Stamp Tax on Vertical Property: VPT Threshold for Independent Units Under Verba 28.1 TGIS

ARBITRAL DECISION

I. REPORT

1. On 24 June 2016, A…, NIF…, in the capacity of head of the estate of B…, NIF…, resident at …, no. …, …, Algés (hereinafter, Claimant), filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2, no. 1, paragraph a), and 10, nos. 1, paragraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality and annulment of stamp tax assessments [item 28.1 of the General Stamp Tax Schedule (hereinafter, TGIS)] relating to the year 2015 and concerning the urban property in the form of vertical ownership with storeys or divisions capable of independent use, registered under article … in the urban property registry of the parish of…, municipality and district of Lisbon, forming part of the undivided estate of B….

The Claimant attached 3 (three) documents and did not request the production of any other evidence.

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

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

• The estate of which the Claimant is head includes an urban property in the regime of vertical ownership, with 17 storeys or divisions capable of independent use, of which 16 are allocated to housing, with their total tax property value amounting to € 1,254,349.00;

• Each of the independent storeys has a tax property value attributed, determined in accordance with the provisions of the IMI Code, less than € 1,000,000.00;

• The tax acts subject to this proceeding consist of stamp tax assessments relating to the year 2015 and levied on the aforementioned property, effected by AT in accordance with item 28.1 of the TGIS;

• The said assessments are based on the understanding that stamp tax shall apply whenever the sum of the tax property values, individually considered, exceeds € 1,000,000.00;

• The aforementioned assessments were all paid on 11 May 2016;

• According to AT's position, for a property in vertical ownership, the criterion for determining the incidence of stamp tax is the total tax property value of the storeys and divisions intended for housing, which the Claimant does not accept;

• For the legislator, the situation of the property (in vertical or horizontal ownership) is not relevant, as no reference or distinction is made between them, what is relevant being the material truth underlying its existence as an urban property and its use;

• As to the determination of the value relevant for the incidence of stamp tax on properties in vertical ownership, considering that the registration in the property matrix of properties in vertical ownership, consisting of different parts, storeys or divisions with independent use, in accordance with the IMI Code, follows the same registration rules as properties constituted in horizontal ownership – being the respective IMI, as well as stamp tax, assessed individually in relation to each of the parts – it must be concluded that the legal criterion for defining the incidence of stamp tax item 28.1 of the TGIS must be the same;

• Thus, stamp tax item 28.1 of the TGIS applies only if any of the parts, storeys or divisions with independent use has a tax property value exceeding € 1,000,000.00;

• The AT could not, therefore, consider as the reference value for stamp tax incidence the total value of the property, since such criterion has no legal support;

• The adoption of the criterion defended by AT violates the principles of legality and tax equality, as well as the prevalence of material truth over legal-formal reality;

• The existence of a property in vertical or horizontal ownership cannot, by itself, be an indicator of contributory capacity; on the contrary, it follows from law that one and the other must receive the same tax treatment in obedience to the principles of justice, tax equality and material truth;

• It is therefore illegal and unconstitutional to consider as the reference value that corresponding to the sum of the tax property values assigned to each part or division, primarily because such would constitute a violation of the principle of equality and proportionality in tax matters;

• Material truth is what imposes itself as the decisive criterion of contributory capacity and not the mere legal-formal reality of the property, whereby the discrimination operated by AT is arbitrary and illegal, as AT cannot distinguish where the legislator itself chose not to do so, on pain of violating the coherence of the tax system, as well as the principle of tax legality, provided for in article 103, no. 2, of the CRP, and also the principles of justice, equality and tax proportionality.

The Claimant concludes its initial pleading by requesting the following:

"On these grounds, the admission of the request for arbitral pronouncement is requested, with a conclusion in favour of the merits of the claims, and in accordance therewith it be declared by this Tribunal:

(i) The illegality of the stamp tax assessment acts relating to the year 2015 in the total amount of € 11,232.75;

(ii) The condemnation of the Tax Authority to refund to the Claimant the amounts unduly paid, together with compensatory interest; and

(iii) The condemnation of the Tax Authority to pay the costs resulting from the arbitral proceeding."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to AT on 12 July 2016.

2. The Claimant did not proceed to appoint an arbitrator, whereby, pursuant to the provisions of no. 1 of article 6 and paragraph a) of no. 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD designated the undersigned as arbitrator of the sole Arbitral Tribunal, who communicated acceptance of the appointment within the applicable deadline.

3. On 25 August 2016, the parties were duly notified of this designation and did not manifest the will to refuse the designation of the arbitrator, in accordance with the combined provisions of article 11, no. 1, paragraphs b) and c), of the RJAT and articles 6 and 7 of the Deontological Code of CAAD.

4. Thus, in accordance with the provision of paragraph c) of no. 1 of article 11 of the RJAT, the sole Arbitral Tribunal was constituted on 9 September 2016.

5. On 7 October 2016, the Respondent, duly notified for this purpose, filed its Reply in which it specifically challenged the arguments put forward by the Claimant, and concluded in favour of the inadmissibility of the present action, with its acquittal from the claim.

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

6.1. In essence and also in brief form, it is important to extract the most relevant arguments on which the Respondent based its Reply:

• The property in question is constituted in full ownership and comprises 13 divisions capable of independent use, allocated to housing, and the sum of their respective individual tax property values totals € 1,036,220.00;

• It was on this value that AT assessed stamp tax item 28.1 of the TGIS at the rate of 1%;

• The tax property value relevant for purposes of tax incidence is the total value of the urban property and not the tax property value of each of the parts that compose it, even when capable of independent use, whereby it is not apparent how the stamp tax assessment challenged could have violated the literal wording of item 28.1 of the TGIS;

• The urban property in question is not in the regime of horizontal ownership, in which case each of the autonomous fractions would be regarded as an urban property for purposes of subjection to stamp tax item 28.1 of the TGIS;

• The unity of the urban property in vertical ownership composed of various storeys or divisions is not affected by the fact that all or part of these storeys or divisions are capable of independent economic use, which cannot be legally equated to autonomous fractions in the regime of horizontal ownership;

• In the specific case, the tax property value on which the incidence of stamp tax item 28.1 of the TGIS depends had to be, as it was, the total tax property value of the property and not that of each of the independent parts;

• The fact that IMI was calculated on the basis of the tax property value of each part of the property with independent economic use does not affect the application of item 28.1 of the TGIS, by virtue of the determining factor for the application of that item being the total tax property value of the property and not that of each of its portions;

• The type of incidence according to which the tax property value of urban properties in vertical ownership on which the application of item 28.1 of the TGIS depends is the tax property value of each storey or division capable of independent use and not the total tax property value of the urban property with housing allocation would violate the letter and spirit of item 28.1 of the TGIS and would be unconstitutional, as offensive to the principle of tax legality regarding the essential elements of the tax, provided for in article 103, no. 2, of the CRP;

• The legislator may submit to a distinct legal-tax framework, hence discriminatory, properties in the regime of horizontal and vertical ownership, benefiting the legally more developed institute of horizontal ownership, without such discrimination needing to be considered necessarily arbitrary;

• The assessment acts in issue constitute a correct interpretation and application of law to the facts, and do not suffer from any illegality, whereby the Claimant's claim should consequently be judged inadmissible and AT absolved from the claim.

The Respondent concludes its pleading as follows:

"On these grounds, with the learned supplementation of Your Excellency, the request for declaration of illegality and consequent annulment of the contested assessments should be judged inadmissible, absolving AT therefrom."

1. On 11 October 2016, the Claimant, duly notified for this purpose, came to waive the holding of the meeting referred to in article 18 of the RJAT, the attachment to the file of the administrative proceeding and the presentation of pleadings.

2. On 12 October 2016, given the convergent positions assumed by the Parties in that sense, an order was issued waiving the attachment to the file of the administrative proceeding, the holding of the meeting referred to in article 18 of the RJAT, as well as the presentation of any pleadings and setting 31 January 2017 as the time limit for pronouncement of the arbitral decision.

II. PRELIMINARY EXAMINATION

The Arbitral Tribunal was duly constituted and is competent.

The proceeding does not suffer from nullities.

The parties possess legal personality and capacity, are duly represented and have standing.

The cumulation of claims is admitted – various stamp tax assessment acts are in question, with the declaration of illegality and annulment of each of them being sought – by virtue of the fact that the success of the claims formulated by the Claimant depends essentially on the appreciation of the same circumstances of fact – rooted in the Claimant's ownership of an urban property in vertical ownership with storeys or divisions capable of independent use – and of the interpretation and application of the same principles or rules of law – in casu, item 28.1 of the TGIS (cf. article 3, no. 1, of the RJAT).

There are no other exceptions or preliminary matters that prevent knowledge of the merits and which need to be known.

III. REASONING

III.1. OF FACTS

§1. PROVEN FACTS

The following facts are considered proven:

a) The undivided estate of B…, of which the Claimant is head, comprised, in the year 2015, 4/7 (four-sevenths) of the urban property in the form of full ownership with storeys or divisions capable of independent use, situated at Avenue…, no. …, parish of …, municipality and district of Lisbon, registered in the respective property registry under article... [cf. Doc. no. 2 attached to P. I.]

b) In that same year, the said urban property was thus described in the respective property registry [cf. Doc. no. 2 attached to P. I.]:

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

Description: Urban property intended for housing and commerce, composed of basement, ground floor and eight storeys. Shop with one division on the ground floor and sanitary facilities with warehouse in the basement. 1st right, with three divisions, kitchen and bathroom. 1st left, with three divisions, kitchen and bathroom. 2nd right, with three divisions, kitchen and bathroom. 2nd left, with three divisions, kitchen and bathroom. 3rd right, with three divisions, kitchen and bathroom. 3rd left, with three divisions, kitchen and bathroom. 4th right, with three divisions, kitchen and bathroom. 4th left, with three divisions, kitchen and bathroom. 5th right, with three divisions, kitchen and bathroom. 5th left, with three divisions, kitchen and bathroom. 6th right, with three divisions, kitchen and bathroom. 6th left, with three divisions, kitchen and bathroom. 7th right, with three divisions, kitchen and bathroom. 7th left, with three divisions, kitchen and bathroom. 8th storey (porter's lodge), with one division, kitchen and bathroom.

Number of storeys in the article: 10

Number of storeys or divisions with independent use: 17

Total tax property value: € 1,971,660.00"

c) The storeys or divisions capable of independent use forming part of that same urban property have their own tax property value, determined in accordance with the IMI Code, and to the storeys or divisions with independent use allocated to housing, the following unit tax property values were determined in 2014 [cf. Doc. no. 2 attached to P. I.]:

d) In addition to those listed in the previous proven fact, the said urban property is also composed of the following storeys or divisions with independent use, whose individual tax property values were determined in the year 2015 [cf. Doc. no. 2 attached to P. I.]:

e) On 5 April 2016, AT assessed stamp tax, relating to the year 2015 and concerning 4/7 (four-sevenths) – the share forming part of the estate of which the Claimant is head – of the storeys or divisions with independent use, allocated to housing, listed in proven fact c), with the total collection amounting to € 7,450.48 [cf. Doc. no. 1 attached to P. I.]

f) The stamp tax assessments referred to in the previous proven fact resulted from the application of item 28.1 of the TGIS to each and every storey or division with independent use allocated to housing listed in proven fact c). [cf. Doc. no. 1 attached to P. I.]

g) Following the stamp tax assessments referred to in proven fact e), the following single collection documents were issued in the name of the Claimant, in the total amount of € 2,531.03 [cf. Doc. no. 1 attached to P. I.]:

h) On 11 May 2016, in the context of enforcement proceedings instituted for their coercive collection, the Claimant proceeded to full payment of the tax amounts contained in the single collection documents listed in the previous proven fact, plus default interest and costs, in the total amount of € 2,779.33. [cf. Doc. no. 3 attached to P. I.]

i) On 24 June 2016, the Claimant filed the request for constitution of an arbitral tribunal which gave rise to the present proceeding. [cf. CAAD case management information system]

§2. UNPROVEN FACTS

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

§3. MOTIVATION AS TO THE FACTUAL MATTER

The Tribunal's conviction was founded on the facts pleaded by the Parties, whose adherence to reality was not put in question, and on the documents attached to the file.

III.2. OF LAW

The essential question to be resolved regarding the merits of the dispute concerning the claim for declaration of illegality of the contested stamp tax assessments, relates to determining whether, for purposes of incidence of item 28.1 of the TGIS, in the case of a property in full ownership with storeys or divisions capable of independent use, one should have regard to the total value of the property resulting from the sum of the tax property values of the various storeys or divisions with housing allocation, as underlies the assessments in question, or whether one should instead give relevance to the tax property value of each storey or division with housing allocation.

Appreciating and deciding.

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

At the epicentre of the disagreement that opposes the Parties in this proceeding is the tax incidence norm contained in item 28.1 of the TGIS, whereby it is necessary, naturally, to begin by proceeding to the interpretation of this norm, in order to ascertain its scope and, in that way, delimit what is its field of application.

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

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

28.1 — For property with housing allocation — 1%;

28.2 — For property, when the liable taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by order of the Minister of Finance — 7.5%."

Subsequently, Law no. 83-C/2013, of 31 December (State Budget Law 2014), amended the wording of item 28.1 of the TGIS (cf. article 194), which then came to have the following content [applicable ratione temporis to the situation sub iudice]:

"28.1 — For housing property or for land for construction whose construction, authorized or provided for, is for housing, in accordance with the provisions of the Municipal Property Tax Code — 1%"

The interpretation of the incidence norm contained in item 28.1 of the TGIS cannot but be carried out on the basis of the hermeneutical guidelines emanating from article 11 of the General Tax Law (LGT) and article 9 of the Civil Code, norms that provide as follows:

"Article 11 [LGT]

Interpretation

1. In determining the meaning of tax norms and in qualifying the facts to which the same apply, the general rules and principles of interpretation and application of laws are observed.

2. Whenever terms peculiar to other branches of law are used in tax norms, the same should be interpreted in the same sense as they have there, unless otherwise follows directly from the law.

3. Where doubt persists regarding the meaning of the incidence norms to apply, account should be taken of the economic substance of the tax facts.

4. The lacunae resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible of analogical integration."

"Article 9 [CC]

Interpretation of the law

1. Interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time when it is applied.

2. However, the interpreter cannot consider as the legislative intent that which 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 appropriate solutions and knew how to express its intent in adequate terms."

On this interpretative task, with all due deference, we appropriate here the following considerations set out in the arbitral decision handed down in proceeding no. 53/2013-T of CAAD:

"The relevance of the wording of the law is especially emphasized in the matter of interpretation of norms of incidence of Stamp Tax, which are reduced to an amalgam, under a common name, of an incongruent set of taxes of completely distinct natures (on income, on expenditure, on property, on acts, etc.), which leaves no appreciable margin for application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this item no. 28.1, hastily included outside the General State Budget, by a fiscal legislator without perceptible overall fiscal orientation, who goes implementing successive norms of fiscal aggravation as a measure of the setbacks in budget execution, of the impositions of international institutional creditors (represented by the 'troika') and of the supervision of the Constitutional Court.

In fact, although in the 'Statement of Reasons' of Bill no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the government's praiseworthy concern to 'strengthen the principle of social equity in austerity, guaranteeing an effective sharing of the sacrifices necessary to comply with the adjustment programme' and to its commitment 'to ensure that the sharing of these sacrifices will be made by all and not only by those who live on the income of their work', it is manifest, on the one hand, that those reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget entered into force, and on the other hand, that the scope of item no. 28.1, by taxing additionally properties with housing allocation and not also properties that do not have it, suggests that concerns about social equity and the proclaimed intention of sharing sacrifices by all, affects much more some than properly all.

In this context, with no interpretative elements available that allow detection of legislative coherence in the solution adopted in the said item no. 28.1 or the rightness or wrongness 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 primordial 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 intent in adequate terms."

That said. Having examined the wording – both the original and the current – of item 28.1 of the TGIS, we find that this norm has a fundamentally referential character, as its relevant regulatory content depends on the normativity ad quam contained in the IMI Code.

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

Moreover, this aspect is reinforced by no. 2 of article 67 of the Stamp Tax Code (CIS), which determines that to matters not regulated in the CIS concerning item 28 of the TGIS, the provisions of the IMI Code apply, subsidiarily.

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

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

"1. For purposes of this Code, property is every fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated into or founded upon it, with a 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 situated, although located in a fraction of territory that constitutes an integral part of a patrimony other than or does not have patrimonial nature.

1. Buildings or constructions, although moveable by nature, are regarded as having a character of permanence when allocated to non-transitory purposes.

2. The character of permanence is presumed when buildings or constructions are founded in the same location for a period greater than one year.

3. For purposes of this tax, each autonomous fraction, in the regime of horizontal ownership, is regarded as constituting a property."

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

Rural properties (article 3):

"Rural properties are lands situated outside an urban agglomeration that should not be classified as building land, in accordance with no. 3 of article 6, provided that:

a) They are allocated to or, in the absence of concrete allocation, have as 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 previous paragraph, they are not constructed or have only buildings or constructions of accessory character, without economic autonomy and of reduced value.

2 – Rural properties also include lands situated within an urban agglomeration, 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 in fact having this allocation.

3 – Rural properties also include:

a) Buildings and constructions directly allocated to the production of agricultural income, when situated on the lands referred to in the previous numbers;

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

4 – For purposes of this Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, clusters with a minimum of 10 dwellings served by streets for public use, with their perimeter delimited by points distanced 50 m from the axis of the streets, in the transversal 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 rural and urban parts it is classified, in its entirety, in accordance with the main part.

1. If neither of the parts can be classified as main, the property is regarded as mixed."

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

"1. Urban properties are divided into:

a) Housing;

b) Commercial, industrial or service;

c) Building land;

d) Other.

1. Housing, commercial, industrial or service are buildings or constructions licensed for such purpose or, in the absence of license, which have as normal destination each of these purposes.

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

3. The provision of paragraph d) of no. 1 covers lands situated within an urban agglomeration that are not building land nor are covered by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of license, which have as normal destination other purposes than those referred to in no. 2 and also those of the exception of no. 3."

As to "tax property value", article 7 of the IMI Code provides as follows:

"1. The tax property value of properties is determined in accordance with this Code.

1. The tax property value of urban properties with parts classifiable in more than one of the classifications of no. 1 of the previous article is determined:

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

b) If the different parts are economically independent, each part is evaluated by application of the corresponding rules, and the value of the property is the sum of the values of its parts.

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

Under the heading "concept of property matrices", article 12 of the IMI Code provides as follows:

"1. Property matrices are registers that contain, in particular, the characterization of properties, their location and tax property value, the identity of the owners and, where applicable, of usufructuaries and superficiaries.

1. There are two matrices, one for rural ownership and another for urban ownership.

2. Each storey or part of a property capable of independent use is considered separately in the matrix registration, which also discriminates its respective tax property value.

3. The matrices are updated annually with reference to 31 December.

4. Matrix registrations for tax purposes only constitute a presumption of ownership."

Still regarding property matrices, it is important to consider no. 1 of article 13 of the IMI Code, from which it follows that "[t]he registration of properties in the matrix and its updating are carried out on the basis of a statement submitted by the liable taxpayer".

As to the determination of tax property value, it is important here to invoke article 38 of the IMI Code, entitled "Determination of tax property value":

"1. The determination of the tax property 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 = tax property value;

Vc = base value of built properties;

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

Ca = allocation coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = age coefficient.

1. The tax property value of urban properties calculated 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 ("Coefficient of area adjustment"), 41 ("Allocation coefficient"), 42 ("Location coefficient"), 43 ("Quality and comfort coefficient") and 44 ("Age coefficient") of the IMI Code.

In light of the literal wording of item 28.1 of the TGIS (wording applicable ratione temporis to the situation sub iudice), urban housing properties with tax property value equal to or greater than € 1,000,000.00 are subject to this tax incidence norm.

Given the norms of the IMI Code cited above, we have that housing properties are buildings or constructions licensed by municipalities for that purpose or, in the absence of licensing, that have as normal destination that use (article 6, no. 2, of the IMI Code); thus, housing properties are the said buildings or constructions, and it is 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 norm to housing properties – a restriction that was maintained as to allocation (housing) in the legislative amendment that came to broaden the scope of incidence to building land – in the context of the "circumstances in which the law was enacted and the specific conditions of the time when it is applied", which article 9, no. 1, of the Civil Code also enshrines as interpretative elements.

In fact, the limitation of the application of the tax to housing properties and, subsequently, to building land in which housing construction is provided for or authorized, reveals the intention not to burden the productive sector and companies in general and, in that sense, it was not intended to include within the scope of incidence of the tax either properties allocated to services, industry or commerce, that is, properties allocated to economic activity, nor building land in relation to which building for those other purposes is provided for or authorized. This 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 CAAD.

Given that situation and being well known and public that the reanimation of economic activity and the increase of exports are the ways out of the crisis, it is understandable that, despite the pressing need to increase tax revenues, legislative measures were not taken that would hinder economic activity, namely the aggravation of the tax burden that hinders it and affects competitiveness in international terms.

For this reason, it is to be concluded that the available interpretative elements, including the "circumstances in which the law was enacted and the specific conditions of the time when it is applied", point clearly towards the intention not to include within the scope of incidence of item 28.1 of the TGIS non-housing properties and, subsequently, also building land in relation to which building for purposes other than housing is authorized or provided for.

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

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

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

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

It should be noted that each of these divisions or fractions is assigned a tax property value.

It being established that the classification of divisions with independent use of properties constituted in the regime of full ownership as "properties", in accordance with and for the purposes of the IMI Code, it seems to us evident that each of these divisions, when that is the purpose to which they are allocated, constitute housing properties.

In the case of the present proceeding, all 17 divisions or storeys of the urban property in question are capable of independent use, and 14 are allocated to housing.

Indeed, were it not that the divisions or storeys in question in the present proceeding are individually classified as "properties" and there would be no meaning or logic to the preparation, in this case, of a stamp tax assessment for each of these units.

It is true that the subsidiary application of the IMI Code could suggest the idea that only autonomous fractions in the regime of horizontal ownership are regarded as properties in light of the provision of no. 4 of article 2 of the IMI Code.

However, if one pays attention to the wording of that legal norm, it will soon be verified that the prerequisite of the constitution of the regime of horizontal ownership is only necessary for purposes of taxation in IMI.

It should also be noted that, in light of the provision of article 12, no. 3, of the IMI Code, "each storey or part of a property capable of independent use is considered separately in the matrix registration, which also discriminates its respective tax property value".

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

Now, if the objective of the law was to adapt taxation under Stamp Tax to the contributory capacity of taxpayers, it appears not to have any relevance the distinction between properties constituted in the regime of horizontal or vertical ownership.

Manifestly, it is not there that the greater or lesser contributory capacity is revealed, especially as, as is known, horizontal ownership 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, in practice, functioning as such.

Now, the principle of the prevalence of substance over form requires that the AT should value material truth. And, in the case of the present proceeding, the material truth consists in the non-existence of any substantive difference between the divisions owned by the Claimant and the fractions of a property constituted in horizontal ownership.

Or, stated differently, since the constitution of horizontal ownership is merely a legal operation and not factual, no reasons are found for differences in taxation in this regard, as what will always be relevant is the individual value of each of the fractions, whether or not the property is constituted in the regime of horizontal ownership.

In light of all that has been stated, there is no doubt that the tax property value relevant for purposes of incidence of stamp tax in cases of properties constituted in the regime of full ownership, composed of various divisions with independent use, of which some have housing allocation, is the tax property value of each of the divisions of the property and not the total tax property value of the property, corresponding to the sum of all the tax property values of the divisions that compose it.

Thus, in conclusion, as to properties in full ownership with storeys or divisions capable of independent use, regard should be had exclusively to the tax property value proper to each storey or division with housing allocation, contained in the matrix, for purposes of the application of item 28.1 of the TGIS.

This interpretation proves to be "particularly peremptory in a case such as the present in which the property in question has parts capable of independent use with housing allocation and parts capable of independent use with allocation to services and commerce (…).

For in such circumstances, there is not contained in the matrix nor is used for purposes of IMI a 'tax property value' that corresponds to the sum of the tax property values of the divisions of independent use with housing allocation (…). In fact, what the IMI Code establishes, according to the cited art. 7, no. 2, para. b), and is contained in the matrix (…) is that the 'value of the property' is 'the sum of the values of its parts', therefore, of all its parts, whatever their allocation may be.

Consequently, the 'tax property value of the property – total subject to tax' (…) on which the contested assessments are based does not have correspondence with the legal category enshrined in item 28 of the TGIS of the 'tax property value contained in the matrix, in accordance with the Municipal Property Tax Code'.

It should be insisted, in fact, that the IMI Code only refers, as results from art. 7, no. 2, para. b) cited above, to the 'value of the property' as the sum of all its parts object of autonomous valuation, not thus legitimizing the configuration of partial property values by attending only to certain economically independent parts of the property (those that have housing allocation), disregarding parts with other allocations (for commerce, industry or services). In such context, there is not constituted the value of the property as provided in art. 7, no. 2, para. b) of the IMI Code, but rather the value of the set of certain parts of the property, value which is not the subject of any provision in accordance with the Municipal Property Tax Code (nor is it tax property value used for purposes of IMI).

It is therefore advanced that it is considered that in the contested assessments there is the adoption, for purposes of fixing the incidence of item 28.1 of the TGIS, of a tax property value that finds no acceptance in the law." (arbitral decision handed down in proceeding no. 518/2014-T).

§2. OF THE CASE SUB JUDICE

As was proven, none of the storeys or divisions with independent use, described in the property matrix as allocated to housing, of the urban property in question, has a tax property value equal to or greater than € 1,000,000.00 (cf. proven fact c)).

In that measure and having regard to what has been stated above, since the tax property value of each of the aforementioned storeys or divisions with independent use allocated to housing is less than that value to which item 28.1 of the TGIS refers, it follows that such storeys or divisions do not fall within the tax incidence norm contained in that item 28.1, whereby the contested assessments suffer from a defect of violation of law, by error in the legal presuppositions, consisting in the incorrect interpretation and application of item 28.1 of the TGIS, which implies the declaration of its illegality and consequent annulment.

Given the success of the sought declaration of illegality of the contested stamp tax assessments, by a defect that prevents the renewal of the act, the knowledge of the remaining questions and defects invoked by the Claimant is rendered moot, as unnecessary.

§3. ON THE REFUND OF AMOUNTS PAID AND THE PAYMENT OF COMPENSATORY INTEREST

The Claimant further petitions the condemnation of AT to the refund of the amounts unduly paid, together with the respective compensatory interest.

Article 24, no. 1, paragraph b), of the RJAT provides that an arbitral decision on the merits of the claim that is not susceptible of appeal or challenge binds the tax administration from the end of the deadline provided for appeal or challenge, and it must, in the exact terms of the success of the arbitral decision in favour of the liable taxpayer and until the end of the deadline provided for voluntary compliance with sentences of tax courts, restore the situation that would have existed by adopting the acts and operations necessary for that purpose, which should be understood, in accordance with the provision of article 100 of the General Tax Law (LGT), applicable by virtue of paragraph a) of no. 1 of article 29 of the RJAT, as encompassing the payment of compensatory interest, in accordance, moreover, with the provision of no. 5 of the same article 24 of the RJAT.

Article 43, no. 1, of the General Tax Law determines that "compensatory interest is due when it is determined, in gracious objection or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due", the provision in no. 5 of article 61 of the Code of Procedure and Tax Process (CPPT) establishing that "interest is counted from the date of undue payment of the tax until the date of processing of the respective credit note, in which it is included".

In the specific case, it is found that the illegality of the contested assessments, by error in the legal presuppositions, is attributable to AT for, in those tax assessments, having proceeded to the incorrect interpretation and application of the provision contained in item 28.1 of the TGIS, whereby the Claimant is entitled, in accordance with the provision of articles 24, no. 1, paragraph b), of the RJAT and 100 of the General Tax Law (LGT), to the refund of the amounts unduly paid and to the payment of compensatory interest, in accordance with the provisions of articles 43, no. 1, of the General Tax Law (LGT) and 61 of the Code of Procedure and Tax Process (CPPT), calculated from the dates of the respective payments, at the rate resulting from no. 4 of article 43 of the General Tax Law (LGT), until the date of processing of the respective credit note, in which they are included.

IV. DECISION

On the grounds stated, this Arbitral Tribunal decides:

a) To judge the request for arbitral pronouncement as founded and, consequently, by a defect of violation of law, by error in the legal presuppositions, consisting in the incorrect interpretation and application of item 28.1 of the TGIS, to declare illegal and annul the stamp tax assessments challenged in the present proceeding, relating to the year 2015 and concerning the urban property registered under article … in the urban property registry of the parish of …, municipality and district of Lisbon;

b) To judge as founded the request for condemnation of the Tax Authority to refund to the Claimant the amounts unduly paid, together with compensatory interest, calculated, at the legal rate, from the dates of the respective payments, until the date of processing of the respective credit note, in which it is included;

c) To condemn the Tax Authority to the payment of the costs of the present proceeding.

VALUE OF THE PROCEEDING

In accordance with the provision of articles 306, no. 2, of the Code of Civil Procedure (CPC), 97-A, no. 1, paragraph a), of the Code of Procedure and Tax Process (CPPT) and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 7,450.48 (seven thousand four hundred and fifty euros and forty-eight cents), which constitutes the total amount of the tax resulting from the contested assessments whose annulment was sought.

COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at € 612.00 (six hundred and twelve euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Tax Authority.

Lisbon, 3 November 2016.

The Arbitrator,

(Ricardo Rodrigues Pereira)