Stamp Tax Verba 28.1 TGIS: Urban Buildings in Total Ownership with Independent Units – CAAD Case 304/2018-T

ARBITRAL DECISION

I. REPORT

1. On 28 June 2016, A..., NIPC ..., with registered office at Rua ..., no. ..., Porto (hereinafter, Claimant), filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2, no. 1, subparagraph a), and 10, nos. 1, subparagraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality and the annulment of Stamp Tax assessments [item 28.1 of the General Stamp Tax Table (hereinafter, TGIS)] relating to the years 2013, 2014 and 2015 and concerning divisions allocated to residential use of an urban property in full ownership with floors or divisions capable of independent use, registered under the article ... in the urban property register of the Union of Civil Parishes of ... and ..., municipality of Porto, district of Porto, of which it is the holder, as superficiary, in the total amount of € 30,102.90.

The Claimant attached 77 (seventy-seven) documents and listed one witness, not having requested the production of any other evidence.

The Respondent is AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. In essence and in brief summary, the Claimant alleged the following:

The Claimant is a non-profit association, established in 1977 and which has as one of its fundamental objectives "to promote, through the construction of houses or by other means, the improvement of housing conditions for its members".

The Claimant is the legitimate holder, as superficiary, of an urban property which is in the regime of full ownership with floors or divisions capable of independent use, 24 of which are allocated to residential use and another to storage and storage, built on a plot of municipal land, ceded by the Porto City Council, by deed of constitution of the right of superficies, with its residential units intended exclusively for the respective members, persons in absolute need in the city of Porto and who are allocated to them according to the needs and destitution of each member and their family unit.

On 18 March 2018, the Claimant was notified of the Stamp Tax assessment acts which were levied on the economically independent parts that form part of that urban property in full ownership, referring to the years 2013, 2014 and 2015, in the annual amount of € 10,034.30, with a payment deadline in April 2018.

The Claimant made payment of such assessments, which amounted to the overall sum of € 30,102.90, on 2 May 2018.

The rule of incidence (item 28.1 of the TGIS), introduced by Law no. 55-A/2012, does not cover properties of the nature of those held by the Claimant, that is, property in full ownership with floors or divisions capable of independent use, constructed within the framework of the controlled cost housing regime, financed by the former B... Fund, under Decree-Law no. 268/78, of 31 August.

Furthermore, the identified property is not subject to the horizontal property regime, and each of its units (economically independent) was valued in accordance with the CIMI, with its respective taxable patrimonial value (VPT) being determined separately, with each functional unit having a taxable patrimonial value between € 37,510.00 and € 45,940.00, with the taxable patrimonial value of the property in vertical ownership, because corresponding to the sum of the values of its parts, amounting to € 1,003,430.00.

It is manifest that the criterion of incidence of Stamp Tax in this case (property not constituted in the horizontal property regime, composed of various floors and divisions with independent use, with residential allocation), highlighted by the Tax Administration, was the taxable patrimonial value of the property considered as a whole, as the result of the sum of the different VPT's of each of those independent units, which the AT did in manifest violation of law and in clear violation of the principle of fiscal legality to which it is bound.

Considering the provisions of article 67, no. 2, of the CIS, it is obvious that in the procedure for assessing Stamp Tax under item 28.1 of the TGIS, the taxable patrimonial value of each part must be relevant in order to conclude whether or not it is subject to this item, and it is the CIMI itself that establishes that property in the horizontal property regime has the same regime as property in full ownership even if composed of units of independent use, and which deserve equal treatment; it follows that in the case of the Claimant's property, since no functional unit has a value exceeding € 1,000,000.00, none of them are subject to the Stamp Tax assessed.

On the other hand, in terms of interpretation, the historical element clearly shows that what is at issue are luxury homes, which is based on the principles of social equity and fiscal justice, requiring those holding high-value residential properties to contribute more intensely, applying the new special rate to homes valued at € 1 million or more.

In this case, we are dealing with social housing, built on municipal land, with simple construction qualities (namely as regards areas, methods and construction materials of reduced value), at controlled costs, intended for people of very low socioeconomic conditions.

The Stamp Tax assessment acts being challenged are illegal because they were practised with factual and legal error and breach of the applicable norms and principles; such error does not emerge from any conduct of the Claimant but rather from the Respondent who could not be unaware of a different understanding.

Once the assessment acts in question are annulled, the Respondent should be condemned to reimburse the Claimant for the amounts improperly paid, plus indemnificatory interest, calculated on € 30,102.90, from the date of payment until the issuance of the respective credit note.

The Claimant concludes its initial pleading by petitioning the following:

"In these terms, and in the best of law that Your Excellency will duly supply, the present application for pronouncement being presented should be considered entirely well-founded and proven, and consequently, the tax acts of Stamp Tax assessment (item 28.1 of the TGIS), with reference to the years 2013, 2014, 2015, which were levied on the economically independent parts that form part of its urban property registered in the respective register under article ..., of the Union of Civil Parishes of ... and ..., in the annual amount of € 10,034.30 (ten thousand and thirty-four euros and thirty cents) and the overall amount of € 30,102.90 (thirty thousand one hundred and two euros and ninety cents) be declared illegal, with all legal consequences, namely with the consequent annulment of such acts and the condemnation of the Respondent to reimburse the Claimant for the amount of stamp tax paid, plus the respective indemnificatory interest, and also to the payment of the costs due to court."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the AT on 4 July 2016.

2. The Claimant did not proceed to appoint an arbitrator, therefore, under the provisions of no. 1 of article 6 and subparagraph a) of no. 1 of article 11 of the RJAT, the President of the CAAD Deontological Board appointed the undersigned as arbitrator of the Singular Arbitral Tribunal, who communicated acceptance of the office within the applicable period.

3. On 17 August 2018, the Parties were duly notified of this appointment and did not express any will to refuse the arbitrator's appointment, in accordance with the combined provisions of article 11, no. 1, subparagraphs b) and c), of the RJAT and articles 6 and 7 of the CAAD Deontological Code.

4. Thus, in accordance with the provisions of subparagraph c) of no. 1 of article 11 of the RJAT, the Singular Arbitral Tribunal was constituted on 6 September 2018.

5. On 4 October 2018, the Respondent, duly notified for this purpose, filed its Response in which it specifically disputed the arguments raised by the Claimant, concluding for the lack of merit of the present action, with its dismissal of the claim.

The Respondent did not attach documents, nor did it request the production of any other evidence.

On the same occasion, the Respondent attached to the proceedings its respective administrative file (hereinafter, abbreviated as PA).

6.1. In essence and also briefly, it is important to extract the most relevant arguments upon which the Respondent based its Response:

The subjection to Stamp Tax of item 28.1 of the TGIS results from the combination of two facts: residential allocation and the value of the urban property registered in the matrix being equal to or greater than € 1,000,000.00.

The property in question is registered in the matrix under the full ownership regime, composed of divisions or floors capable of independent use.

Being this the matricial information, the assessment of Stamp Tax in question was made taking into account the nature of the urban property, namely its divisions allocated to residential use, as of the date of the tax event, applying, with the necessary adaptations, the rules of the CIMI.

The referred urban property was valued in accordance with the CIMI, within the scope of the general valuation of urban properties, described as "property in full ownership with floors or divisions capable of independent use", with a VPT exceeding € 1,000,000.00.

In compliance and in accordance with the provisions of item 28 of the TGIS, a rule of incidence that refers to urban properties, valued in accordance with the CIMI, with VPT equal to or greater than € 1,000,000.00 and, in accordance with its 28.1, residential allocation, the AT proceeded to notify the tax bills for payment of the assessments in question.

Thus, what is at issue here are tax bills/assessments that result from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary assessment.

As regards IMI assessment, in the case of properties in full ownership, the VPT that serves as the basis for its calculation will be the VPT that the Claimant defines as the "overall value of the property", since a property in full ownership with floors or divisions capable of independent use is different from a property in the horizontal property regime, composed of autonomous fractions, that is, various properties (cf. article 2, nos. 1 and 4, of the CIMI).

It is, therefore, a consequence of the fact that the tax event of Stamp Tax under item 28.1 of the TGIS consists of ownership of urban properties whose VPT registered in the matrix, in accordance with the CIMI, is equal to or greater than € 1,000,000.00, that the VPT relevant for purposes of tax incidence is the total VPT of the urban property and not the VPT of each of the parts that compose it, even when capable of independent use.

In compliance with the provisions of article 119, no. 1, of the CIMI, the tax bill is sent to the taxpayer with discrimination of the parts capable of independent use, respective VPT and amount of the tax charge allocated to each municipality where the properties are located.

Since the assessment is correct and the assessed tax is due, indemnificatory interest is not due, primarily because there is no error attributable to the Services, which merely acted in strict compliance with the legal rule; because the error that supports the right to indemnificatory interest is not any defect or illegality but that which is embodied in defective appraisal of relevant factuality or in incorrect application of legal norms.

Since, at the date of the facts, the AT made the application of the law in the terms to which as an executive body it is constitutionally bound, one cannot speak of error by the Services in accordance with the provisions of article 43 of the LGT.

The Respondent thus concludes its pleading:

"In these terms, and in the other respects that Your Excellency will duly supply,

The present request for arbitral pronouncement should be judged to lack merit, as unproven, with the tax acts of assessment being challenged remaining in the legal order, thus absolving, in accordance therewith, the entity Respondent of the claim."

1. On 8 October 2018, an order was issued dispensing with the holding of the meeting referred to in article 18 of the RJAT, rejecting, as pointless, the requested production of witness testimony, dispensing with the presentation of any arguments and fixing 9 November 2018 as the deadline for the issuance of the arbitral decision.

II. CASE MANAGEMENT

The Arbitral Tribunal was regularly constituted and is competent.

The proceedings do not suffer from any nullities.

The parties have legal standing and capacity and are properly represented and entitled.

The joinder of claims is admitted – there are several Stamp Tax assessment acts at issue, with the declaration of illegality and annulment of each being petitioned – given that it is verified that the merit of the claims formulated by the Claimant depends essentially on the appraisal of the same factual circumstances and the interpretation and application of the same principles or rules of law (cf. article 3, no. 1, of the RJAT).

There are no exceptions or other preliminary issues that prevent or that must be addressed on the merits.

III. REASONING

III.1. ON THE FACTS

§1. FACTS FOUND

The following facts are found to be proven:

a) The Claimant is a non-profit association, established in 1977 and which has as one of its fundamental objectives "to promote, through the construction of houses or by other means, the improvement of housing conditions for its members". [cf. Doc. no. 73 attached to Initial Pleading]

b) In the years 2013, 2014 and 2015, the Claimant held, as superficiary, the urban property, in full ownership with floors or divisions capable of independent use, located at Rua ..., nos. ..., ..., ... and ..., Union of Civil Parishes of ... and ..., municipality of Porto, district of Porto, registered in the respective property register under article .... [cf. Urban Property Register at fls. of the PA attached to proceedings]

c) The mentioned urban property is built on a plot of municipal land, ceded to the Claimant in the right of superficies by the Porto City Council, and it was agreed, as one of the contractual conditions, that "[t]he residential blocks to be built are intended exclusively for the members [of the Claimant] and cannot be the subject of subdivision into autonomous units". [cf. Doc. no. 74 attached to Initial Pleading]

d) The aforementioned urban property was built within the framework of the controlled cost housing regime (formerly, called social housing) and financed by the ex-B..., under Decree-Law no. 268/78, of 31 August. [cf. Doc. no. 75 attached to Initial Pleading and Urban Property Register at fls. of the PA attached to proceedings]

e) In the aforementioned years, the referred urban property was thus described in the respective property register [cf. Urban Property Register at fls. of the PA attached to proceedings]:

"Type of Property: Property in Full Ownership with Floors or Divisions Capable of Independent Use.

Number of floors of the article: 5

Number of floors or divisions with independent use: 25

Total taxable patrimonial value: € 1,026,530.00"

f) The floors or divisions capable of independent use forming part of that same urban property have their own taxable patrimonial value, determined in accordance with the Code of Municipal Property Tax, with the floors or divisions with independent use, allocated to residential use, in the years 2013, 2014 and 2015, having the following unit taxable patrimonial values [cf. Urban Property Register at fls. of the PA attached to proceedings and Docs. nos. 1 to 72 attached to Initial Pleading]:

g) On 30 December 2017, the AT assessed Stamp Tax, reported to the years 2013, 2014 and 2015 and concerning the floors or divisions with independent use, allocated to residential use, listed in the previous finding of fact, with the tax collected amounting to the annual sum of € 10,034.30 and to the overall amount of € 30,102.90. [cf. Docs. nos. 1 to 72 attached to Initial Pleading]

h) The Stamp Tax assessments referred to in the previous finding of fact resulted from the application of item 28.1 of the TGIS to each and every one of the floors or divisions with independent use, allocated to residential use, listed in the previous finding of fact f). [cf. Docs. nos. 1 to 72 attached to Initial Pleading]

i) As a result of the mentioned Stamp Tax assessments, the following single tax bills were issued and notified to the Claimant [cf. Docs. nos. 1 to 72 attached to Initial Pleading]:

YEAR 2013

YEAR 2014

YEAR 2015

j) On 2 May 2018, the Claimant made full payment of the Stamp Tax amounts mentioned in the previous finding of fact, in the overall amount of € 30,102.90. [cf. Docs. nos. 1 to 72 attached to Initial Pleading]

k) On 28 June 2018, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present proceedings. [cf. processing management information system of the CAAD]

§2. FACTS NOT FOUND

With relevance to the appraisal and decision of the case, there are no facts that have not been proven.

§3. REASONING ON THE FACTS

The Tribunal's conviction was based on the facts alleged by the Parties, whose correspondence to reality was not contested, on the documents and on the administrative file attached to the proceedings.

III.2. ON THE LAW

§1. ON THE INTERPRETATION AND DELIMITATION OF THE SCOPE OF OBJECTIVE INCIDENCE OF ITEM 28.1 OF THE TGIS

At the epicenter of the disagreement that opposes the Parties in this proceedings is the rule of tax incidence contained in item 28.1 of the TGIS, which naturally requires, to begin with, the interpretation of this rule, with a view to assessing its scope and, thereby, delimiting its field of application.

Law no. 55-A/2012, of 29 October, introduced various amendments to the Stamp Tax Code and added to the TGIS item 28 (cf. article 4), with the following wording:

"28 — Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial 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 patrimonial value used for purposes of IMI:

28.1 — Per property with residential allocation — 1%;

28.2 — Per property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, listed in the schedule approved by order of the Minister of Finance — 7.5%."

Subsequently, Law no. 83-C/2013, of 31 December (2014 Budget Law), amended the wording of item 28.1 of the TGIS (cf. article 194), with this now having the following content:

"28.1 — Per residential property or per land for construction whose building, authorized or envisaged, is for residential purposes, in accordance with the provisions of the Code of IMI — 1%"

The interpretation of the rule of incidence contained in item 28.1 of the TGIS cannot be carried out without being based on the hermeneutical guidelines that emanate from article 11 of the LGT and article 9 of the Civil Code, norms which establish the following:

"Article 11 [LGT]

Interpretation

1. 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.

2. Whenever tax norms employ terms that are specific to other branches of law, such terms must be interpreted in the same sense they have in those other branches, unless otherwise directly results from the law.

3. Persisting doubt about the meaning of the rules of incidence to be applied, the economic substance of the tax facts should be considered.

4. Gaps resulting from tax rules covered by the legislative reserve of the Assembly of the Republic are not susceptible to analogical integration."

"Article 9 [CC]

Interpretation of the law

1. Interpretation must not be limited to the letter of the law, but must reconstruct from the texts the legislative thinking, taking above all into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied.

2. However, the interpreter cannot consider the legislative thinking that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3. In fixing 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 thinking in adequate terms."

With respect to this interpretative task, with due respect, we here appropriate the following considerations set forth in the arbitral decision handed down in proceedings no. 53/2013-T of the CAAD:

"The relevance of the text of the law is especially emphasized in the matter of interpretation of rules of incidence of Stamp Tax, which amount to an amalgam, under a common denomination, of an incongruous set of taxes of completely different natures (on income, on expenditure, on assets, on acts, etc.), which leaves little room for application of the primary interpretative criterion, which is the unity of the legal system, which requires its overall coherence.

The recognized lack of coherence of Stamp Tax is particularly abundant in the case of this item 28.1, hastily included in the margin of the General State Budget, by a tax legislator without perceptible overall tax guidance, who is successively implementing tax increase norms in accordance with the setbacks in budget execution, the impositions of international institutional creditors (represented by the 'troika') and the oversight of the Constitutional Court.

In fact, although in the 'Statement of Reasons' of the Bill no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the commendable concern of the Government to 'reinforce the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices for the fulfillment of the adjustment program' and to its commitment 'to ensure that the distribution of such 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 those equity reasons, certainly existing, did not start to count 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 28.1, by taxing additionally the properties with residential allocation and not also the properties that do not have it, gives some indication that the concerns of social equity and the proclaimed intention of distribution of sacrifices by all, affects much more some than properly all.

In this context, with no sure interpretative elements allowing the detection of legislative coherence in the solution adopted in the referred item 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in light of no. 3 of article 9 of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same no. 3 of article 9, that the legislator knew how to express its thinking in adequate terms."

That said. Having analyzed the wording – both the original and that resulting from the aforementioned legislative amendment – of item 28.1 of the TGIS, we find that this rule has an essentially remissive character, as its relevant regulatory content depends on the normativity ad quem contained in the Code of IMI.

In fact, both as to objective incidence, with the reference to "urban properties" and to the "taxable patrimonial value registered in the matrix, in accordance with the Code of Municipal Property Tax", and as to the fixing of the taxable matter, with the reference to the "taxable patrimonial value used for purposes of IMI", the regulatory content of this item 28 of the TGIS results from the referral – in accordance with a general remission – to the regulatory set that is found in the Code of IMI.

Indeed, this aspect is reinforced by no. 2 of article 67 of the CIS, which determines that to matters not regulated in the CIS concerning item 28 of the TGIS, the provisions of the Code of IMI are subsidiarily applied.

In this respect, it is therefore necessary to gather the norms of the Code of IMI that appear to be pertinent for the understanding and, therefore, for the application of item 28.1 of the TGIS.

In the Code of IMI, the concept of "property" is thus defined in its article 2:

"1. For purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated into it or resting on it, with the character of permanence, provided that 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 above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of a diverse patrimony or does not have a patrimonial nature.

1. Buildings or constructions, even if movable by nature, are deemed to have the character of permanence when allocated to non-transitory purposes.

2. The character of permanence is presumed when the buildings or constructions are located in the same place for a period exceeding one year.

3. For purposes of this tax, each autonomous fraction, in the horizontal property regime, is deemed to constitute a property."

Subsequently, in articles 3 to 5 of the CIMI, the types of existing properties are enumerated, namely:

Rural properties (article 3):

"Rural properties are lands situated outside an urban settlement that are not to be classified as lands for construction, in accordance with no. 3 of article 6, provided that:

a) They are allocated to or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income, such as are considered for purposes of personal income tax (IRS);

b) Not having the allocation 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 are also lands situated within an urban settlement, provided that, by virtue of legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are actually having this allocation.

3 – Rural properties also include:

a) Buildings and constructions directly allocated to the production of agricultural income, when located on the lands referred to in the preceding paragraphs;

b) Waters and plantations in the situations referred to in no. 1 of article 2.

4 – For purposes of this Code, urban settlements are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public use streets, with their perimeter delimited by points distanced 50 m from the axis of the streets, in the transverse direction, and 20 m from the last building, in the direction of the streets."

Urban properties (article 4):

"Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article."

Mixed properties (article 5):

"1. Whenever a property has both rural and urban parts it is classified, in its entirety, in accordance with the main part.

1. If neither part can be classified as the main one, the property is deemed to be mixed."

Subsequently, in article 6 of the CIMI, the types of urban properties are indicated:

"1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Lands for construction;

d) Others.

1. Residential, commercial, industrial or for services are buildings or constructions licensed for such by the municipalities or, in the absence of licensing, that have as their normal destination each of these purposes.

2. Lands for construction are understood to be lands situated within or outside an urban settlement for which a licensing or authorization has been granted, prior notification admitted or favorable preliminary information issued for a subdivision or construction operation, and also those that have been declared as such in the acquisition title, except for lands in which the competent entities prohibit any of such operations, namely those located in green areas, protected areas or that, in accordance with municipal territorial planning plans, are allocated to spaces, infrastructure or public facilities.

3. Included in the provision of subparagraph d) of no. 1 are lands situated within an urban settlement that are not lands for construction nor are covered by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of licensing, that have as their normal destination other purposes than those referred to in no. 2 and also those of the exception of no. 3."

On the taxable patrimonial value, article 7 of the CIMI establishes the following:

"1. The taxable patrimonial value of properties is determined in accordance with this Code.

1. The taxable patrimonial value of urban properties with parts that can be classified under more than one of the classifications of no. 1 of the preceding article is determined:

a) Where one of the parts is principal and the other or others merely accessory, by application of the valuation rules of the principal part, taking into account the appreciation resulting from the existence of the accessory parts;

b) Where the different parts are economically independent, each part is valued by application of the corresponding rules, with the value of the property being the sum of the values of its parts.

1. The taxable patrimonial value of mixed properties corresponds to the sum of the values of its rural and urban parts determined by application of the corresponding rules of this Code."

Under the heading "Concept of property registers", article 12 of the CIMI establishes the following:

"1. Property registers are records which contain, in particular, the characterization of properties, location and its taxable patrimonial value, the identity of owners and, where applicable, usufructuaries and superficiaries.

1. There are two registers, one for rural property and one for urban property.

2. Each floor or part of a property capable of independent use is considered separately in the matricial entry, which also discriminates its respective taxable patrimonial value.

3. Registers are updated annually with reference to 31 December.

4. Matricial entries, for tax purposes only, constitute a presumption of ownership."

Still regarding property registers, it is important to note no. 1 of article 13 of the CIMI, from which it follows that "[e]ntry of properties in the register and its updating are carried out based on a declaration presented by the taxpayer".

With respect to the determination of taxable patrimonial value, it is important here to invoke article 38 of the CIMI, under the heading "Determination of taxable patrimonial value":

"1. The determination of the taxable patrimonial value of urban properties for housing, commerce, industry and services results from the following expression:

Vt = Vc x A x Ca x Cl x Cq x Cv

where:

Vt = taxable patrimonial value;

Vc = base value of built properties;

A = gross construction area plus the area exceeding the implantation area;

Ca = allocation coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = obsolescence coefficient.

1. The taxable patrimonial value of calculated urban properties is rounded to the nearest ten euros above."

As densifying norms of the values and coefficients referred to in this legal provision, we have articles 39 ("Base value of built properties"), 40 ("Types of areas of built properties"), 40-A ("Area adjustment coefficient"), 41 ("Allocation coefficient"), 42 ("Location coefficient"), 43 ("Quality and comfort coefficient") and 44 ("Obsolescence coefficient") of the CIMI.

In light of the literal wording of item 28.1 of the TGIS, urban residential properties with taxable patrimonial value equal to or greater than € 1,000,000.00 are subject to this rule of tax incidence.

Given the norms of the CIMI cited above, we have that residential properties are buildings or constructions licensed by the municipalities for that purpose or, in the absence of licensing, that have as their normal destination such use (article 6, no. 2, of the CIMI); thus, residential properties are those buildings or constructions referred to, being, therefore, these that are subject to item 28.1 of the TGIS.

The correctness of this interpretation, as to the scope of incidence of item 28.1 of the TGIS is confirmed by the perceivable ratio legis of the restriction of the field of application of the rule to residential properties – a restriction that remained as to allocation (residential use) in the legislative amendment that came to expand the scope of incidence to lands for construction – in the context of the "circumstances in which the law was drawn up and the specific conditions of the time in which it is applied", which article 9, no. 1, of the Civil Code also establishes as interpretative elements.

Effectively, the limitation of the application of the tax to residential properties and, subsequently, to lands for construction in which construction of residential units is envisaged or authorized, reveals the intention not to burden the productive sector and businesses in general and, in that sense, it was not intended to include in the scope of incidence of the tax neither properties allocated to services, industry or commerce, that is, properties allocated to economic activity, nor lands for construction for which building for those other purposes is envisaged or authorized. Such is understandable in a context in which the economy was in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historical levels, with an avalanche of business closures due to economic unsustainability. On the ratio legis of the introduction of item 28 of the TGIS, see, among others, the decisions handed down in proceedings nos. 50/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/2014-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of the CAAD.

Having present such situation and being well known and public that the revitalization of economic activity and the increase in exports are the ways out of the crisis, it is understood that, despite the pressing need to increase tax revenues, legislative measures were not taken that would hinder economic activity, namely the burden of tax increases that hinder it and affect competitiveness in international terms.

Therefore, it is to be concluded that the available interpretative elements, including the "circumstances in which the law was drawn up and the specific conditions of the time in which it is applied", clearly point to the fact that it was not intended to include in the scope of incidence of item 28.1 of the TGIS non-residential properties and, subsequently, also lands for construction for which building for purposes other than housing is authorized or envisaged.

To conclude this exegesis of item 28.1 of the TGIS, it is important to also note that the cited articles 38 to 46 of the CIMI have no relation whatsoever to the classification of urban properties, as in those norms only the factors to be considered in their respective valuation are indicated (in this sense, see the decision handed down in proceedings no. 53/2013-T of the CAAD).

That said. It results from the combined analysis of the cited provisions of the CIMI that in this legal compendium no distinction is made between properties constituted in the horizontal or full ownership regime. In fact, although no. 4 of article 2 expressly refers to autonomous fractions of properties constituted in the horizontal property regime as each constituting a property, the truth is that it does not exclude from such classification the divisions with independent use of properties constituted in full or vertical ownership.

And, where the law has not distinguished, the interpreter cannot do so.

Having thus analyzed the definition of property contained in no. 1 of article 2 of the CIMI, we do not see any reason not to include here the divisions with independent use of properties constituted in the full ownership regime, as these constitute a fraction of territory that forms an integral part of the patrimony of a natural or legal person and that has economic value.

Note that to each of these divisions or fractions a taxable patrimonial value is attributed.

Established that the classification of divisions with independent use of properties constituted in full ownership as "properties", in accordance with and for purposes of the CIMI, it seems evident to us that each of these divisions, when that is the purpose to which they are intended, constitute residential properties.

In the specific case, the divisions or floors of the urban property here in question are capable of independent use and are allocated to residential purposes.

Moreover, if the divisions or floors in question in the present proceedings were not individually classified as "properties" it would make no sense or logic the preparation, in this case, of a Stamp Tax assessment for each of those units.

It is true that the subsidiary application of the CIMI could suggest the idea that only autonomous fractions in the horizontal property regime are deemed to be properties in light of the provision of no. 4 of article 2 of the CIMI.

However, if one attends to the wording of that legal rule, it will soon be verified that the requirement of constitution of the horizontal property regime is only necessary for purposes of taxation in IMI.

Also note that, in light of the provision of article 12, no. 3, of the CIMI, "each floor or part of a property capable of independent use is considered separately in the matricial entry, which also discriminates its respective taxable patrimonial value".

Furthermore, as already stated above, the introduction of item 28 in the TGIS aimed at the taxation of high-value urban properties with residential allocation, taxing wealth, externalized in the ownership, usufruct or right of superficies, of luxury urban properties or their autonomous fractions or divisions, with residential allocation.

Now, if the objective of the law was to adapt taxation under Stamp Tax to the taxpaying capacity of taxpayers, it seems to have no relevance whatsoever the distinction between properties constituted in the horizontal or vertical ownership regime.

Manifestly, it is not there that the greater or lesser taxpaying capacity is revealed, all the more so since, as is known, horizontal property is a relatively recent legal institute, and it is certain that a large part of old properties are not even constituted in this regime, despite functioning as such in practice.

Now, the principle of prevalence of substance over form requires that the AT should value the material truth. And, in the case of the present proceedings, the material truth consists in the non-existence of any substantive difference between the divisions or floors capable of independent use of the urban property in question and the fractions of a property constituted in horizontal ownership.

Furthermore, since the constitution of horizontal property is merely a legal operation and not a factual one, no reasons are perceived for differences in taxation in this regard, as what will always be relevant is the individual value of each fraction, whether or not the property is constituted in the horizontal property regime.

In light of all that has been stated, there is no doubt that the taxable patrimonial value relevant for purposes of incidence of Stamp Tax in cases of properties constituted in full ownership, composed of various divisions with independent use, some of which with residential allocation, is the taxable patrimonial value of each division of the property and not the global taxable patrimonial value of the property, corresponding to the sum of all the taxable patrimonial values of the divisions that compose it.

Thus, in conclusion, regarding properties in full ownership with floors or divisions capable of independent use, only the respective taxable patrimonial value of each floor or division with residential allocation, registered in the matrix, should be considered for purposes of the application of item 28.1 of the TGIS.

§2. THE CASE SUB JUDICE

As proved, none of the floors or divisions with independent use, allocated to residential use, of the urban property in question, possesses a taxable patrimonial value equal to or greater than € 1,000,000.00 (cf. fact found f)).

Furthermore, as also proved, the divisions or floors capable of independent use, allocated to residential use, integrated into the said urban property, are intended for social housing subject to controlled costs, with the Claimant's members residing therein who are economically needy persons (cf. facts found c) and d)).

In this regard, since the taxable patrimonial value of each of the referred floors or divisions with independent use, allocated to residential use, is lower than the value to which item 28.1 of the TGIS refers, it follows that such floors or divisions do not fall within the rule of tax incidence contained in that item 28.1, whereby the Stamp Tax assessments in dispute suffer from a defect of violation of law, by error as to the factual and legal presuppositions, embodied in the erroneous interpretation and application of item 28.1 of the TGIS, which implies the declaration of its illegality and consequent annulment, with all the inherent legal consequences.

§3. ON THE REIMBURSEMENT OF THE AMOUNT PAID AND THE PAYMENT OF INDEMNIFICATORY INTEREST

The Claimant further petitions the condemnation of the AT to reimburse the Stamp Tax improperly paid, in the overall amount of € 30,102.90, plus the respective indemnificatory interest; with it being proven that the Claimant made full payment of the values resulting from the tax acts in dispute (cf. fact found j)).

Article 24, no. 1, subparagraph b), of the RJAT provides that the arbitral decision on the merits of the claim for which no appeal or impugnation lies binds the tax administration as of the end of the period provided for appeal or impugnation, and the latter must, in the exact terms of the procedency of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of the decisions of the tax courts, restore the situation that would exist if the tax act that is the object of the arbitral decision had not been practiced, adopting the necessary acts and operations for such purpose, which is in keeping with the provision of article 100 of the LGT (applicable by virtue of the provision of subparagraph a) of no. 1 of article 29 of the RJAT) which establishes that "the tax administration is obligated, in case of total or partial procedency of a claim, judicial impugnation or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the object of the litigation, including the payment of indemnificatory interest, if applicable, as of the end of the period for execution of the decision".

Although article 2, no. 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in the CAAD, making no reference to condemnatory decisions, it should be understood that their competences include the powers that in judicial impugnation proceedings are attributed to tax courts, being that the interpretation that is in keeping with the sense of the legislative authorization on which the Government based itself for the approval of the RJAT, in which it proclaims, as a first directive, that "the tax arbitral process must constitute an alternative procedural means to judicial impugnation proceedings and to the action for the recognition of a right or legitimate interest in tax matters".

Judicial impugnation proceedings, despite being essentially a process of annulment of tax acts, admit the condemnation of the Tax Administration to the payment of indemnificatory interest, as can be inferred from the provision of article 43, no. 1, of the LGT and article 61, no. 4, of the CPPT.

Thus, no. 5 of article 24 of the RJAT, in saying that "payment of interest, regardless of its nature, is due, in accordance with the terms provided in the general tax law and the Code of Tax Procedure and Process", should be understood as allowing the recognition of the right to indemnificatory interest in arbitral proceedings.

On the other hand, the right to indemnificatory interest depending on the right to reimbursement of amounts improperly paid, which are its basis of calculation, is implicit in the possibility of recognition of the right to indemnificatory interest the possibility of appraisal of the right to reimbursement of those amounts.

That said. It is thus necessary to appraise the claims for reimbursement of the amounts of improperly paid tax and for payment of indemnificatory interest.

§3.1. ON THE RIGHT TO REIMBURSEMENT OF THE AMOUNT PAID

Following the illegality and annulment of the tax assessment acts in dispute, reimbursement of the improperly paid tax is in order, by virtue of the provision of articles 24, no. 1, subparagraph b), of the RJAT and 100 of the LGT, as this appears essential to restore the situation that would exist if the mentioned tax acts had not been practiced.

Therefore, the claim for reimbursement of the sum of € 30,102.90 is well-founded.

§3.2. ON THE PAYMENT OF INDEMNIFICATORY INTEREST

Article 43, no. 1, of the LGT determines that "indemnificatory interest is due when it is determined, in gracious claim or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due", with no. 5 of article 61 of the CPPT establishing that "interest is counted from the date of improper payment of the tax until the date of processing of the respective credit note, in which it is included".

In the specific case, the Claimant paid the Stamp Tax amounts assessed and, because these are improper, it has the right to reimbursement of the total amount of € 30,102.90.

Furthermore, it is verified that the illegality of the Stamp Tax assessments in dispute is attributable to the AT because, in those assessments, it incurred in error as to the factual and legal presuppositions, embodied in the incorrect interpretation and application of item 28.1 of the TGIS, whereby the Claimant has the right to indemnificatory interest, in accordance with the provision of articles 43, no. 1, of the LGT and 61 of the CPPT, regarding the amount to be reimbursed, calculated from the date on which it made the payment until the date of processing of the respective credit note, in which they are included, at the legal default rate, in accordance with the provision of articles 43, no. 4 and 35, no. 10, of the LGT, 61 of the CPPT and 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.

IV. DECISION

In the terms stated, this Arbitral Tribunal decides to judge the application for arbitral pronouncement entirely well-founded and, consequently:

1. The Stamp Tax assessments being challenged in the present proceedings, relating to the years 2013, 2014 and 2015 and concerning the urban property registered under the article ... in the urban property register of the Union of Civil Parishes of ... and ..., municipality of Porto, district of Porto, are declared illegal and annulled;

2. The Tax and Customs Authority is condemned:

a) To reimburse the Claimant for the amounts of Stamp Tax improperly paid, in the overall amount of € 30,102.90 (thirty thousand one hundred and two euros and ninety cents);

b) To pay indemnificatory interest to the Claimant, calculated on the amount of € 30,102.90 (thirty thousand one hundred and two euros and ninety cents), from the date of payment until the date of processing of the respective credit note, in which they are included;

c) To pay the costs of the present proceedings.

VALUE OF THE PROCEEDINGS

In accordance with the provisions of articles 306, no. 2, of the CPC, 97-A, no. 1, subparagraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings is assigned the value of € 30,102.90 (thirty thousand one hundred and two euros and ninety cents).

COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at € 1,836.00 (one thousand eight hundred and thirty-six euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 19 October 2018.

The Arbitrator,

(Ricardo Rodrigues Pereira)