Summary
Full Decision
ARBITRAL DECISION
I. REPORT
A…, in his capacity as head of household of the Undivided Estate opened by the death of B…, NIF…, domiciled in Rua …, no.…, …, in Lisbon, filed a request for constitution of a singular Arbitral Tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law no. 10/2011 of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (hereinafter AT) is the Respondent, with the objective of obtaining a declaration of illegality of the Stamp Duty assessment act relating to the year 2015, in the total amount of €11,148.50.
The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 6.06.2016 and was automatically notified to the AT.
In accordance with the provisions of subsection c) of Article 11, paragraph 1 of the RJAT, the singular Arbitral Tribunal was constituted on 31.08.2016.
The AT responded, defending the lack of merit of the request.
The hearing referred to in Article 18 of the RJAT was dispensed with and the holding of final arguments, given the nature of the matters contained in the case file.
The Arbitral Tribunal is regularly constituted and is materially competent, in accordance with subsection a) of Article 2, paragraph 1 of the RJAT.
The parties have standing and legal capacity, are legitimate and are represented (Article 4 and paragraph 2 of Article 10 of the RJAT and Article 1 of Order no. 112/2011 of 22 March).
There are no irregularities, exceptions or preliminary questions that prevent the immediate examination of the merits of the case.
II. FACTS
Based on the elements contained in the case file, the following facts are deemed proved:
A) The Applicant, in her capacity as head of household of the Undivided Estate opened by the death of B…, is the owner and legitimate proprietor of an urban property registered in the urban property matrix of the parish of … under number…;
B) The said property is an urban property in full ownership with storeys or divisions capable of independent use, described as an urban property composed of shops, ground floor and 4 storeys, porter's dwelling, with 3 divisions and 5 floors;
C) The Applicant was notified, in the total amount of €11,148.50 (eleven thousand, one hundred and forty-eight Euros and fifty cents), of the following Stamp Duty assessment acts, relating to the property … …, relating to the year 2015:
· Assessment 2015…, with taxable matter of €57,650, in the amount of €576.50;
· Assessment 2015…, with taxable matter of €48,240, in the amount of €482.40;
· Assessment 2015…, with taxable matter of €65,840, in the amount of €658.40;
· Assessment 2015…, with taxable matter of €60,910, in the amount of €609.10;
· Assessment 2015…, with taxable matter of €60,910, in the amount of €609.10;
· Assessment 2015…, with taxable matter of €65,840, in the amount of €658.40;
· Assessment 2015…, with taxable matter of €60,910, in the amount of €609.10;
· Assessment 2015…, with taxable matter of €65,840, in the amount of €658.40;
· Assessment 2015…, with taxable matter of €60,190, in the amount of €609.10;
· Assessment 2015… with taxable matter of €65,190, in the amount of €651.90;
· Assessment 2015… with taxable matter of €60,300, in the amount of €603.00;
· Assessment 2015… with taxable matter of €60,300, in the amount of €603.00;
· Assessment 2015… with taxable matter of €65,840, in the amount of €658.40;
· Assessment 2015… with taxable matter of €65,190, in the amount of €651.90;
· Assessment 2015… with taxable matter of €60,300, in the amount of €603.40;
· Assessment 2015… with taxable matter of €60,300, in the amount of €603.00;
· Assessment 2015… with taxable matter of €65,190, in the amount of €651.90;
· Assessment 2015… with taxable matter of €65,190, in the amount of €651.90.
D) The Taxable Patrimony Value (VPT) of the storeys and divisions identified was determined separately, in accordance with the provisions of Article 7, paragraph 2, subsection b) of the Code of Municipal Property Tax;
E) Given that the said divisions are intended for housing, with the global VPT being greater than €1,000,000 (one million euros):
F) The Applicant filed a request for arbitral review of the Stamp Duty assessment act relating to the year 2015, in the total amount of €11,148.50;
There are no facts relevant to the decision of the case that should be considered unproved.
This Tribunal formed its conviction based on consideration of the documents attached to the case file by the Parties.
III. LAW
The principal question that arises in the present case comes down to determining what is the taxable patrimony value relevant for the purposes of applying item 28 and 28.1 of the General Table of Stamp Duty (TGIS) with regard to urban residential properties constituted in a regime of vertical ownership, which comprise storeys or divisions capable of independent use.
To this end, the Applicant alleges in its request for arbitral review the following:
Pursuant to paragraph 3 of Article 103 of the Constitution of the Portuguese Republic: "No one may be required to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature, or whose assessment and collection are not carried out in accordance with the law."
The assessment in question, given the manifest non-existence of one of the legal prerequisites of the tax fact, is therefore null and void;
Failing that, subsidiarily, the Stamp Duty assessment which is the subject of the present request is flawed by error, both as to the factual prerequisites and as to the rate applicable to the tax in question;
In fact, it is expressly stated in each of the payment documents of the first instalment of the annual Stamp Duty assessment that they refer to each of the storeys of the urban property located in the parish of …, in Lisbon, with the matriculation article… and relates to the tax period of the year 2015;
It so happens that the property in question is not constituted in horizontal ownership and, therefore, the assessment cannot be levied on each of these, on pain of error as to the factual prerequisites.
The legal requirement relating to the taxable patrimony value contained in Article 4 and Law no. 55-A/2012 and Item 28 of the TGIS is not fulfilled, since none of the units subject to assessment reaches the taxable patrimony value of €1,000,000.00;
Finally, the legislator in introducing item 28.1 considered as the determining element of contributory capacity urban properties with residential designation, of high value (luxury), more precisely, of value equal to or greater than €1,000,000, on which the special stamp duty rate began to apply, intending to introduce a principle of taxation on wealth manifested in the ownership, usufruct or right of superficies of urban luxury properties with residential designation.
Clearly the legislator understood that this value, when imputed to a dwelling translates a contributory capacity above the average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden.
In this way, it is illegal and unconstitutional to consider as the reference value that corresponding to the sum of the VPT attributed to each part or division. Firstly, because that would be a clear violation of the principle of equality and proportionality in tax matters.
The Tax Administration must be ordered to reimburse the Applicant for all amounts paid by virtue of the request to suspend executions with expenses resulting from any provision of guarantees, specifically, commissions relating to the issuance thereof, fees, interest and other banking charges to be quantified as soon as they are effectively determined and of which the Applicant will provide notice within the scope of this arbitral process, including not only those relating to the first instalment, but also subsequent instalments, arising from the annual assessment that is the subject of the present challenge.
For its part, the AT alleges, in summary, the following:
The subjection to Stamp Duty of item 28.1 of the General Table attached to the Stamp Duty Code results from the combination of two facts: residential designation and the taxable patrimony value of the urban property registered in the matrix being equal to or greater than €1,000,000.00;
The property was valued in 2015, taking into account the residential and commercial destination.
The property is registered in the matrix under the regime of full ownership, with the property comprising 22 storeys/divisions with independent use.
For the calculation of VPT, the coefficient varies according to its designation, and since the total taxable patrimony value of the property relating to the divisions intended for housing is greater than €1,000,000.00, the coefficient of allocation applied was 1.00 and 1.20 for the divisions intended for commerce.
Being this the matriculation information relating to the properties in question, in accordance with Article 23, paragraph 7 of the Stamp Duty Code, the Stamp Duty assessment in question was carried out by the Tax Administration, taking into account the nature of urban properties, namely their divisions intended for housing, on the date of the tax fact, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code.
As for the taxable patrimony value of the urban property registered in the matrix being equal to or greater than €1,000,000.00: At the time the Applicant held full ownership of the urban properties under analysis, valued in accordance with the Municipal Property Tax Code, within the scope of the general assessment of urban properties, described as "urban property in full ownership with storeys or divisions capable of independent use", with taxable patrimony value (VP) greater than €1,000,000.00.
In compliance with and in accordance with the provisions of Article 6, paragraph 2 of Law no. 55-A/2012 of 29/10, which added item no. 28 to the TGIS, with the amendment made by Law no. 83-C/2013 of 31/12 and whose respective incidence rule refers to urban properties, valued in accordance with the Municipal Property Tax Code, with VP equal to or greater than €1,000,000.00 and, in accordance with its paragraph 28.1, residential designation, the AT proceeded with notification of the collection documents for payment of the assessments in question.
Article 44, paragraph 5 of the Stamp Duty Code, as amended by Law no. 55-A/2012 of 29/10, provides that, where an assessment is warranted, the tax referred to in item 28 of the TGIS is paid, in the periods, terms and conditions defined in Article 120 of the Municipal Property Tax Code, in three instalments in the months of April, July and November, in accordance with paragraph 1, subsection c) of the said Article 120.
The concept of property is defined in Article 2, paragraph 1 of the Municipal Property Tax Code, and it is provided in paragraph 4 thereof that in the regime of horizontal ownership, each autonomous unit is deemed to constitute a property.
It follows from the analysis of the normative provision that "an urban property in full ownership with storeys or divisions capable of independent use" is, unequivocally, different from a property in a regime of horizontal ownership, comprised of autonomous units, that is, several properties.
From the violation of the principle of legality, equality in taxation and contributory capacity: the Applicant calls into question the taxable patrimony value of the properties, on the grounds that they are characterized by being an urban property in full ownership with storeys or divisions capable of independent use and, as such, do not have a taxable patrimony value greater than €1,000,000.00.
What expressly results from the letter of the law is that the legislator intended to tax with item 28.1 in question the properties as a single legal-tax entity.
According to the rules of the Municipal Property Tax Code, specifically Article 113, paragraph 1, the assessment is carried out based on the taxable patrimony values of the properties and in relation to the taxpayers registered in the respective matrices.
Being the properties in the regime of full ownership, not having autonomous units, to which the law attributes the qualification of property, because from the concept of property in Article 2 of the Municipal Property Tax Code, only the autonomous units of property in a regime of horizontal ownership are held to be properties – paragraph 4 of the cited Article 2 of the Municipal Property Tax Code.
From the foregoing, the defect of violation of law due to error as to the legal prerequisites should be judged to lack merit, with the challenged assessments remaining in the legal system as they constitute a correct application of the law to the facts.
With respect to the violation of the principles of equality in taxation, justice and fiscal proportionality, the AT considers that the provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality, with no discrimination existing in the taxation of properties constituted in horizontal ownership and properties in full ownership with storeys or divisions capable of independent use, or between properties with residential designation and properties with other designations.
Given the foregoing, regarding the position of the Parties and the arguments presented, to determine whether the Stamp Duty assessment act sub judice is or is not illegal, it will be necessary to verify what interpretation should be made of item 28 and 28.1 of the TGIS, namely to know whether the VPT on which the Stamp Duty rate should apply is its sum or should the individual VPT of each storey or division capable of independent use be considered, in a similar manner to what happens with properties in a regime of horizontal ownership?
Item 28.1 therefore applies to ownership, usufruct or the right of superficies of urban properties with residential designation, whose taxable patrimony value registered in the matrix, in accordance with the Municipal Property Tax Code, is equal to or greater than €1,000,000.00.
It is a general and abstract norm, applicable in an indiscriminate manner to all cases in which the respective factual and legal prerequisites are met.
Also the different valuation and taxation of a property in full ownership as opposed to a property constituted in horizontal ownership results from the different legal effects inherent to these two legal forms.
In fact, constitution in horizontal ownership determines the division/partition of full ownership and the independence or autonomy of each of the units that comprise it, for all legal purposes, in accordance with paragraph 2 of Article 4 of the Municipal Property Tax Code and Articles 1414 et seq. of the Civil Code, whereas an urban property in full ownership constitutes, for all purposes, a single legal-tax entity.
In this way, one cannot conclude by an alleged discrimination in violation of the principle of equality when, in reality, we are facing distinct realities, valued by the legislator differently.
It is also important to note that taxation under Stamp Duty obeys the criterion of suitability, precisely to the extent that it aims at the taxation of wealth embodied in the ownership of real property of high value, arising in a context of economic crisis that cannot be ignored at all.
As follows from the Ruling handed down on 11 November 2015 by the Constitutional Court, in the context of case no. 542/14, already referring to the amendments introduced by Law no. 83-C/2013 of 31 December it decided:
In fact, the question of the unconstitutionality of item 28 of the TGIS, added by Law no. 55-A/2012 of 29 October and its paragraph 1 (item 28.1 of the TGIS, added by Law no. 55-A/2012 of 29 October and, subsequently, amended by Law no. 83-C/2013 of 31 December), in particular the violation of the principles of equality in taxation, contributory capacity and proportionality, the Constitutional Court understood that: "there being no violation of the constitutionality parameters invoked by the appellant, nor of any others, the appeal is therefore without merit" (underlined and in bold in the original).
In these terms, the learned court concluded that the norm under review, i.e., item 28 of the TGIS does not suffer from any unconstitutionality, with no violation of the constitutional principles shaping tax law, specifically, the principles of equality in taxation, contributory capacity and proportionality.
Given that the assessment was carried out on the basis of the applicable law, to which the Administration is bound, the Tax Administration aims, in accordance with Article 55 of the General Tax Law and following the principle set forth in Article 266, paragraph 1 and 2 of the Constitution, "… the pursuit of the public interest, in respect for the rights and legally protected interests of citizens" and its "… administrative organs and officials … are subordinated to the Constitution and the law …" and must "… act, in the exercise of their functions, with respect for the principles of equality, proportionality, justice, impartiality and good faith".
Thus, the Tax Administration being bound by the principle of legality, cannot fail to give full compliance to the normative provisions that the ordinary legislator created and that are in force in the legal system and also by virtue of the provision of Article 55 of the General Tax Law.
The right to indemnitory interest provided for in paragraph 1 of Article 43 of the General Tax Law, derived from the judicial annulment of an assessment act, depends on it being demonstrated in the case that this fact is affected by error as to the factual or legal prerequisites attributable to the Tax Administration.
Since, at the time of the facts, the Tax Administration made the application of the law in the terms to which as an executive organ it is constitutionally bound, one cannot speak of error on the part of the services in accordance with the provision of Article 43 of the General Tax Law.
The arbitral process being regulated by the principle of free conduct by the arbitral tribunal to which falls the duty to decide the utility and advisability of the practice of procedural acts with a view to proper decision of the case.
Let us see what should be understood.
It follows from Article 11 of the General Tax Law that the interpretation of tax law must be carried out taking into account the general principles of interpretation.
The general principles of interpretation are established in Article 9 of the Civil Code as follows:
"1. Interpretation should not be limited to the letter of the law, but should reconstruct the legislative intent from the texts, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.
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However, the interpreter cannot consider the legislative intent 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 correct solutions and knew how to express its intent in adequate terms."
Taking into account the rules of interpretation of the Law, it is important to know that Law no. 55-A/2012 of 29 October added to the TGIS item 28 and 28.1, creating the Stamp Duty rate on urban properties of high taxable patrimony value.
The creation of this new tax fact occurred in the context of economic crisis and serious crisis in public finances, with the purpose of increasing the State's tax revenues, through the taxation of those who reveal greater indicators of wealth.
The special Stamp Duty rate on properties with value exceeding €1,000,000.00, also known as the "luxury tax", aimed to ensure the distribution of sacrifices among all and not only among those who live from the income of their work.
Under these circumstances, item 28 and 28.1 fixed the incidence of Stamp Duty as follows:
"Ownership, usufruct or the right of superficies of urban properties whose taxable patrimony value registered in the matrix, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the taxable patrimony value used for purposes of Municipal Property Tax:
28.1. – For residential property or for land for construction whose building, authorized or envisaged, is for residential use, in accordance with the provision of the Code of Municipal Property Tax…… 1%."
It follows, therefore, from the letter of the law that the rate provided for in item 28.1 is applicable to the right of ownership over a property with residential designation, whose VPT used for purposes of Municipal Property Tax is equal to or greater than €1,000,000.00.
In accordance with the provision of Article 1, paragraph 6 of the Stamp Duty Code, "For the purposes of this Code, the concept of property is that defined in the Code of Municipal Property Tax."
For its part, the Municipal Property Tax Code determines in its Article 2 the following:
Concept of Property
"1 - For the purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated or placed therein, with a character of permanence, provided it forms part of the patrimony of a natural or legal person and, in 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 where they are located, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have the nature of patrimony.
2 - Buildings or constructions, although movable by nature, are deemed to have a character of permanence when intended for non-transitory purposes.
3 - The character of permanence is presumed when the buildings or constructions have been placed in the same location for a period exceeding one year.
4 - For the purposes of this tax, each autonomous unit in a regime of horizontal ownership is deemed to constitute a property."
Taking into account the concept of property established in the Law, it is clear that properties constituted in vertical ownership constitute properties, for the purposes of item 28 of the TGIS.
To the extent that the property under analysis (hereinafter Property) constitutes a Property, in accordance with the provisions of Article 2 of the Municipal Property Tax Code, it is literally covered by item 28 and 28.1.
In fact, the law does not distinguish, at any time, between property in horizontal ownership and property in vertical ownership, paragraph 4 of Article 2 merely establishing that in the regime of horizontal ownership each autonomous unit is deemed to be a property.
From what is stated in paragraph 4 of Article 2, it does not follow, contrary to what is defended by the Respondent in its response, that only the autonomous units of property in a regime of horizontal ownership are deemed to be properties.
Nevertheless, the special Stamp Duty rate fixed in the item in question applies only if the Property constitutes a residential property, whose taxable patrimony value registered in the matrix, in accordance with the Municipal Property Tax Code, is equal to or greater than €1,000,000.
Since the Stamp Duty Code does not establish what is meant by "residential", by virtue of the provision of paragraph 2 of Article 67 of said Code, the rules provided for in the Municipal Property Tax Code are also applicable here, namely those established in Articles 6 and 41 of that Code.
From the analysis of said rules, it is also clear that the Property is covered by item 28.1 as an urban property with residential designation.
It remains, therefore, to ascertain whether the VPT registered in the matrix of the Property, in accordance with the Municipal Property Tax Code, is equal to or greater than €1,000,000.
Now, as follows from the letter of the Law, the VPT of the Property shall be that which is used for purposes of Municipal Property Tax.
To this end, it is provided in paragraph 1 of Article 7 of the Municipal Property Tax Code, applicable ex vi of paragraph 7 of Article 23 of the Stamp Duty Code, that "The taxable patrimony value of properties is determined in accordance with the provisions of this Code."
For their part, in paragraphs 2 and 3 of Article 7 of the Municipal Property Tax Code, rules are established for determining the VPT of properties with two or more designations.
Since the rate provided for in item 28 and 28.1 of the TGIS applies only to properties of residential designation, the rules established in paragraphs 2 and 3 of Article 7 of the Municipal Property Tax Code are not applicable to the determination of the VPT relevant under the said item.
In fact, the VPT of properties of residential designation, provided for in item 28 and 28.1, must be determined taking into account paragraph 3 of Article 12 of the Municipal Property Tax Code, according to which:
"Each storey or part of a property capable of independent use is considered separately in the matriculation registration, which also discriminates the respective taxable patrimony value."
Thus, taking into account that the legislator attaches no relevance to the fact that the property is constituted in a regime of vertical ownership, the VPT must be attributed to each storey or part of a property capable of independent use.
In fact, there is no provision in the Municipal Property Tax Code that would allow the conclusion that the VPT of a property in a regime of vertical ownership should be obtained by the sum of the VPT that were attributed individually to the parts that comprise it (See, among others, the arbitral decisions handed down in Case 50/2013-T, 131/2013-T, 177/2014-T, 396/2014-T).
Taking into account that the incidence norms are subject to the principle of legality in taxation (See Article 103 of the Constitution of the Portuguese Republic and Article 8 of the General Tax Law), it appears that there is no legal basis for the Stamp Duty assessment based on the sum of the VPT of each part of the Property.
In fact, the AT cannot carry out an assessment operation based on an incidence norm that does not expressly provide for the base of incidence of the tax in the terms assessed, because the incidence norms of taxes must be interpreted in their exact terms, without resort to analogy, making prevail certainty and security in their application (See Ruling of the Central Administrative Court of the South, handed down in the context of case 7648/14, of 10.07.2014).
It is understood, thus, that there is no legal basis that permits the AT to add the taxable patrimony values of the storeys or parts of property capable of independent use, in order to reach the eligible taxation threshold of €1,000,000.00 provided for in item 28 of the TGIS.
Given the foregoing, given that none of the storeys, capable of independent use, have a taxable patrimony value exceeding €1,000,000.00, there is no application of the rate provided for in item 28 of the TGIS.
As a consequence, it is necessary not to declare nullity, whose legal prerequisites stated in Article 161 of the Administrative Procedure Code are not met, but rather the annulment of the Stamp Duty assessment act sub judice, and the recognition of the Applicant's right to indemnitory interest with respect to the Stamp Duty instalments already paid, since the illegality of the assessment act is attributable to error by the Respondent, in accordance with the provisions of Article 43 of the General Tax Law.
IV. DECISION
In these terms, this Arbitral Tribunal decides:
A) To judge the request for declaration of nullity of the Stamp Duty assessment act relating to the urban property registered in the urban property matrix of the parish of … under number …, relating to the year 2015, to be wholly without merit;
B) To judge the request for annulment of the Stamp Duty assessment act relating to the urban property registered in the urban property matrix of the parish of … under number …, relating to the year 2015, to be wholly successful;
C) To order the Tax and Customs Authority to refund to the Applicant the amount of tax paid, increased by indemnitory interest, in accordance with legal provisions;
D) To order the Respondent to bear the costs of the present case, as the losing party.
V. VALUE OF THE CASE
In accordance with the provision of Article 306, paragraph 2 of the Code of Civil Procedure, Article 97-A, paragraph 1 a) of the Code of Tax Procedure and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Cases, the value of the claim is fixed at €11,148.50.
VI. COSTS
In accordance with the provisions of Articles 12, paragraph 2 and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Cases, the value of the arbitration fee is fixed at €918, in accordance with Table I of the mentioned Regulation, to be borne by the Respondent.
Let notification be made.
Lisbon, 10 October 2016
The Arbitrator
Magda Feliciano
(The text of this decision was prepared on a computer, in accordance with Article 131, paragraph 5 of the Code of Civil Procedure, applicable by reference to Article 29, paragraph 1, subsection e) of Decree-Law no. 10/2011 of 20 January (RJAT), its drafting being governed by the orthography prior to the Orthographic Agreement of 1990.)
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