Summary
Full Decision
ARBITRAL DECISION
CAAD: Tax Arbitration
Case No. 302/2015-T
Subject: Stamp Tax, vertical ownership, item 28 of the General Table of Stamp Tax
REPORT
A - PARTIES
A…, S.A., with registered office at Av. …, …, …, … Lisbon and with Tax Identification Number …, hereinafter referred to as the Claimant or taxpayer.
AUTHORITY FOR TAX AND CUSTOMS (which succeeded the General Directorate of Taxation, by means of Decree-Law No. 118/2011, of 15 December) hereinafter referred to as the Respondent or AT.
The request for constitution of the arbitral tribunal was accepted on 13-05-2015 by the President of CAAD, and the Arbitral Tribunal was duly constituted on 28-07-2015 to examine and decide on the subject matter of the present case, and was automatically notified to the Authority for Tax and Customs on 28-07-2015.
The Claimant did not proceed with the appointment of an arbitrator, therefore, pursuant to the provisions of Article 6, paragraph 1, and Article 11, paragraph 1, subparagraph b) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated Dr. Paulo Ferreira Alves, and the appointment was accepted as legally provided.
On 09-07-2015, the parties were duly notified of this appointment and did not express any intention to refuse the appointment of the arbitrators, pursuant to Article 11, paragraph 1, subparagraphs a) and b) of the Legal Regime of Tax Arbitration (RJAT) and Articles 6 and 7 of the Ethics Code.
In accordance with the provision of Article 11, paragraph 1, subparagraph c) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the sole arbitral tribunal is duly constituted on 28-07-2015.
Both parties agree to waive the meeting provided for in Article 18 of the RJAT.
The arbitral tribunal is duly constituted. It is materially competent, pursuant to Articles 2, paragraph 1, subparagraph a), and 30, paragraph 1, of Decree-Law No. 10/2011, of 20 January.
The parties have legal personality and capacity, are legitimately constituted and are legally represented (Articles 4 and 10, paragraph 2, of the same decree and Article 1 of Ordinance No. 112-A/2011, of 22 March).
The case is not affected by any defects that would invalidate it.
B - CLAIM
The Claimant seeks a declaration of illegality of the tax assessment acts in respect of Stamp Tax: No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, which established a total tax payable of €31,578.20 (thirty-one thousand five hundred and seventy-eight euros and twenty cents).
C - CAUSE OF ACTION
To support its request for an arbitral pronouncement, the Claimant alleged, with a view to obtaining a declaration of illegality of the tax assessment acts in respect of Stamp Tax already described in point 1 of this Decision, in summary, the following:
The Claimant is the owner and legitimate proprietor of the urban property located at Praça …, … to …, Rua …, …, … to …, Praça …, …, … to …, …, … to … and …, … to … and Rua …, …, … and …, in Lisbon, which is registered in the urban property roll of the parish of ... under No. ….
The aforementioned property is an urban property in full ownership with floors or divisions capable of independent use.
The Claimant alleges that it is easily demonstrable that each of the divisions has a Tax Property Value (VPT) below one million euros and a differentiated assessment notice, all because the registration in the property roll of properties in full ownership, consisting of parts capable of independent use, follows the same rules as the registration of properties in horizontal ownership.
Thus, there is a manifest disproportion in the assessment, in that a property which per se has a VPT exceeding one million euros will receive the same treatment as a property in the condition of the property in question.
For purposes of taxation with respect to item 28 of the General Table of Stamp Tax, the AT cannot consider as the reference value the total value of the property, in the aspects that suit it.
The collection of Stamp Tax in the terms presented by the AT violates the spirit of the law, running contrary to the real intent of the legislator, for what was intended, solely and exclusively, was taxation on property considered to be luxury property, which does not correspond at all to the present case.
In the present case we are in the same situation, in that none of the floors intended for housing has a VPT equal to or exceeding €1,000,000.00, and therefore the legal condition for the incidence of Stamp Tax provided for in item 28 of the General Table is not met, and consequently the assessment acts should be annulled.
The Claimant is entitled to indemnificatory interest, pursuant to the combined provisions of Articles 43(1) of the General Tax Law (LGT) and 61 of the Tax Procedural Code (CPPT), calculated on €10,600.78 (ten thousand six hundred euros and seventy-eight cents), from the date of payment until full reimbursement of that amount.
The total value of the claim should be considered as the total amount of the tax, namely €31,578.20 (thirty-one thousand five hundred and seventy-eight euros and twenty cents).
D - RESPONSE OF THE RESPONDENT
The Respondent, duly notified for this purpose, did not submit its response in a timely manner.
E - FACTUAL BASIS
Before addressing these matters, it is necessary to present the factual matters relevant to their respective understanding and decision, which was carried out on the basis of documentary evidence and taking into account the facts alleged.
With respect to relevant factual matters, this tribunal establishes as proven the following facts:
The Claimant is the owner of an urban property located at Praça …, … to …, Rua …, …, … to …, Praça …, …, … to …, …, … to … and …, … to … and Rua …, …, … and …, in Lisbon, which is registered in the urban property roll of the parish of ... under No. ….
The property is in full ownership with floors or divisions capable of independent use, being described in the property roll as a "Property with 4 fronts, composed of Sub-basement, Basement, Ground Floor, 1st, 2nd, 3rd, 4th floors and Attic, intended for commerce, services, industry and housing, with a total of 8 floors, and 75 floors or divisions with independent use, and with a total property value of €4,883,710."
The Claimant was notified, with respect to the property in question, of a total tax amount payable of €31,578.20 (thirty-one thousand five hundred and seventy-eight euros and twenty cents) and of the Stamp Tax amount payable for the 1st installment of €10,600.78 (ten thousand six hundred euros and seventy-eight cents).
The sum of the individual VPTs of each of those divisions with residential use results in a value of €3,157,820.00 (three million one hundred fifty-seven thousand eight hundred twenty euros).
The assessment notices for the respective property relate to the following floors and divisions, whose property value of the said divisions with independent use, which make up the urban property, was determined separately, pursuant to the provisions of Article 7, paragraph 2, subparagraph b) of the Municipal Property Tax Code (CIMI), resulting in the issuance of the following tax acts, here challenged, respectively:
a) 2015 …, of 20/03/2015, with a tax collection of €804.12, and with a VPT of €80,410.00, relating to 1st - …;
b) 2015 …, of 20/03/2015, with a tax collection of €1,165.50, and with a VPT of €116,550.00, relating to 1st - …;
c) 2015 …, of 20/03/2015, with a tax collection of €1,329.60, and with a VPT of €132,960.00, relating to 1st - …;
d) 2015 …, of 20/03/2015, with a tax collection of €1,783.20, and with a VPT of €178,320.00, relating to 1 - …;
e) 2015 …, of 20/03/2015, with a tax collection of €723.50, and with a VPT of €72,350.00, relating to 1st D;
f) 2015 …, of 20/03/2015, with a tax collection of €1,975.20, and with a VPT of €197,520.00, relating to 1st E;
g) 2015 …, of 20/03/2015, with a tax collection of €867.12, and with a VPT of €86,710.00, relating to 2nd - …;
h) 2015 …, of 20/03/2015, with a tax collection of €1,145.22, and with a VPT of €114,520.00, relating to 2nd - …;
i) 2015 …, of 20/03/2015, with a tax collection of €1,448.40, and with a VPT of €144,840.00, relating to 2nd - …;
j) 2015 …, of 20/03/2015, with a tax collection of €1,922.82, and with a VPT of €192,280.00, relating to 2nd - …;
k) 2015 …, of 20/03/2015, with a tax collection of €816.00, and with a VPT of €81,600.00, relating to 2nd D;
l) 2015 …, of 20/03/2015, with a tax collection of €1,919.52, and with a VPT of €191,950.00, relating to 2nd E;
m) 2015 …, of 20/03/2015, with a tax collection of €849.24, and with a VPT of €84,920.00, relating to 3rd - …;
n) 2015 …, of 20/03/2015, with a tax collection of €1,029.12, and with a VPT of €102,910.00, relating to 3rd - …;
o) 2015 …, of 20/03/2015, with a tax collection of €1,520.22, and with a VPT of €152,020.00, relating to 3rd - …;
p) 2015 …, of 20/03/2015, with a tax collection of €1,840.62, and with a VPT of €184,060.00, relating to 3rd - …;
q) 2015 …, of 20/03/2015, with a tax collection of €814.80, and with a VPT of €81,480.00, relating to 3rd D;
r) 2015 …, of 20/03/2015, with a tax collection of €1,953.42, and with a VPT of €195,340.00, relating to 3rd E;
s) 2015 …, of 20/03/2015, with a tax collection of €689.94, and with a VPT of €68,990.00, relating to 4th D;
t) 2015 …, of 20/03/2015, with a tax collection of €1,595.10, and with a VPT of €159,510.00, relating to 4th E;
u) 2015 …, of 20/03/2015, with a tax collection of €700.92, and with a VPT of €70,090.00, relating to 4th - …;
v) 2015 …, of 20/03/2015, with a tax collection of €708.30, and with a VPT of €70,830.00, relating to 4th - …;
w) 2015 …, of 20/03/2015, with a tax collection of €1,544.64, and with a VPT of €154,460.00, relating to 4th - …;
x) 2015 …, of 20/03/2015, with a tax collection of €671.10, and with a VPT of €44,740.00, relating to ST …;
y) 2015 …, of 20/03/2015, with a tax collection of €556.32, and with a VPT of €55,630.00, relating to ST …;
z) 2015 …, of 20/03/2015, with a tax collection of €721.32, and with a VPT of €72,130.00, relating to ST …;
aa) 2015 …, of 20/03/2015, with a tax collection of €707.04, and with a VPT of €70,700.00, relating to ST ….
The property value of the building on the date of the assessments was €3,157,820.00 (three million one hundred fifty-seven thousand eight hundred twenty euros), respectively, with none of the parts or floors with residential use having a property value exceeding €1,000,000.00.
The AT assessed the stamp tax provided for in item No. 28 and 28.1 of the General Table of Stamp Tax (TGIS), as amended by Article 4 of Law No. 55-A/2012, of 29/10.
The Claimant proceeded to pay the total tax in the amount of €10,600.78 (ten thousand six hundred euros and seventy-eight cents), corresponding to the 1st installment, and proceeded to pay the 2nd installment in the same amount.
F - UNPROVEN FACTS
With respect to facts of interest to the decision of the case, contained in the challenge, not all of the objects of concrete analysis were proved; those not contained in the factuality described above were not proved.
G - ISSUES TO BE DECIDED
Given the positions of the parties assumed in the arguments presented, the central issues to be resolved by this tribunal are as follows, which must therefore be examined and decided:
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The preliminary issue of the validity of the submission presented by the respondent.
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The alleged illegality declared by the Claimant regarding the declaration of illegality of the tax assessment acts in respect of Stamp Tax, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015….
H - PRELIMINARY ISSUE OF THE VALIDITY OF THE SUBMISSION PRESENTED BY THE RESPONDENT
In the context of the present arbitral proceedings, the Respondent, as already mentioned, did not submit its response in a timely manner, within the thirty days granted pursuant to Article 17 of the RJAT.
The Respondent was notified by the Arbitral Tribunal on 17-08-2015, to present its response, to which was granted, pursuant to Article 17 of the Legal Regime of Tax Arbitration, approved by Decree-Law 10/2011, of 20 January, a period of 30 days to submit a response and, if desired, to request the production of additional evidence, as well as to send to the arbitral tribunal, pursuant to paragraph 2 of the cited article, a copy of the administrative file.
Pursuant to Article 17-A of the RJAT, the procedural deadline is suspended during judicial holidays.
On this basis, the deadline for submission of the Respondent's response would end on 1-10-2015.
The Respondent did not submit its response by that date.
The tribunal proceeded in accordance with the provisions of Article 18 of the RJAT to set the date for the holding of the first meeting, notice of which was given on 14-10-2015, and the said meeting was scheduled for 26-10-2015 at 16:00.
Following this notification, the Respondent filed a submission with the case on 21-10-2015, in which it stated: "With reference to the case above and at the margin identified, the Respondent Entity only upon notification made by e-mail on 14/10/2015, for the holding on 26/10/2015, at 16:00, of the meeting provided for in Article 18 of the Legal Regime of Tax Arbitration (RJAT), became aware that it had not submitted the Response provided for in Article 17 of the RJAT." (emphasis added)
It further requested: "IT IS REQUESTED that Your Excellency, within the scope of the powers of free conduct of proceedings granted by Article 19 of the RJAT, admit the present Submission containing in Parts I, II and III, the Response of the Tax Authority to the request for an arbitral pronouncement, and likewise, ensuring that the exercise of the right to be heard is properly assured, the position of the parties is fully established in the proceedings and supported by the means of evidence submitted by the Claimant, there is no exception that prevents examination on the merits, and there is no controversy regarding the facts, that the holding of the meeting of Article 18 of the RJAT scheduled for 26 October be dispensed with and the production of arguments, in accordance with the principles of expedition and procedural economy and the prohibition of useless acts established in Article 130 of the Code of Civil Procedure (CPC), subsidiarily applicable by subparagraph e) of Article 29 of the RJAT."
Parts I, II and III constitute the AT's response to the arbitral pronouncement, as the Respondent itself states.
In view of the above, this tribunal cannot accept the response of the AT on the grounds that it is untimely.
Pursuant to the principle of free conduct of proceedings, provided for in Article 19 of the RJAT, "The failure of any party to appear at any procedural act, the lack of defense, or the failure to produce any evidence requested do not prevent the continuation of proceedings and the consequent issuance of an arbitral decision based on the evidence produced, in accordance with the principle of free assessment of evidence and the autonomy of the arbitral tribunal in the conduct of proceedings."
In view of the above, the non-submission of a response does not constitute an admission of the facts, and it will therefore be incumbent upon this tribunal to decide on the basis of the elements attached to the proceedings, namely the administrative file.
I - MATTERS OF LAW
Given the positions of the parties assumed in the pleadings submitted, the central issue to be resolved by this arbitral tribunal consists of examining the legality of the stamp tax assessments, which affected the residential units of the claimant in the urban property described above, for violation of law, due to erroneous interpretation and application of item 28.1 of the TGIS as amended by Article 4 of Law No. 55-A/2012, of 29 October, and as amended by Law No. 83-C/2013, of 31 December.
In the case sub judice, it is necessary to determine whether the units subject to the tax fall within the scope of the stamp tax incidence criteria, pursuant to item No. 28 of the TGIS, as amended by Article 4 of Law No. 55-A/2012, of 29 October.
It is first necessary to verify whether the units have residential use, and second whether the VPT of the units as recorded in the property roll is equal to or exceeding €1,000,000.00. To do this, it is necessary to examine the fundamental question of what VPT of a property in vertical ownership (that is, not horizontal) should be considered for purposes of the said item. Whether the VPT corresponding to each of the parts of the property with residential use individually, or whether, instead, it is determined by the global VPT of the property, which would correspond to the sum of all VPTs of the residential units that compose it.
The factual matters have been established and proven, for which reason we now proceed to determine the law applicable to the disputed facts, giving priority, in compliance with the provision of subparagraph a) of paragraph 2 of Article 124 of the Tax Procedural Code (CPPT), to the defects whose verification would determine more stable and effective protection of the interests of the Claimant, with respect to the defect of law due to error regarding the conditions for the right to assess, regarding the issue of the classification of urban properties under the regime of full or vertical ownership, within the scope of the incidence of Article 28, paragraph 1 of the TGIS, introduced by Law No. 55-A/2012, of 29 October.
The amendment to the regime for the subjection to stamp tax of properties with residential use by the addition of item 28 to the General Table of Stamp Tax, effected by Article 4 of Law 55-A/2012, of 29/10, and more recently amended by Law No. 83-C/2013, of 31 December, now established the following taxable facts, through the following wording:
"28 – Ownership, usufruct or surface right of urban properties whose tax property value as recorded in the property roll, pursuant to the Municipal Property Tax Code (CIMI), is equal to or exceeding €1,000,000 – on the tax property value used for purposes of Municipal Property Tax:
28.1 – For residential property or for land for construction whose construction, authorized or envisaged, is for residential purposes, as provided in the Municipal Property Tax Code - 1%; (as amended by Law No. 83-C/2013, of 31 December)
28.2 – For property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, as listed by ordinance of the Minister of Finance – 7.5%."
The provisions of Article 6 of Law No. 55-A/2012 contain transitional provisions which established the rules relating to the assessment of the tax provided for in that item:
"1 – In 2012, the following rules must be observed with respect to the assessment of the stamp tax provided for in item No. 28 of the respective General Table:
a) The taxable event occurs on 31 October 2012;
b) The taxpayer of the tax is the one mentioned in paragraph 4 of Article 2 of the Stamp Tax Code on the date referred to in the preceding subparagraph;
c) The tax property value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Municipal Property Tax Code by reference to the year 2011;
d) The assessment of the tax by the Authority for Tax and Customs must be carried out by the end of November 2012;
e) The tax must be paid, in a single installment, by the taxpayers by 20 December 2012;
f) The applicable rates are as follows:
i) Properties with residential use assessed pursuant to the Municipal Property Tax Code: 0.5%;
ii) Properties with residential use not yet assessed pursuant to the Municipal Property Tax Code: 0.8%;
iii) Urban properties when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, as listed by ordinance of the Minister of Finance: 7.5%.
2 – In 2013, the assessment of the stamp tax provided for in item No. 28 of the respective General Table shall be based on the same tax property value used for purposes of the municipal property tax to be assessed in that year.
3 – The failure to deliver, in whole or in part, within the indicated period, of the amounts assessed as stamp tax constitutes a tax violation, punishable pursuant to law."
On the interpretation of this statute, Decision 53/2013-T has already ruled, which states:
"The term used in the said item 28.1 and in subparagraphs i) and ii) of subparagraph f) of paragraph 1 of Article 6 of Law 55-A/2012 is a concept not used in any other tax legislation in these precise terms, which is that of 'property with residential use'. Specifically in the CIMI, which in various norms of the Stamp Tax Code introduced by that Law is indicated as a statute of subsidiary application with respect to the tax provided for in the said item No. 28 [Articles 2, paragraph 4, 3, paragraph 3, subparagraph u), 5, subparagraph u), 23, paragraph 7, and 46 and 67 of the Stamp Tax Code], such a concept as defined in those terms is not used."
As to the concept of properties, it is necessary for this to resort to the concepts of properties used in the CIMI, in which the types of properties are enumerated in its Articles 2 to 6, which are transcribed as follows:
Article 2
Concept of Property
1 – For purposes of this Code, property is any parcel of land, including waters, plantations, buildings and constructions of any kind incorporated in or situated on it, with a character of permanence, insofar as it forms part of the patrimony of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances mentioned above, endowed with economic autonomy in relation to the land on which they are situated, although located on a parcel of land that is an integral part of a different patrimony or does not have a patrimonial nature.
2 – Buildings or constructions, even if movable by nature, are considered to have a character of permanence when they are devoted to non-transitory purposes.
3 – The character of permanence is presumed when buildings or constructions have been situated in the same location for a period exceeding one year.
4 – For purposes of this tax, each autonomous unit, under the regime of horizontal ownership, is considered to constitute a property.
Article 3
Rural Properties
1 – Rural properties are land situated outside an urban settlement that is not to be classified as land for construction, pursuant to paragraph 3 of Article 6, provided that:
a) They are devoted or, in the absence of concrete use, have as their normal purpose a use generating agricultural income, such as are considered for purposes of the personal income tax (IRS);
b) Not having the use indicated in the preceding subparagraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.
2 – Rural properties also include land situated within an urban settlement, provided that, by force of a legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact being used for this purpose.
3 – Rural properties also include:
a) Buildings and constructions directly devoted to the production of agricultural income, when situated on the land referred to in the preceding paragraphs;
b) Waters and plantations in the situations referred to in paragraph 1 of Article 2.
4 – For purposes of this Code, urban settlements are considered, in addition to those situated within legally fixed perimeters, clusters with a minimum of 10 units served by public-use roads, with their perimeter delimited by points distanced 50 m from the axis of the roads, in the transverse direction, and 20 m from the last building, in the direction of the roads.
Article 4
Urban Properties
Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article.
Article 5
Mixed Properties
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Whenever a property has rural and urban parts, it is classified, in its entirety, in accordance with the principal part.
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If neither of the parts can be classified as principal, the property is considered to be mixed.
Article 6
Types of Urban Properties
1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Other.
2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, that have such purposes as their normal destination.
3 – Land for construction shall be considered land situated within or outside an urban settlement for which a building or development license or authorization has been granted, prior notification has been admitted, or favorable prior information has been issued for a development or construction operation, and also that which has been declared as such in the acquisition deed, with the exception of land where the competent entities prohibit any of those operations, namely land located in green zones, protected areas or which, in accordance with municipal land use plans, are devoted to public spaces, infrastructure or equipment. (As amended by Law No. 64-A/08, of 31-12)
4 – The provision of subparagraph d) of paragraph 1 includes land situated within an urban settlement that is not land for construction nor is covered by paragraph 2 of Article 3, as well as buildings and constructions licensed or, in the absence of a license, that have as their normal purpose purposes other than those referred to in paragraph 2, and also those excluded by paragraph 3.
With respect to the interpretation of tax norms, for the case sub judice, Article 11 of the General Tax Law tells us, which establishes the essential rules for the interpretation of tax laws, and does so in the following terms:
Article 11
Interpretation
In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.
Whenever, in tax norms, terms peculiar to other branches of law are used, they must be interpreted in the same sense as they have there, unless otherwise follows directly from the law.
If doubt persists as to the meaning of the applicable norms of incidence, account should be taken of the economic substance of the taxable facts.
Gaps resulting from tax norms covered by the constitutional reserve of law of the Assembly of the Republic are not susceptible to integration by analogy.
To this provision, it is also necessary to resort to the general principles of interpretation of laws, to which paragraph 1 of Article 11 of the LGT refers, which are established in Article 9 of the Civil Code, which establishes the following:
Article 9
Interpretation of Law
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Interpretation must not be confined to the letter of the law, but must reconstruct, from the texts, the legislative intent, taking particularly into account the unity of the legal system, the circumstances in which the law was enacted, and the specific conditions of the time in which it is applied.
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However, the interpreter cannot regard as the legislative intent anything that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.
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In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its intent in adequate terms.
Given the legal grounds already expounded, and in view of the articles transcribed and cited, the following hypotheses for interpretation of the concept of "property with residential use" arise, as to the Concept of "property with residential use" as referring to residential properties, and as to the Concept of "property with residential use" as a concept distinct from "residential properties".
It follows from Articles 2 to 6 of the CIMI transcribed above that the legislator does not use, in the classification of properties, the concept of "property with residential use"; likewise, this concept, with this terminology, is not found in any other statute.
The lack of exact terminological correspondence of the concept of "property with residential use" with any other used in other statutes can give rise to various interpretative hypotheses.
The text of the law, being the starting point for the interpretation of the expression "properties with residential use", being on the basis of it that the "legislative intent" must be reconstructed, as required by paragraph 1 of Article 9 of the Civil Code, applicable by force of the provision of Article 11, paragraph 1, of the LGT, already transcribed.
On the interpretation of the concept of "property with residential use", it is important to cite Decision 53/2013-T, which has already ruled on this matter. That Decision sustains two interpretative hypotheses for the concept of "property with residential use", respectively in the same sense as the present decision, as to the concept of "property with residential use" as referring to residential properties, and as to the Concept of "property with residential use" as a concept distinct from "residential properties".
Decision 53/2013-T writes, on the concept of "property with residential use" as referring to residential properties:
"The concept most closely corresponding to the literal wording of this expression used is manifestly that of 'residential properties', defined in paragraph 2 of Article 6 of the CIMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of a license, that have residential purposes as their normal destination.
If the expression 'property with residential use' is understood to coincide with that of 'residential properties', it is manifest that the assessments would be affected by error regarding the factual and legal conditions, since all the properties with respect to which Stamp Tax was assessed under the said item No. 28.1 are land for construction, without any building or construction, which would be required to fulfill that concept of 'residential properties'.
For this reason, if the interpretation is adopted that 'property with residential use' means 'residential property', the assessments whose declaration of illegality is requested will be illegal, as there is no building or construction on any of the land parcels.
However, the non-coincidence of the terms of the expression used in item No. 28.1 of the TGIS with what is extracted from paragraph 2 of Article 6 of the CIMI suggests that it was not intended to use the same concept."
On the interpretation of the second hypothesis: Concept of "property with residential use" as a concept distinct from "residential properties", we again cite Decision 53/2013-T, in which it states:
"The word 'affectation', in this context of use of a property, has the meaning of 'the action of devoting something to a specific use'. ( [3] )
'When, as is normally the case, the norms (legislative formulas) have more than one meaning, then the positive function of the text is expressed in giving stronger support to or suggesting more strongly one of the possible meanings. For among the possible meanings, some will correspond to the more natural and direct meaning of the expressions used, while others will fit into the verbal framework of the norm only in a forced, artificial way. Now, in the absence of other elements that would lead to the choice of the less immediate meaning of the text, the interpreter should opt in principle for that meaning that better and more directly corresponds to the natural meaning of the verbal expressions used, and specifically to their legal-technical meaning, in the supposed (not always accurate) that the legislator knew how to correctly express its intent'. ( [4] )
The relevance of the text of the law is especially emphasized in the interpretation of norms of incidence of Stamp Tax, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on property, on acts, etc.), which leaves little room for the application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.
The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this item No. 28.1, hastily included at the margin of the General State Budget, by a fiscal legislator without perceptible overall fiscal direction, which successively implements successive norms of fiscal burden increases as the fortunes of budget implementation shift, the impositions of international institutional creditors (represented by the 'troika') and the oversight of the Constitutional Court.
In truth, although in the 'Statement of Reasons' of the Bill No. 96/XII/2.ª ( [5] ), on which Law No. 55-A/2012 was based, reference is made to the laudable concern of the Government to 'strengthen the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices for compliance with the adjustment program' and its commitment 'to ensure that the distribution of these sacrifices will be made by all and not just by those who live from the income of their work', it is manifest, on the one hand, that these equity reasons, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and, on the other hand, that the scope of item No. 28.1, by taxing additionally properties with residential use and not also properties that do not have it, suggests that the concerns for social equity and the proclaimed intention of distributing the sacrifices among all affect far more some than properly all.
In this context, as there are no sure interpretative elements that allow the detection of legislative coherence in the solution adopted in the said item No. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in light of paragraph 3 of Article 9 of the Civil Code), the text of the legal provision must be the primary element of interpretation, in accordance with the presumption, imposed by the same paragraph 3 of Article 9, that the legislator knew how to express its intent in adequate terms.
In view of those meanings of the words 'affectation' and 'affect', which are 'to assign the destination to' or 'to apply', the formula used in that item No. 28.1 of the TGIS manifestly encompasses properties that are already devoted to residential purposes, and thus it matters to inquire whether it will also encompass properties that, although not yet devoted to residential purposes, are assigned to them and those whose destination is unknown. (…)
For this reason, it will be necessary to clarify when a property can be understood to be devoted to residential purposes, specifically if it is when this destination is fixed for it in a licensing act or similar, or only when the actual assignment of this destination is materialized.
From the outset, the comparison of item No. 28.1 of the TGIS with paragraph 2 of Article 6 of the CIMI, which defines the concept of residential properties, manifestly points in the direction that an actual affectation is necessary.
In truth, a building or construction licensed for housing or, even without a license, but which has housing as its normal purpose, is, in light of paragraph 2 of that Article 6, a residential property.
For this reason, on the assumption that the legislator of Law No. 55-A/2012 knew how to express its intent in adequate terms (as required by Article 9, paragraph 3, of the Civil Code which one must presume), if it were intended to refer to those buildings already licensed for housing or that have housing as their normal purpose, it would certainly have used the concept of 'residential properties', which would perfectly and clearly express its intent, in light of the definition given by that paragraph 2 of Article 6 of the CIMI.
Consequently, it must be presumed that the use of a different expression is intended to indicate a different reality, and therefore, in good hermeneutics, 'property with residential use' cannot be a property merely licensed for housing or intended for that purpose (that is, it will not suffice that it be a 'residential property'), and must be a property that is already actually devoted to that purpose.
That this is the sense of the expression 'affectation', in the same context of classification of properties as does the CIMI, is confirmed by Article 3, which, with respect to rural properties, makes reference to those 'that are devoted or, in the absence of concrete use, have as their normal purpose use generating agricultural income', which shows that the affectation is concrete, actual. In truth, as can be seen from the latter part of this text, a property may have a given use as its purpose and be or not be devoted to it, which shows that affectation is, at the level of the connection of a property to a given use, something more intense than mere purpose and that may or may not occur, downstream of this and not upstream. ( [6] )
The correctness of this interpretation in the sense that only properties that are actually devoted to housing are included in the scope of item No. 28.1 of the TGIS is also confirmed by the perceivable ratio legis of the restriction of the field of application of the norm to properties with residential use, in the context of the 'circumstances in which the law was enacted and the specific conditions of the time in which it is applied', which Article 9, paragraph 1, of the Civil Code also establishes as interpretative elements. ( [7] ).
From the outset, the limitation of the taxation in Stamp Tax to 'properties with residential use' makes it possible to perceive that it was not intended to encompass in the scope of incidence of the tax properties devoted to services, industry or commerce, that is, properties devoted to economic activity, which is understandable in a context in which, as is notorious, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historic maximum levels, with an avalanche of business closures resulting from economic unsustainability. (bold in original)
With this situation in mind and being well known and public that the reanimation of economic activity and the increase of exports are the doors out of the crisis, it is understandable that legislative measures were not taken that would hamper economic activity, specifically the increase in the tax burden that hampers it and affects competitiveness in international terms.
For this reason, it can be concluded that the available interpretative elements, including the 'circumstances in which the law was enacted and the specific conditions of the time in which it is applied', clearly point in the direction of not having intended to encompass in the scope of incidence of item No. 28.1 situations of properties that are not yet devoted to housing, namely land for construction held by companies. ( [8] )"
Given the above, it is verified that the 39 units intended for housing are encompassed by the norm of incidence of item 28.1, as they are urban properties and properties with residential use, the concept of which results from Article 2 of the CIMI.
However, we must now decide, for purposes of application of item No. 28 of the TGIS, what VPT to consider in properties under vertical (that is, not horizontal) regime—whether individually determined by the VPT corresponding to each of the parts of the property with residential use, or whether determined by the global VPT of the property, which would correspond to the sum of all VPTs of the residential units that compose it.
On this matter, the Arbitral Tribunal of the CAAD has already decided through Decision No. 50/2013-T and 132/2013-T.
For purposes of the case sub-judice, it is important to note that Decision 50/2013-T tells us, regarding the treatment to be given for purposes of item 28.1 of the TGIS to properties in vertical ownership and cumulatively what VPT (individual or global) to consider:
"From this we can conclude that, in the view of the legislator, the legal-formal rigor of the concrete situation of the property is not important, but rather its normal use, the purpose to which the property is devoted. We also conclude that, for the legislator, the situation of the property in vertical or horizontal ownership was not relevant, as no reference or distinction is made between them. What is relevant is the material truth underlying its existence as an urban property and its use."
It is also important to note from the respective decision:
"Using the criterion that the law itself introduced in Article 67, paragraph 2 of the Stamp Tax Code, 'to matters not regulated in this code relating to item 28 of the General Table, the following are subsidiarily applied'. ( [article references])
Therefore, being so, considering that the registration in the property roll of properties in vertical ownership, consisting of different parts, floors or divisions with independent use, pursuant to the CIMI, follows the same rules of registration of properties in horizontal ownership, with the respective Municipal Property Tax, as well as the new Stamp Tax, being assessed individually in relation to each of the parts, there is no doubt that the legal criterion for defining the incidence of the new tax must be the same. (…)
Therefore, if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax.
Thus, there would be incidence of the new stamp tax only if any of the parts, floors or divisions with independent use presented a VPT exceeding €1,000,000.00.
The AT cannot therefore consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule for purposes of the CIMI, and this is the code applicable to matters not regulated with respect to item 28 of the TGIS.
The criterion sought by the AT, of considering the value of the sum of the VPTs attributed to the parts, floors or divisions with independent use, on the grounds that the property is not in the regime of horizontal ownership, finds no legal support and is contrary to the criterion that results from being applicable for purposes of the CIMI and, by referral, for purposes of Stamp Tax.
To which is added the fact that the law itself expressly establishes, in the final part of item 28 of the TGIS, that the Stamp Tax to affect urban properties of value equal to or exceeding €1,000,000.00 – 'on the tax property value used for purposes of Municipal Property Tax.'.
Thus, the adoption of the criterion defended by the AT violates the principles of legality and fiscal equality, as well as the prevalence of material truth over legal-formal reality.
The fiscal legislator in Article 12, paragraph 3 of the CIMI states that 'each floor or part of a property capable of independent use shall be considered separately in the property roll registration, which also separately identifies its respective property value', does not make any distinction as to the regime of properties that are in horizontal or vertical ownership. If the property were in the regime of horizontal ownership, none of its residential units would be subject to the incidence of the new tax, and therefore the AT cannot treat equal situations differently.
In the same sense, the decision of the arbitral tribunal of the CAAD, No. 132/2013-T, decided:
"Furthermore, allowing differentiation of treatment could produce results that are incomprehensible from a legal point of view and that violate the objectives that the legislator said it had for adding item No. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the Respondent: a citizen who is the owner of a property in full ownership intended for housing, with the global value of autonomous units equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, is subject to an annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics as the previous one but which has been constituted in horizontal ownership, with the global value of autonomous units equally equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, will not be subject to taxation under the said item No. 28...
On the other hand, one could ask: if such units have the same owner, why does it not make sense to aggregate, for purposes of taxation, their respective VPTs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 units has a VPT less than €1,000,000.00, would be subject to taxation if – if such aggregation were allowed – the global VPT exceeded that value; whereas another citizen with identical 20 units distributed among 5, 10 or 20 properties would not be subject to any taxation under the said item No. 28...
If this line of reasoning makes sense – thereby justifying the non-aggregation of VPTs of units of properties in horizontal ownership – there is no plausible reason why the same should not be applied to the autonomous units of properties in full ownership.
Observing now the case under analysis, it is noted that the VPTs of the floors (autonomous units) of the property with residential use vary between €104,140.00 and €113,780.00, and therefore any one of them is less than €1,000,000.00. From this it is concluded, as a result of what has been stated, that the stamp tax referred to in item No. 28 of the TGIS cannot affect the same, and therefore the tax assessment acts challenged by the claimant are illegal."
Given the above, and applying what the above-transcribed decisions tell us to the present case, it follows that for purposes of application of item 28 of the TGIS to properties in vertical ownership, the same rules of the CIMI that apply to properties in horizontal ownership are applied, and in the same sense the VPT for purposes of application of the item is the individual VPT of each independent residential unit, and in the present case none of the units exceeds the incidence criterion of €1,000,000.00.
Material truth is that which is imposed as the determining criterion of taxpaying capacity and not mere legal-formal reality of the property, since the constitution of horizontal ownership implies merely a legal alteration of the property, not even requiring a new assessment, which fact is not coherent with the decision of the AT to tax the residential units of a property in vertical ownership, based on the global VPT of the property and not on that which is actually attributed to each unit.
The current legal regime does not impose an obligation to constitute horizontal ownership, and therefore the action of the AT translates into arbitrary and illegal discrimination. The AT 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 fiscal legality provided for in Article 103, paragraph [number], of the Constitution of the Portuguese Republic, and also the principles of fiscal justice, equality and proportionality.
As none of the units intended for housing has a property value equal to or exceeding €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal condition for the incidence of Stamp Tax provided for in Item 28 of the TGIS is not met.
Thus, this tribunal concludes that the assessment assessments sub judice should be declared illegal, as they are affected by a defect of violation of that item No. 28.1, due to error regarding the legal conditions, which justifies the declaration of its illegality and annulment (Article 135 of the Administrative Procedure Code - CPA).
J - INDEMNIFICATORY INTEREST
The Claimant further petitions for the payment of indemnificatory interest.
In view of the above, the assessment of Stamp Tax, in the part covered by the annulment, which will be decreed, results from errors of fact and law attributable exclusively to the tax administration, insofar as the Claimant fulfilled its duty to declare and those errors were committed by the administration, and the Claimant could not fail to be aware of different understandings.
In truth, as it is demonstrated that the Claimant paid the impugned tax in part in an amount higher than what is due, by force of the provisions of Articles 61 of the Tax Procedural Code and 43 of the General Tax Law, the Claimant is entitled to the indemnificatory interest owed, such interest to be calculated from the date of payment of the undue (annulled) tax until the date of issuance of the respective credit note, with the period for such payment being calculated from the beginning of the period for the voluntary execution of this decision (Article 61, paragraphs 2 to 5, of the Tax Procedural Code), all at the rate calculated in accordance with the provisions of paragraph 4 of Article 43 of the General Tax Law.
The Claimant's claim is granted.
L - DECISION
Therefore, in view of all the above, this Arbitral Tribunal decides:
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To declare well-founded the request for declaration of illegality of the tax assessment acts in respect of Stamp Tax, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, No. 2015…, which fixed a total tax amount payable of €31,578.20 (thirty-one thousand five hundred and seventy-eight euros and twenty cents), for defect of violation of law as to the norm contained in item 28, paragraph 1, due to error regarding the legal conditions, which justifies the declaration of its illegality and annulment.
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To condemn the Respondent to restore to the Claimant the amount improperly assessed and paid, plus the payment of indemnificatory interest already accrued relating to the period that elapsed between the time of payment, to be calculated on the amount improperly assessed, as well as in the payment of indemnificatory interest accruing from this latter date, all in accordance with paragraphs 2 to 5 of Article 61 of the Tax Procedural Code and at the rate calculated in accordance with the provisions of paragraph 4 of Article 43 of the General Tax Law until full reimbursement.
The value of the case is set at €31,578.20 of the assessment value, taking into account the economic value of the case assessed by the value of the tax assessments challenged, and accordingly the costs are fixed in the amount thereof at €1,836.00 (one thousand eight hundred thirty-six euros), to be borne by the Respondent in accordance with Article 12, paragraph 2 of the Tax Arbitration Regime, Article 4 of the Regulation of Tax Arbitration Procedure and Table I attached thereto – paragraph 10 of Article 35, and paragraphs 1, 4 and 5 of Article 43 of the General Tax Law, Articles 5, paragraph 1, subparagraph a) of the Tax Procedural Regulation, 97-A, paragraph 1, subparagraph a) of the Tax Procedural Code and 559 of the Civil Procedure Code).
Notify.
Lisbon, 9 November 2015.
The Arbitrator
Paulo Ferreira Alves
[1] On this matter, the decisions of the Arbitral Tribunal of the CAAD have already ruled, No. 42/2013-T, 48/2013-T, 49/2013-T
[2] On the interpretation of the concept of 'property with residential use' for purposes of item 28.1 of the TGIS, see the decisions issued by the Arbitral Tribunal of the CAAD in cases No. 42/2013; 48/2013; 49/2013; 53/2013; 75/2013; 158/2013; 251/2013; 310/2013.
[3] Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, Volume I, page 102.
[4] BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 182.
[5] Bill No. 99/XII/2.ª is available at http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=37245
[6] Other norms of the CIMI show that the term 'affectation' is used to reference situations already existing and not merely future ones, even if foreseeable, such as 'purpose'. This is the case of Article 9 of the CIMI, which, after establishing that 'the tax is due from' 'the 4th year following, inclusive, that in which land for construction was first recorded in the inventory of a company whose object is the construction of buildings for sale' or 'the 3rd year following, inclusive, that in which a property was first recorded in the inventory of a company whose object is its sale' [subparagraphs d) and e) of paragraph 1], determines that 'for purposes of the provisions of subparagraphs d) and e) of paragraph 1, the taxpayers must communicate to the tax office in the area of the property, within 60 days of the date of the event triggering their application, the affectation of the properties to such purposes'. The 'affectation of the properties to such purposes', in the context of this Article 9, is reduced to the concrete assignment to the properties of the purpose 'for sale', materialized by their recording in inventory, it not being sufficient that they have been constructed or acquired with a view to their sale.
[7] Not contemplated in this approach are the special cases provided for in item No. 28.2, of ownership of the properties by legal entities resident in a country, territory or region subject to a clearly more favorable tax regime, as listed by ordinance of the Minister of Finance, to which, as in other norms, strong tax penalties are assigned, as these are situations normally associated with tax evasion.
[8] Outside the special cases provided for in item No. 28.2.
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