership of real estate of high value, arising in a context of economic crisis that cannot be at all ignored.

• This mechanism for obtaining revenue does not violate the principle of proportionality because it is applicable indiscriminately to all holders of residential properties with value exceeding € 1,000,000.00.

• The AT acted in accordance with binding information (order of agreement of 11.2.2013 of the Legal Substitute of the Director-General of the Tax and Customs Authority) - the tax acts did not violate any legal or constitutional principle and there is no entitlement to compensatory interest provided for in No. 1 of article 43 of LGT because it was not demonstrated that there was error attributable to the services as a result of which payment of tax debt was made in an amount exceeding the legally due amount.

• The Tax Administration, bound by the principle of legality, cannot fail to give full compliance to the rules created by the ordinary legislator and that are in force in the legal order and, by virtue of the provisions of article 55 of LGT, the tax administration made the application of the law, in the terms in which as an executive body it is constitutionally bound, and one cannot speak of error of the services under the provisions of article 43 of LGT.

9. Questions to be Decided

In the present proceedings, it is necessary to decide:

• Whether the patrimonial value for tax purposes relevant as the criterion for the scope of Stamp Duty provided for in item 28 of TGIS, regarding a property not constituted in condominium ownership regime, composed of various floors and divisions with independent use with residential use, is the one corresponding to the sum of the patrimonial value for tax purposes attributed to the different parts or floors (global VPT) or the patrimonial value for tax purposes attributed to each of the parts or residential floors.

• Whether there is entitlement to compensatory interest, in the event that the illegality of the assessment is declared.

10. Case Management

The collective arbitral tribunal is materially competent, pursuant to the provisions of articles 2, No. 1, al. a) of the Legal Regime for Arbitration in Tax Matters.

The parties have legal personality and capacity and have standing pursuant to art. 4 and No. 2 of art. 10 of the Legal Regime for Arbitration in Tax Matters (RJAT), and art. 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullity nor have the parties raised any exceptions that prevent the consideration of the merits of the case, so the conditions are met for the issuance of the arbitral decision.

II. GROUNDS

11. Established Facts

On the basis of the documents filed by the Claimant (Request for Arbitral Award and Documents No. 1 to 7 attached) and by the Respondent (Response), the following factuality is established, the established facts being sufficient for the issuance of the award:

11.1. The Claimant is the owner of a property located in …, in Lisbon, parish of …, urban property with the matrix article …, corresponding previously to the matrix article U-… of the urban matrix of the (extinct) parish … (Property register, document No. 6 attached with the request, and the Collection Documents attached with the Request).

11.3. The property that is the subject of this action is a property in sole ownership with floors or divisions capable of independent use, has eight (8) floors and divisions capable of independent use, including five (5) floors (1st floor to 5th floor) with residential use (Property register, document No. 6 attached with the request).

11.4. The Claimant was notified to pay assessments of Stamp Duty relating to the 1st, 2nd, 3rd, 4th and 5th floors of the property identified above, relating to the year 2012 and for payment by the end of December 2013, through Collection Documents numbered 2013 …, 2013 …; 2013 …, 2013 … and 2013 … (documents No. 1 to 5 and doc. No. 6, attached with the request).

11.5. The assessments referred to in the previous number indicate as grounds item 28.1 of TGIS and correspond to the application of a rate of 1% to the patrimonial values for tax purposes of the various floors (1st, 2nd, 3rd, 4th and 5th), of € 208,470.00, € 208,470.00, € 210,560.00, € 212,640.00 and € 212,640.00, respectively, being assessed taxes in the amounts of €2,084.70, € 2,084.70, € 2,105.60, € 2,126.40 and € 2,126.40, also respectively, with each collection document including the indication "patrimonial value of the property – total subject to tax: € 1,052,780.00" (documents 1 to 5).

11.6. On 27 February 2013, the Claimant made "full voluntary payment in the course of tax enforcement proceedings" (Doc. 7 attached with the Request for Award).

12. Unestablished Facts

There are no unestablished facts with relevance to the decision of the case.

13. Applicable Law

13.1. The Scope of Application of Item 28 of the General Schedule of Stamp Duty

The fundamental question of law disputed in the present proceedings consists of determining whether in the case of properties in sole ownership, with floors or divisions of independent use but not constituted in condominium ownership regime, the patrimonial value for tax purposes to be considered for purposes of the scope of Stamp Duty provided for in item 28.1 of TGIS should correspond to the patrimonial value for tax purposes of each floor or division with residential use and independent use or to the sum of the patrimonial values for tax purposes corresponding to the floors or divisions of independent use with residential use. In other words, whether the patrimonial value for tax purposes relevant as the criterion for the scope of the tax is the one corresponding to the sum of the patrimonial value for tax purposes attributed to the different parts or floors (global patrimonial value for tax purposes) or, rather, the patrimonial value for tax purposes attributed to each of the respective floors or autonomous divisions.

This question has already been considered in various proceedings within the framework of Tax Arbitration[1], and to date, no arguments have been identified that would break the unanimity that has been achieved in the decisions rendered[2].

Item 28 of the General Schedule of Stamp Duty, annexed to the Stamp Duty Code (CIS), was added by article 4 of Law No. 55-A/2012, of 29 October, with the following content:

"28 – Ownership, usufruct or right of surface of urban properties whose patrimonial value for tax purposes appearing in the matrix, pursuant to the Municipal Real Estate Tax Code (CIMI), is equal to or exceeding € 1,000,000 – on the patrimonial value for tax purposes for purposes of Municipal Real Estate Tax:

28-1 – Per property with residential use – 1%;

28.2 – Per property, when the taxable persons that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, appearing in the list approved by ordinance of the Minister of Finance – 7.5%."

According to the amendments to the Stamp Duty Code, introduced by article 3 of Law No. 55-A/2012, of 29/10, the Stamp Duty provided for in item 28 of TGIS applies to a legal situation (No. 1 of art. 1 and No. 4 of art. 2 of CIS), in which the respective taxable persons are those referred to in article 8 of CIMI (No. 4 of art. 2 of CIS), to whom the burden of the tax falls (subparagraph u) of No. 3 of article 3 of CIS).

The provisions of the Stamp Duty Code (CIS), as amended by Law No. 55-A/2012, both in article 4, No. 6 ("In the situations provided for in item 28 of the General Schedule, the tax is due whenever the properties are situated in Portuguese territory"), and in article 23, No. 7 ("In the case of the tax due for the situations provided for in item No. 28 of the General Schedule, 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"), combined with art. 1 of CIMI, consider the property itself as the taxable fact (the situation that triggers taxation) provided that it reaches the value provided for in item 28 of the General Schedule of Stamp Duty, regardless of the number of taxable persons, holders (as owners, usufructuaries or surface right holders) of the assets in question.

The provisions of Law No. 55-A/2012, of 29 October, regarding the new item 28 of the General Schedule of Stamp Duty, came into force on the day following the publication of the law, that is, 30 October 2012. Article 6 of Law No. 55-A/2012 provides for transitional provisions whereby, in that first year of validity, that is, 2012: the taxable fact occurs on 31 October (when, in accordance with article 8 of CIMI, applicable by cross-reference from No. 4 of art. 2 of CIS, it would be on 31 December); the taxable person of the tax is the owner of the property (No. 4 of article 2 of CIS) also on that 31 October; the patrimonial value for tax purposes to be used in the assessment of the tax corresponds to what results from the rules provided for in CIMI by reference to the year 2011; the assessment of the tax by the AT is carried out by the end of the month of November 2012; the tax must be paid in a single installment, by the taxable persons, by 20 December of that year 2012.

As regards the rates, subparagraph f) of No. 1 of the same article 6 of Law No. 55-A/2012 provides for the application in 2012 of a rate lower than the 1% rate provided for in item 28.1 of TGIS for properties with residential use, further distinguishing between cases of properties assessed pursuant to the Municipal Real Estate Tax Code (0.5% rate) and properties with residential use not yet assessed pursuant to the Municipal Real Estate Tax Code (0.8% rate).

13.2. The Concept of Property Used in Item 28 of TGIS

The concept of "properties with residential use" used in item 28.1[3] is not expressly defined in any provision of the CIS nor in the CIMI, the statute to which No. 2 of art. 67 of CIS refers.

In the case before us, whether one takes into account the entire property (building) of the Claimant in fee simple ownership or each of its respective autonomous divisions, it is (not contested) property classified as urban and residential according to the criteria established in articles 2, 4 and 6 of the Municipal Real Estate Tax Code, applicable by cross-reference from article 67 of CIS.

Thus, only the exact meaning of the segment "patrimonial value considered for purposes of Municipal Real Estate Tax," contained in the rule of the scope of Stamp Duty in the body of item 28 of TGIS, is in question: in the case of properties in sole ownership but with floors or divisions capable of independent use, with residential use, is the patrimonial value for tax purposes relevant the sum of the patrimonial values for tax purposes of the various divisions/floors, as the AT contends, or should account be taken of the patrimonial value for tax purposes of each of the respective floors or autonomous divisions, as the Claimant argues?

Now this segment is integrated in a text that defines as the object of the scope of Stamp Duty the "Ownership, usufruct or right of surface of urban properties whose patrimonial value for tax purposes appearing in the matrix, pursuant to the Municipal Real Estate Tax Code (CIMI), is equal to or exceeding € 1,000,000 – on the patrimonial value for tax purposes for purposes of Municipal Real Estate Tax" (emphasis added).

As has been repeatedly invoked and acknowledged, the Municipal Real Estate Tax Code enshrines, both as regards the matrix registration and discrimination of the respective patrimonial value for tax purposes, and as regards the assessment of the tax, the individualization of the parts of urban property capable of independent use and the segregation/individualization of the patrimonial value for tax purposes relating to each floor or part of property capable of independent use[4].

Thus, each property corresponds to a single article in the matrix (No. 2 of article 82 of CIMI) but, according to No. 3 of art. 12 of the same Code, relating to the concept of the property register (record of the property, its characterization, location, patrimonial value for tax purposes and ownership), "each floor or part of property capable of independent use is considered separately in the matrix registration, which discriminates its respective patrimonial value for tax purposes," not taking as reference the sum of the patrimonial values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

As regards the assessment of Municipal Real Estate Tax - application of the rate to the tax base - art. 119, No. 1 provides that "the competent collection document" contains the "discrimination of the properties, their parts capable of independent use, their respective patrimonial value for tax purposes and the tax assessed (...)".

In other words, the rule is individualization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, capable of independent use[5], in accordance with the concept of property defined at the outset in No. 1 of article 2 of CIMI: property is any fraction (of land, including waters, plantations, buildings and constructions of any nature incorporated or based thereon, of a permanent character) 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 preceding circumstances, endowed with economic autonomy (presentation and emphasis added).[6]

Thus, when No. 4 of article 2 provides that "For purposes of this tax, each autonomous unit, in the condominium ownership regime, is deemed to constitute a property," it does not establish a properly exceptional or special regime for properties in condominium ownership.

After all, each building in condominium ownership (article 92) has only a single matrix registration (No. 1), with the building generically described and mention made of the fact that it is in condominium ownership regime (No. 2) and the matrix autonomy is realized by the attribution to each of the autonomous units, described in detail and individualized, of a capital letter, according to alphabetical order (No. 3). This appears to be the specificity of buildings in condominium ownership; in other cases, of properties in fee simple or sole ownership, the divisions or floors with autonomy but without condominium ownership status, the matrix also enshrines autonomy but highlighting the units with indication of the type of floor/story.

Nor does the argument that has been presented by the AT based on the importance of condominium ownership and legislative incentive for its development appear acceptable. In fact, no elements of interpretation are identifiable in Law No. 55-A/2012, of 29 October, that would permit the identification and legitimization of a purpose (extra-fiscal) in the manner defended by the Respondent. Rather, it seems that such unexpected discrimination would risk violating the principle of legitimate expectation...

Nor does the existence of the financial crisis, also invoked, seem capable of justifying by itself a different treatment of properties in condominium ownership and fee simple regimes. A different scope for substantially identical realities would hardly escape the accusation of arbitrariness, especially since there is, in fact, the risk that situations generally related to lower tax capacity (they are the older properties, related to rents more difficult to update, those which generally maintain the form of total or fee simple ownership) are the ones encompassed by a more burdensome tax treatment.

Nor is the argument of the Respondent (point 6 of the Response) convincing that although the assessment of Stamp Duty, in the situations provided for in item No. 28.1 of TGIS, is carried out according to the rules of CIMI, the legislator reserves the aspects that require the necessary adaptations, such is the case of properties in sole ownership, although with floors or divisions capable of independent use (emphasis added), in which although Municipal Real Estate Tax is assessed in relation to each part capable of independent use "for purposes of Stamp Duty the property as a whole is relevant because the divisions capable of independent use are not deemed to be property, but only autonomous units in condominium ownership regime, in accordance with No. 4 of art. 2 of CIMI." (point 15 of the Response).

The issue is that, precisely, it lacks demonstration the reason why the "adaptations" to the rules of CIMI, advocated by the AT, should be accepted.

All considered, no reason is found for, in the matter of the scope of Stamp Duty provided for in item 28.1 of TGIS, to give to fractions of properties in "fee simple" ownership, endowed with autonomy, treatment different from that given to properties in condominium ownership, when in either of these situations Municipal Real Estate Tax is applied to the patrimonial value for tax purposes evidenced in the matrix for each of the autonomous units.

13.2. The Rationale of Items 28 and 28.1 of TGIS

The interpretation above sustained, resulting from the analysis of the letter of the law and its placement within the set of other applicable tax rules, is the most consonant with the spirit of the legislative amendments introduced by Law No. 55-A/2012, of 29 October.

As has already been highlighted in other arbitral decisions, "the legislator, in introducing this legislative innovation, considered as the determining element of tax capacity urban properties, with residential use, of high value (luxury), more rigorously, of value equal to or exceeding €1,000,000.00 on which a special Stamp Duty rate began to be applied, aiming to introduce a principle of taxation of wealth externalized in ownership, usufruct or right of surface of luxury urban properties with residential use. Therefore, the criterion was the application of the new rate to urban properties with residential use, whose patrimonial value for tax purposes is equal to or exceeding € 1,000,000.00". (...) "The rationale for the measure designated as 'special rate on the highest value residential urban properties' is based on the invocation of the principles of social equity and tax justice, calling to contribute in a more intense manner the holders of properties of high value intended for residence, applying the new special rate to 'houses of value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to a residence (house, autonomous unit or floor with independent use) expresses a tax capacity above the average and, as such, susceptible of determining a special contribution to ensure just allocation of the tax effort." [7]

Now, it seems entirely lacking in adherence to reality the sustentation of the thesis that the holding of fractions devoid of condominium ownership status evidences greater tax capacity than if they were provided with that nature….

On the contrary, in the majority of cases, as evidenced by Arbitral Decision No. 50/2013, "many of the existing properties in fee simple ownership are old, with undeniable social utility, as in many cases they accommodate tenants with modest and more accessible rents, factors that necessarily must be taken into account."

Thus, it is considered correct the interpretation that item 28 of TGIS does not encompass each of the floors, divisions or parts capable of independent use when only from their sum results a patrimonial value for tax purposes exceeding that provided for in the same item.

As decided in other arbitral proceedings, this tribunal understands that regarding the date of the establishment of the tax obligation, fiscal connection, determination of the tax base, assessment and payment of the Stamp Duty in question, the corresponding rules of CIMI are applicable, by express cross-reference of articles 5, No. 1, subparagraph u), 4, No. 6, 23, No. 7, 44, No. 5, 46, No. 5 and 49, No. 3, of CIS.

Subjecting to the new Stamp Duty autonomous parts without the legal status of condominium ownership and not subjecting any of the residential units if the property were in condominium ownership regime would constitute a violation of the constitutional principle of equality, treating equal situations differently.

Nor can one overlook the incoherence, in terms of the taxation of property, of the different treatment given to holders of fractions concentrated in the same property or dispersed in different properties….

In the case before us, ascertained that none of the "fractions" of either of the buildings in question presents, per se, "value equal to or exceeding 1 million euros," there is no place for the scope of item 28 provided for in the General Schedule of Stamp Duty.

14. Entitlement to Compensatory Interest

The Respondent sustains the thesis that even should the assessments be found to be illegal, compensatory interest is not due to the taxpayer because there is no error attributable to the services when the AT acts in conformance with "binding information." It is that, being bound by the principle of legality, it violated no legal or constitutional principle.

This reasoning would mean, ultimately, that an action of the Tax Administration deliberately grounded, object of superior confirmation, automatically translates the principle of legality, and cannot be considered "error" and that the administrative interpretation, provided that it is superiorly confirmed, constitutes the realization of the principle of legality, acquiring the same force as law.

There seems to exist here a possible confusion between, on the one hand, the current system of responsibility of the Administration in the face of applicable legislation at the time, and, perhaps still, with the question of the competence of the Administration to decide on issues of unconstitutionality not yet declared by the Constitutional Court.

As regards the responsibility of the AT for the payment of compensatory interest, article 43, No. 1 of LGT is quite clear in providing that: "compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services as a result of which payment of the tax debt was made in an amount exceeding the legally due amount."

It is worth noting that No. 2 of article 43 of LGT provides that there is also entitlement to compensatory interest in the situation of assessment made on the basis of the declaration of the taxpayer, but according to the interpretation contained in generic, published guidelines of the Administration[8], which clearly means the attribution to it of responsibility for error committed by the taxpayer itself if derived from an administrative legal interpretation, should it be contradicted by the courts or altered by the administration itself.

This system of entitlement to compensatory interest in favor of the taxpayer constitutes a form of indemnification by the AT "resulting from the forced unproductivity of the amounts disbursed by the taxpayer"[9] and already existed in the tax codes approved at the time of the tax reform in the 1960s[10]. The responsibility for error was, however, much more restricted: the law provided for an obligation to indemnify in situations of factual error[11].

Art. 24 of the Tax Procedure Code, approved by Decree-Law No. 154/91, of 23, broadened the entitlement to compensatory interest to all error attributable to the services, regardless of whether it is of fact or of law and the concept of functional fault now has a broad sense, does not depend on a gross or manifestly erroneous interpretation of the tax rules and comes to encompass error of law[12].

"This imputability of errors to the Administration is independent of proof of the existence of concrete fault of any of its organs, officials or agents, or even proof of the overall fault of the services". And account is taken of the service "globally considered," "independently of the fault of any of the persons or entities that comprise it, any illegality not resulting from an action of the liable subject will be fault of the services themselves".[13]

It is true that the use of the expression error and not vice or illegality reveals that only the vices of the act "errors as to the factual assumptions and error as to the legal assumptions" are encompassed, excluding vices of form and lack of competence.

The restriction to be made to the scope of article 43 of LGT is that the compensatory interest provided for therein encompasses only the decisions, annulling an administrative act or assessment, affecting the fiscal legal relationship, cases in which there was injury to a substantive legal situation and patrimonial obligation unjustly exacted[14] but not the restriction advocated by the AT in this action.

In this case, it is immaterial that the services acted in accordance with binding guidelines superiorly approved – the issue is whether the interpretation and application of the disputed rules translate or not an incorrect definition of the tax situation encompassed by the law in force.

Because "the tax administration is obliged, in the event of full or partial success of gracious claims or administrative appeals, or of judicial proceedings in favor of the taxable person, to the immediate and full reconstruction of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, under the terms and conditions provided for in law" (art. 100 of LGT).

On the other hand, neither is the question invokable here of, in Portuguese Constitutional Law, the Administration being unable to refuse to obey a rule that it considers unconstitutional, substituting itself for the bodies of oversight of constitutionality, unless there is at issue the violation of rights, freedoms and constitutional safeguards[15].

It is that, in the case before us, the interpretation and application of item 28.1 of TGIS to properties in fee simple ownership does not imply a judgment of constitutionality being sufficient the recourse to the rules of the Stamp Duty Code and CIMI, as well as Law No. 55-A/2012, resorting to all available elements of interpretation[16].

15. Conclusion

Thus, this arbitral tribunal concludes that the assessments of Stamp Duty, based on item 28/28.1 of TGIS, relating to each of the floors or parts capable of independent use, property of the Claimant, subject of the present proceedings, are vitiated by illegality because the said provisions cannot be interpreted in the sense of their application to floors or parts capable of independent use of a property in fee simple ownership, when only from the sum of each of those floors or parts is it possible to obtain a patrimonial value for tax purposes equal to or exceeding € 1,000,000.00 (one million euros), not exceeding the patrimonial value for tax purposes of each of the said floors or parts that legal threshold.

And, as results from the factuality established that none of the residential floors of the property in fee simple ownership that is the subject of this proceedings has patrimonial value equal to or exceeding €1,000,000.00, it is concluded that the legal assumption for the scope of the Stamp Duty provided for in item 28 of TGIS is not met.

And, for the reasons stated in the previous number, compensatory interest is due.

17. Decision

With the grounds stated, the arbitral tribunal decides:

a) To uphold the request for arbitral award and, accordingly, declare illegal the assessments of Stamp Duty contained in the assessment documents numbered 2013…; 2013…; 2013…; 2013… and 2013…, with the consequent annulment of those assessments, and refund of the amounts in question.

b) To uphold the request for compensatory interest, pursuant to articles 35, No. 1, and 43, No. 1, of LGT and article 61, No. 5, of CPPT.

c) To condemn the AT for costs.

18. Value of the Proceedings

In accordance with the provisions of No. 2 of art. 315 of CPC, in subparagraph a) of No. 1 of art. 97-A of CPPT and also No. 2 of art. 3 of the Costs Regulation in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 10,527.80 (ten thousand five hundred twenty-seven euros and eighty cents).

19. Costs

For the purposes of the provisions of No. 2 of art. 12 and No. 4 of art. 22 of RJAT and No. 4 of art. 4 of the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred eighteen euros), under the terms of Table I annexed to said Regulation, to be borne entirely by the Respondent.

Let notification be made.

Lisbon, 21 November 2014.

The Arbitrator

(Maria Manuela Roseiro)

[Text prepared by computer, pursuant to article 131, number 5 of the Code of Civil Procedure (CPC), applicable by cross-reference from article 29, No. 1, subparagraph e) of the Legal Regime for Tax Arbitration. The drafting of this decision is governed by the orthography prior to the Orthographic Agreement of 1990]

[1] Regarding the application of item 28 of TGIS in the case of properties in fee simple ownership, decisions are already published on the CAAD website, namely, in proceedings No. 50/2013-T; 132/2013-T; 181/2013-T; 182/2013-T; 183/2013-T; 185/2013-T; 240/2014-T; 248/2013-T; 268/2014-T; 280/2014-T.

[2] We will reproduce, in large part, the text of the decision rendered within the framework of CAAD, in proceedings No. 194/2014-T judged by a panel with the participation of the undersigned.

[3] The wording of this number was amended by Law No. 83-C/2013, of 31 December, now using the concept "residential property," but the assessments that are the subject of the present proceedings have reference to the year 2012.

[4] "Another aspect that must be highlighted in the matrix has to do with the need to make relevant the autonomy that, within the same property, can be attributed to each of its parts, functionally and economically independent. In these cases, the matrix registration must not only make reference to each of the parts but must make express reference to the patrimonial value corresponding to each of them" (Silvério Mateus and Freitas Corvelo, "Real Estate Property Taxes and Stamp Duty, Commented and Annotated," Engifisco, Lisbon 2005, pages 159 and 160). And the same authors further said (ibidem, p. 160): "This individualization of the autonomous parts of a property, applicable especially to urban properties, was justified within the scope of the former Assessed Property Tax in which the taxable income corresponded to the rent or rental value of each of those components, continued to be justified in the case of Municipal Tax in which the patrimonial value had underlying the actual or potential rent and continues to be pertinent under Stamp Duty, given that the valuation factors provided for in articles 38 and following may not be the same for all of these components (...) the fact that a property is or is not rented continues to have relevance for purposes of determining the patrimonial value for tax purposes both for purposes of Municipal Real Estate Tax and for Real Estate Transfer Tax (see Article 17 of Decree-Law 287/2003)" (they referred to the original wording "transitional regime for rented urban properties," a rule to be reviewed, according to its No. 5, when the law on urban rental was revised, which happened with Law No. 6/2006, of 27/02).

[5] On this aspect, and in line with the commentary cited in the previous note, see the grounds contained in decision No. 248/2013-T: "The individualization in the matrix of the functionally and economically independent parts of a property in sole ownership relates to reasons of a fiscal and extra-fiscal nature. On the fiscal level, this individualization has to do with the very determination of the patrimonial value for tax purposes, which constitutes the tax base for Municipal Real Estate Tax, given that the formula for determining that value, provided for in art. 38 of the same Code, includes indices that vary according to the use attributed to each of these parts. On the extra-fiscal level, this individualization continues to find justification in the relevance attributed to the patrimonial value for tax purposes of properties and their autonomous parts in the legislation on urban rental." It also mentions No. 1 of art. 15-O of Decree-Law No. 287/2003, of 12/11, amended by Law No. 60-A/2011, of 30/11 (providing that the safeguard clause relating to the increase in Municipal Real Estate Tax taxation resulting from the general assessment of urban properties is applicable per property or part of urban property that is subject to said assessment) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[6] As observed in Proc. 132/2013: "The rules (...) listed enshrine the principle of individualization of the independent parts of an urban property, even when not constituted in condominium ownership. That is, each part capable of independent use must be, for purposes of Municipal Real Estate Tax, valued in light of its specificities and use, resulting in an autonomous patrimonial value for tax purposes, individualizable and corresponding to each part capable of independent use."

[7] Excerpts from the Decision in proceedings No. 50/2014-T, also referring to Arbitral Decision in proceedings No. 48/2013-T, as to the analysis of the Discussion of the legislative proposal in the Parliament.

[8] "It is also considered that there is error attributable to the services in cases in which, although the assessment is made on the basis of the taxpayer's declaration, the latter followed, in its completion, the generic guidelines of the tax administration, duly published."

[9] Lima Guerreiro, LGT annotated, Ed. Rei dos Livros, p. 205.

[10] For example, articles 155, § 1, of the Surtax and Inheritance and Gift Tax Code, 140, § 1 of the Industrial Contribution Code, 145, §1, of the Tax on Capital Code, 45, §1, of the Gains Tax Code, 293, § 1, of the Real Property Tax Code, 57, § 1, of the Professional Tax Code, 62§1, of the Complementary Tax Code. In all these rules it was provided that with the annulment of the assessment, officially or by decision of the competent entity or court, interest would be counted, in the title of annulment, in favor of the taxpayer "whenever, the tax being paid, the Treasury is convinced in a gracious proceeding or judicial proceeding, of which in the assessment there was error of fact attributable to the services."

[11] "(...) was founded on the orientation of the Judgment of the Superior Administrative Court of 30 November 1977, on a peculiar type of extra-contractual responsibility of the State resulting from functional fault: the error had to be due to poor organization or negligence of the agents in order for it to be considered attributable to the services" (...). Interest "was not due if the officials acted with sufficient and normal diligence, just as the taxpayer was only subject to default interest when the delay was attributable to it." (Lima Guerreiro, op. cit. ibidem).

[12] Also Lima Guerreiro, idem, ibidem. Already in the validity of art. 24 of the Tax Procedure Code, the Constitutional Court, confirming a judgment of the Superior Administrative Court (of 11/04/1998, rendered in proc. 017796) came to rule "unconstitutional article 65, § 1, of the Tax on Capital Code, in the part in which it excludes the right of the taxpayer to compensatory interest when there has occurred manifest error of law of the Tax Administration," by violation of the constitutional principle of equality, given the different treatment of taxpayer (providing for situations of factual error and legal error) and the Treasury (only factual error). (Judgment 647/99, of 24 November 1999).

[13] Citations of commentaries of Jorge Lopes de Sousa, CPPT annotated, Ed. VISLIS, note to article 61.

[14] Cf. still Jorge Lopes de Sousa, CPPT annotated, Ed. VISLIS, note to article 61, and Judgment of the Superior Administrative Court of 5/5/1999, rec 5557-A. It should be noted, however, that art. 43 of LGT does not translate an exhaustive indication of the cases in which taxpayers are entitled to be indemnified by actions of the Tax Administration but a list of situations in which the existence of prejudice to taxpayers and the responsibility of that Administration for the occurrence of the same is to be presumed. In other cases, the right to indemnification for losses may be recognized but requiring the filing of the appropriate action for the realization of civil liability (cf. the author cited and Judgment of the Constitutional Court No. 83/2014, of 22 January 2014).

[15] Cf. Judgment of the Superior Administrative Court of 12 October 2011, in proc. 0860/10 and doctrine cited therein.

[16] In any event, in case of decision based on unconstitutionality, there would not be at issue the obligation of the Administration to have known of the question, but rather whether, the assessment annulled by decision in that sense, there would or would not be entitlement to compensatory interest. And, even in that case, it is believed to be settled that, not resulting the illegality from action of the liable subject, there would have to be reconstructed the hypothetical situation that would exist if the annulled acts had not been practiced, and the unjustly exacted amounts should be returned and compensatory interest paid under the terms of articles 43 of LGT and 61 of CPPT (see for example Judgments of the Superior Administrative Court of 09/10/2002, in proc. 789/02, and 14/07/2008, in proc. 204/08).