ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 311/2014 – T

Subject: Stamp Duty – item 28.1 of the General Stamp Duty Table (TGIS)

Claimant/Applicant: SOCIEDADE IMOBILIÁRIA, S.A.

Respondent: Tax and Customs Authority (hereinafter ATA)

1. Report

On 31-03-2014, SOCIEDADE IMOBILIÁRIA, S.A., legal entity no. …, with registered office in … Lisbon, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the tax acts assessing Stamp Duty, under item 28.1 of the General Table of Stamp Duty, relating to the year 2012 and the urban property located at Rua …, of the parish of …, municipality of Lisbon, recorded in the urban property register of the said parish under article ..., currently article ... of the parish of Santo António, constituted in full ownership and comprising 12 floors with independent use.

The Claimant alleges that since none of the floors with independent use has a tax property value (VPT) exceeding one million euros (€1,000,000), no Stamp Duty may be assessed or collected.

In summary, the Claimant alleges that the assessments in question are void due to unconstitutionality of the norm. The Claimant contends that the transitional norm of the Stamp Duty Code (article 6, no. 1 of Law no. 55-A/2012 of 29 October) insofar as it refers to the creation of a new instantaneous tax event dated 31-10-2012, its assessment by the end of November and payment of the tax by 20-12-2012, violates the principle of the democratic rule of law in the aspect of the sub-principle of protection of legitimate expectations and legality (articles 2 and 103 of the CRP) and, in a temporal perspective, violates the principle of proportionality.

The Claimant further states that the norms contained in articles 3, 4 and 6 of Law no. 55-A/2012 of 29 October violate the principle of tax equality, provided for in articles 13 and 103 of the CRP.

As grounds for the violation of the principle of tax equality, the Claimant alleges, firstly, that there is no reasonable, perceptible or intelligible basis for the legislator's choice to integrate into the scope of item 28 of the TGIS only urban properties with residential use, and to exclude from the scope of this tax rural properties, urban properties with non-residential use and mixed properties. It alleges, secondly, that the transitional norm contained in article 6, no. 1 of Law no. 55-A/2012 of 29 October, insofar as it refers to the creation of a new tax event dated 31-10-2012, to be paid by 20-12-2012, determines that the VPT to be used in the assessment of the corresponding tax is that which results from the rules provided in the Municipal Property Tax Code (CIMI) by reference to the year 2011, and not by reference to the VPT of the properties on the date of the tax event, which is 31-10-2012. And it states, thirdly, that there is a violation of the principle of equality when the ATA, in defining the value of properties relevant for purposes of application of item 28 of the TGIS (exceeding one million euros (€1,000,000)), takes as relevant the total value of the property in urban properties in full ownership with floors or divisions capable of independent use.

The Claimant further states that the transitional norm contained in article 6, no. 1 of Law no. 55-A/2012 of 29 October violates the principle of prohibition of retroactivity of tax law provided for in article 103, no. 3 of the CRP, insofar as it refers to the creation of a new instantaneous tax event dated 31-10-2012, to be paid by the taxpayers of the tax by 20-12-2012.

In summary, the Claimant alleges that the assessments that are the subject matter of the arbitral request are flawed by fact error or law error, or by material unconstitutionality resulting from the violation of the constitutional principles of equality, proportionality and prohibition of retroactivity of tax law, all of which give rise to their invalidity and annulment.

The Claimant also contends that there is a lack of grounds, as it is not comprehensible to a normal recipient why the entirety of the property, broken down for assessment purposes into as many assessments as there are units capable of independent use, each with a value below one million euros (€1,000,000), is taxed.

It also alleges lack of prior hearing of the Claimant before the assessment.

Finally, the Claimant requests that the existence of errors on the part of the services be expressly declared and that the right to indemnity interest be recognized from the date of payment of the assessments in question, 25-02-2014, until the date of their full reimbursement.

The Tax and Customs Authority submitted its response on 11-07-2014, defending the maintenance of the tax acts under review, requesting dismissal of the claim, and alleging that the tax property value relevant for purposes of tax application is the total tax property value of the urban property and not the tax property value of each of the floors that comprise it, even if they are capable of independent use.

A sole arbitrator was designated on 20-05-2014: Suzana Fernandes da Costa. In accordance with the provisions of article 11, no. 1, paragraph c) of the RJAT, the sole arbitral tribunal was constituted on 12-06-2014.

The meeting provided for in article 18 of the RJAT was scheduled for 19-09-2014 at 14:30 hours.

On 30-07-2014, the Tax and Customs Authority requested the waiver of the meeting and the production of arguments. Notified of this request for waiver, the Claimant made no objection.

On 12-09-2014 a ruling was issued waiving the meeting provided for in article 18 of the RJAT and the production of arguments, taking into account that there would be no exceptions to analyse.

At that time, 30-10-2014 was set as the date for the pronouncement of the arbitral decision.

The parties have legal personality and capacity and are legitimate (articles 4 and 10, nos. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).

The arbitral request is timely, in accordance with article 10, no. 1, paragraph a) of Decree-Law no. 10/2011 of 20 January and article 102, no. 1, paragraph a) of the CPPT.

The proceedings do not suffer from any nullities and no preliminary questions were raised, with the exception of the request for cumulation of claims.

The Claimant requests the cumulation of claims, alleging that several assessments are in question relating to the same tax and the same property, belonging to the same taxpayer, with identity of circumstances of fact and of the interpretation and application of the same principles or rules of law.

In this case cumulation of claims is admissible, in accordance with articles 104 of the CPPT and 3 of the RJAT, and is therefore admitted.

2. Factual Matters

2.1. Proven Facts:

Having analysed the documentary evidence produced, the following facts are considered proved and of interest for the decision of the case:

1. The Claimant SOCIEDADE IMOBILIÁRIA, S.A. is the owner of the urban property located at Rua …, of the parish of …, municipality of Lisbon, recorded in the urban property register of the said parish under article ..., currently article ... of the parish of Santo António, constituted in full ownership and comprising 12 floors with independent use, in accordance with the property register attached to the arbitral request as documents 12.

2. The Claimant was notified of the following assessments of Stamp Duty of the year 2012, as per copies attached to the arbitral request as documents 1 to 11:

• assessment no. 2013 … in the amount of €980.20, relating to the 1st floor right of the property referred to in point one, whose VPT is €98,020.00;

• assessment no. 2013 … in the amount of €980.20, relating to the 1st floor left of the property referred to in point one, whose VPT is €98,020.00;

• assessment no. 2013 … in the amount of €990.50, relating to the 2nd floor right of the property referred to in point one, whose VPT is €99,050.00;

• assessment no. 2013 … in the amount of €990.50, relating to the 2nd floor left of the property referred to in point one, whose VPT is €99,050.00;

• assessment no. 2013 … in the amount of €990.50, relating to the 3rd floor right of the property referred to in point one, whose VPT is €99,050.00;

• assessment no. 2013 … in the amount of €990.50, relating to the 3rd floor left of the property referred to in point one, whose VPT is €99,050.00;

• assessment no. 2013 … in the amount of €1,000.80, relating to the 4th floor right of the property referred to in point one, whose VPT is €100,080.00;

• assessment no. 2013 … in the amount of €1,000.80, relating to the 4th floor left of the property referred to in point one, whose VPT is €100,080.00;

• assessment no. 2013 … in the amount of €1,898.80, relating to the 5th floor of the property referred to in point one, whose VPT is €189,880.00;

• assessment no. 2013 … in the amount of €415.90, relating to the basement of the property referred to in point one, whose VPT is €41,590.00;

• assessment no. 2013 … in the amount of €936.20, relating to the ground floor left of the property referred to in point one, whose VPT is €93,620.00.

1. The deadline for payment of these assessments was 31-12-2013.

2. The Claimant proceeded with payment, on 25-02-2014, of all the Stamp Duty assessments mentioned above.

3. From the said Stamp Duty assessments it appears that the total tax property value of the property is one million, one hundred and seventeen thousand, four hundred and ninety euros (€1,117,490.00).

No other facts of relevance for the decision of the case were proved.

2.2. Grounds for the Proved Factual Matters:

With regard to the proved facts, the arbitrator's conviction was based on the documentary evidence attached to the proceedings.

3. Legal Matters:

3.1. Object and Scope of These Proceedings

The issues to be decided in these proceedings are:

• whether item 28.1 of the General Table of Stamp Duty (TGIS), in the case of properties not constituted in horizontal property ownership, applies to the sum of the tax property value attributed to the different parts or floors (global VPT), or rather to the tax property value of each part of the property with independent economic use;

• whether the transitional norm contained in article 6, no. 1 of Law no. 55-A/2012 of 29 October violates:

  · the principle of the democratic rule of law in the aspect of the sub-principle of protection of legitimate expectations and legality (articles 2 and 103 of the CRP), and, in a temporal perspective, whether it violates the principle of proportionality;

  · the principle of tax equality, provided for in articles 13 and 103 of the CRP.

On the first issue, pronouncements have already been made by, amongst others, the decisions of CAAD handed down in cases no. 50/2013-T, 132/2013-T, 181/2013-T, 183/2013-T, 272/2013-T, 280/2013-T, 26/2014-T, 88/2014-T, 206/2014-T and 290/2014-T.

3.2. Issue of the Tax Property Value Relevant for Application of Item 28.1 of the TGIS and the Alleged Violation of the Principle of Equality

According to the Tax and Customs Authority, in a property in vertical ownership (or not constituted in the horizontal property ownership regime) the criterion for determining the incidence of stamp duty is the global tax property value of the floors and divisions intended for residential use.

For the Claimant, by contrast, the subjection to stamp duty contained in item no. 28.1 of the TGIS should be assessed not by the total value of the property but by the value attributed to each of the parts with independent use, according to their respective VPT, and should follow the same criterion as the determination of the Municipal Property Tax (IMI).

Let us examine this:

Law no. 55-A/2012, of 29 October, added item 28 to the General Table of Stamp Duty (TGIS), with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 – calculated on the tax property value used for purposes of the Municipal Property Tax (IMI):

28.1 – For property with residential use – 1% (…);

In the transitional provisions contained in article 6 of that Law no. 55-A/2012, the following rules were established:

c) The tax property value to be used in the assessment of the tax corresponds to that which results from the rules provided in the Municipal Property Tax Code by reference to the year 2011; (…)

f) The applicable rates are as follows:

i) Properties with residential use assessed in accordance with the Municipal Property Tax Code: 0.5%;

ii) Properties with residential use not yet assessed in accordance with the Municipal Property Tax Code: 0.8%;"

Item 28.1 TGIS and sub-paragraphs i) and ii) of paragraph f) of no. 1 of article 6 of Law no. 55-A/2012, contains a concept that is not used in any other tax legislation, which is that of "property with residential use".

In turn, article 67, no. 2 of the Stamp Duty Code, added by the said Law, provides that "to matters not regulated in this code relating to item 28 of the General Table, the CIMI applies subsidiarily."

The incidence norm refers to urban properties, whose concept is that which results from the provisions of article 2 of the CIMI, with the determination of the VPT being subject to the terms provided in article 38 et seq. of the same code.

In turn, article 6 of the CIMI indicates the different types of urban properties, and determines that "residential, commercial, industrial or service buildings or constructions are those licensed as such or, in the absence of a licence, that have as their normal purpose each of these uses." (see paragraph a) of no. 1) of article 6 CIMI).

It must therefore be concluded that for the legislator it is irrelevant whether the property is in vertical ownership or horizontal ownership, with relevance only to the material truth underlying its existence as an urban property and its use.

Since the Stamp Duty Code defers to the CIMI, we should consider that the registration in the property register of properties in vertical ownership, constituted by different parts, floors or divisions with independent use, follows the same registration rules as properties constituted in horizontal ownership.

It follows therefrom that the respective IMI, as well as the Stamp Duty, are assessed individually in relation to each of the parts. For this reason, the legal criterion for defining the incidence of the new tax must be the same.

This conclusion is supported by the decision in CAAD case 50/2013-T, according to which "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 has clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of item 28.1 of the TGIS".

It thus results from the law that stamp duty under item 28.1 of the TGIS would only be incurred if one of the parts, floors or divisions with independent use had a VPT exceeding one million euros (€1,000,000.00), which is not the case in these proceedings.

The criterion defended by the ATA, which takes into account the sum of the parts, arguing that the property would not be constituted in the horizontal ownership regime, has no legal basis and is contrary to the criterion that results from the CIMI and which applies by referral in the context of Stamp Duty.

Furthermore, the law itself expressly establishes, in the final part of item 28 of the TGIS, that the Stamp Duty to be incurred on urban properties of value equal to or exceeding one million euros (€1,000,000.00) – "is calculated on the tax property value used for purposes of the IMI."

In conclusion, the tax property value relevant for purposes of the application of item 28.1 of the TGIS is the VPT of the part, floor or division with independent use.

The Claimant alleges that the application of item 28.1 of the TGIS directly violates the principle of equality enshrined in articles 13 and 104, no. 3 of the Constitution of the Portuguese Republic.

In accordance with the interpretation upheld above, the taxation of parts with independent use of value less than one million euros is not covered by the incidence norm; therefore, their taxation effectively violates the principle of equality, more specifically in its corollaries of contributory capacity and tax proportionality.

Regarding the principle of equality, see CAAD decisions no. 50/2012-T and 218/2013-T, and Constitutional Court decisions no. 142/04 and 187/2013.

We conclude, as in CAAD decision no. 218/2013-T, "the assessment of Stamp Duty now in question manifestly violates the principle of tax equality provided for in article 13 of the CRP, because: i) it is based on a norm that treats taxpayers in identical situations in very different ways, with the measure of the difference not being assessed by their actual contributory capacity; ii) it is based on an arbitrary legal solution devoid of any rational basis."

In the case at hand, the property in question is in vertical ownership and contains several floors and divisions with independent use intended for residential purposes, as was proved above. Given that none of the floors intended for residential purposes has a tax property value equal to or exceeding one million euros (€1,000,000.00), as results from the documents attached to the proceedings, the conclusion is that the legal prerequisite for incidence of Stamp Duty provided for in Item 28 of the TGIS has not been met.

Looking now at the ratio legis of the provision in question in item 28.1 TGIS and citing CAAD decision 50/2013-T "the legislator, in introducing this legislative innovation, considered as the determining element of contributory capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or exceeding one million euros (€1,000,000.00), upon which it proceeded to impose a special rate of stamp duty, intending to introduce a principle of taxation based on the wealth externalized in the ownership, usufruct or right of superficies of luxury urban properties with residential use. For this reason, the criterion was the application of the new rate to urban properties with residential use, whose VPT equals or exceeds one million euros (€1,000,000.00).

Clearly the legislator understood that this value, when attributed to a residence (house, autonomous fraction or floor with independent use) expresses a contributory capacity above the average and, as such, capable of determining a special contribution to ensure the fair apportionment of the tax burden." However, when applied to a part or fraction that does not exceed the said value of one million euros, the incidence norm is not met.

The principle of tax equality determines that what is equal must be treated fiscally equally and what is different must be treated differently. Now, there is no justification for the differentiated treatment of fractions or parts of a property merely because the same is already in horizontal ownership, provided that the fractions or parts have independent use.

As stated in the CAAD decision in case no. 218/2013-T, "The principle of tax equality is based on the general principle of equality provided for in article 13 of the CRP, from which results the principle of contributory capacity which, by constitutional imperative, is the presupposition and criterion of taxation.

As Casalta Nabais states, the principle of tax equality is essentially based on 'the idea of generality or universality, under which all citizens are bound by the duty to pay taxes, and of uniformity, requiring that such duty be assessed by a single criterion — the criterion of contributory capacity. This thus implies equal tax for those with equal contributory capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributory capacity in proportion to such difference (vertical equality) (Casalta Nabais, Direito Fiscal, 5th edition, Coimbra, 2009, p. 151-152).'

In the CAAD decision in case no. 50/2013-T it can be read that 'The fiscal legislator cannot treat equal situations differently. Now, if the property were in the horizontal ownership regime, none of its residential fractions would be subject to the incidence of the new tax.'

Thus, and in line with the case law of the Constitutional Court and CAAD, we conclude that there is a violation of the principle of tax equality and contributory capacity.

3.3. Issues with Prejudicial Knowledge

Resulting from the above the declaration of illegality of the assessments that are the subject of these proceedings, due to a defect that prevents the renewal of the acts, the knowledge of the remaining defects imputed to them by the Claimant is prejudiced.

In fact, article 124 of the CPPT, subsidiarily applicable by force of the provisions of article 29, no. 1 of the RJAT, in establishing an order of knowledge of defects, presupposes that, once a defect that ensures the effective protection of the rights of the parties challenging the act is upheld, it is not necessary to examine the rest, since, if it were always necessary to examine all the defects imputed to the challenged act, the order of their examination would be immaterial.

For the foregoing, the remaining defects imputed by the Claimant to the acts for whose declaration of illegality it requested are not examined.

4. Indemnity Interest

As the assessments of Stamp Duty no. 2013 … in the amount of €980.20, no. 2013 … in the amount of €980.20, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €1,000.80, no. 2013 … in the amount of €1,000.80, no. 2013 … in the amount of €1,898.80, no. 2013 … in the amount of €415.90, no. 2013 … in the amount of €936.20, are flawed with illegality, indemnity interest is due from the date of payment of the tax until full reimbursement by the ATA, in accordance with the terms of articles 43 of the LGT and 61, no. 2 of the CPPT.

5. Decision

In light of the foregoing, it is determined that:

• the claim filed by the Claimants in these tax arbitration proceedings is wholly upheld, regarding the illegality of the assessments of Stamp Duty of the year 2012, no. 2013 … in the amount of €980.20, no. 2013 … in the amount of €980.20, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €990.50, no. 2013 … in the amount of €1,000.80, no. 2013 … in the amount of €1,000.80, no. 2013 … in the amount of €1,898.80, no. 2013 … in the amount of €415.90, no. 2013 … in the amount of €936.20;

• the claim for an order requiring the Tax and Customs Authority to reimburse the Claimant the amount of the tax improperly paid, plus indemnity interest in accordance with law, from the date such payment was made until the date of full reimbursement thereof, is upheld.

6. Value of the Case:

In accordance with the provisions of article 306, no. 2 of the CPC and article 97-A, no. 1, paragraph a) of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at €11,174.90.

7. Costs:

In accordance with article 22, no. 4 of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €918.00, payable by the Tax and Customs Authority.

Notify.

Lisbon, 30 October 2014.

Text produced by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29, no. 1, paragraph e) of the Tax Arbitration Regime, with blank lines and reviewed by me.

The sole arbitrator

Suzana Fernandes da Costa