Stamp Tax on Vertical Property: Autonomous Challenge of Installments Under Verba 28.1 TGIS (CAAD 357/2016-T)

ARBITRAL DECISION

1. Report

1.1 A..., hereinafter referred to as "Claimant", taxpayer no. ..., resident at Street ..., no. ..., ..., has requested the constitution of a sole arbitral tribunal, under the combined provisions of Article 2, No. 1, paragraph a) and Article 10, both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT") and Articles 1 and 2 of Order No. 112-A/2011, of 22 March, in which the Tax and Customs Authority (AT) is the Respondent.

1.2 The request for arbitral decision, presented on 30 June 2016, has as its object the declaration of illegality and consequent annulment of the first instalment, in the amount of €3,823.80 (three thousand, eight hundred and twenty-three euros and eighty cents), relating to the assessments of stamp duty tax for the year 2015, provided in item 28.1 of the General Stamp Duty Tax Table (TGIS), concerning the storeys and divisions intended for residential use of the urban property, in full or vertical ownership, located at Street ..., no. ..., registered in the property registry of the parish of ..., municipality of Lisbon, under article....

1.3 The Claimant chose not to appoint an arbitrator.

1.4 The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to AT on 18 July 2016.

1.5 The undersigned was designated by the President of CAAD's Ethics Council as arbitrator of the sole arbitral tribunal, in accordance with the provisions of Article 6 of RJAT, and acceptance of the appointment was communicated within the applicable period.

1.6 On 31 August 2016, the Parties were notified of this designation and did not object to it, in accordance with the combined provisions of Article 11, No. 1, paragraphs a) and b) of RJAT and Articles 6 and 7 of CAAD's Ethics Code.

1.7 Thus, in accordance with the provisions of paragraph c) of No. 1 of Article 11 of RJAT, the sole arbitral tribunal was constituted on 16 September 2016.

1.8 The Respondent was notified by arbitral order of 16 September 2016 to, under Article 17, No. 1 of RJAT and within a period of 30 days, submit a response and, if desired, request the production of additional evidence.

1.9 It was further notified to, within the same period, submit the administrative file (PA) referred to in Article 111 of CPPT.

1.10 On 18 October 2016, the Respondent submitted its Response, defending itself by exception and by challenge, arguing, respectively, for the merit of the dilatory exception invoked with the consequent dismissal of the claim, or, subsidiarily, for the lack of merit of the request for arbitral decision.

1.11 Because the collection documents presented by the Claimant prove the request, it did not submit the administrative file.

1.12 By order of 19 October 2016, the Claimant was notified to, if it wished, respond to the dilatory exception invoked (non-challengeability of the object of the request for arbitral decision).

1.13 Which it did on 31 October 2016, arguing for the lack of merit of the exception invoked by the Respondent.

1.14 By order of the same date, the Arbitral Tribunal dispensed with the production of the testimonial evidence requested in the request for arbitral decision.

1.15 In the same order, and considering that the Parties did not request the production of any other evidence, the Arbitral Tribunal, in light of the principles of autonomy in the conduct of proceedings, celerity, simplification and procedural informality, inherent in No. 2 of Articles 19 and 29 of RJAT, dispensed with the holding of the meeting provided for in Article 18 of the same decree-law, having also decided that the proceedings should continue with written, optional submissions, successively for the Respondent.

1.16 No submissions were presented.

1.17 The date of 30 November 2016 was set for the delivery of the respective final arbitral decision.

2. Preliminary Assessment

2.1 The Parties have legal personality and capacity, are shown to be legitimate and are regularly represented (Articles 4 and 10, No. 2 of RJAT and Article 1 of Order No. 112-A/2011, of 22 March).

2.2 The proceedings are not affected by any defects of form.

2.3 The Arbitral Tribunal is regularly constituted and is materially competent to hear and decide the request, cf. Article 2, No. 1, paragraph a) of RJAT.

2.4 There are no other circumstances that prevent the tribunal from hearing the merits of the case.

3. Position of the Parties

3.1 Of the Claimant

It supports its request for arbitral decision, summarily, as follows:

• The Claimant is the owner of an urban property, intended for residential use, not subject to the regime of horizontal property ownership.

• The tax patrimonial value (VPT) of the property, in the amount of €1,147,130.00, was determined in accordance with the provisions of Article 7, No. 2, paragraph b) of the Municipal Property Tax Code (CIMI), since it comprises seven storeys or divisions with independent uses.

• The VPT of each storey is comprised between €99,590.00 and €190,140.00.

• In the understanding of AT, for a property in vertical ownership, the criterion for determining the incidence of stamp duty tax is the global VPT of the storeys and divisions intended for residential use, a position which the Claimant understands to be "manifestly illegal and even unconstitutional" and violative of the principles of equality and fiscal proportionality, since "the subjection to stamp duty tax contained in item No. 28.1 of TGIS is determined by the combination of two criteria: the residential purpose and the VPT recorded in the property registry equal to or exceeding €1,000,000.00" by which "in the case of an urban property with characteristics identical to those described in the present proceedings, the subjection to stamp duty tax is determined not by the VPT of the property, but by the VPT attributed to each of the storeys or divisions".

• To matters regulated in the Stamp Duty Tax Code (CIS), concerning item 28 of TGIS, the CIMI is applied subsidiarily, by virtue of the provisions of Article 67, No. 2 of that code.

• The concept of urban property is that contained in Article 2 of CIMI, "with the determination of VPT subject to the terms provided in Article 38 et seq. of CIMI".

• Article 6 of this code enumerates the types of urban properties, among which are residential properties.

• "For the legislator the determining factor is the normal use of the property, that is, the purpose to which it is intended".

• The legislator does not distinguish between properties in vertical and horizontal ownership.

• Only the material truth underlying the property and its respective use can be relevant.

• "The tax legislator cannot treat equal situations differently, because if it were a property subject to the regime of horizontal property ownership, none of the units would be subject to the new stamp duty tax".

• "(…) the material truth is what should prevail as a criterion of contributory capacity and not a merely formal reality of the property".

• The following assessments are at issue:

He concludes, arguing for the merit of the request for arbitral decision and annulment of the tax acts relating to the assessment of stamp duty tax for the year 2015, namely the 1st instalment, for being manifestly illegal.

3.2 Of the Respondent

Defending itself, by exception and by challenge, AT invokes the following arguments:

BY EXCEPTION

On the non-challengeability of the object of the request for arbitral decision

• "(…) for each taxable event, there will, in principle, be a single assessment, by which the tax collected will be determined".

• That "the assessment is only one and only it constitutes a harmful act, capable of being challenged, and which can only, evidently, be the object of a single challenge, regardless of whether the tax can be paid in several instalments".

• "The payment of one of the instalments of the assessment made under item 28.1 of TGIS is not a partial payment of that assessment, but only a tax collection technique for the assessed tax (…)".

• That "the law does not provide for the autonomous challenge of an instalment of item 28 of IS contained in the collection notices, as is the case here" by which "the annulment of the tax act will have consequences in relation to all of them".

• "(…) the tax assessment act for item 28 of IS is unique, and the fact that it can be paid in several instalments does not imply that several assessments have occurred. The nature of the instalments of an assessment of this tax is that of division of the global assessment, made annually, with each instalment per se not being able to be judged autonomously, since the object of judicial challenge or of the tax proceedings is the tax assessment act".

• "Hence the annulment of the tax assessment act necessarily affects all instalments, ceasing the obligation to pay them or imposing on the tax administration the obligation to repay the amounts eventually paid by the taxpayer".

• "Thus, given the manifest non-challengeability of autonomous instalments of the assessment acts contained in the collection notices which constitute the object of the present request for arbitral decision, with the value of the present action corresponding to the value of the first instalments – €3,833.80 - the dilatory exception provided in paragraph c), of No. 1, of Article 89 of CPTA, subsidiarily applicable by Article 29, No. 1, paragraph c) of RJAT, applies, which prevents the tribunal from hearing the merits and results in the dismissal of AT from the claim".

BY CHALLENGE

• The property in question is not constituted under the regime of horizontal property ownership but under vertical ownership.

• That all storeys with independent use and residential purpose are owned by the Author of the request for arbitral decision and that the patrimonial value of these storeys, in the amount of €1,153,830.00, was determined separately, in accordance with Article 7, No. 2, paragraph b) of CIMI, as per the property registry card provided by the Claimant.

• "The concentration in each property of independent residential units is not, therefore, capable of triggering the incidence of stamp duty tax on each of them".

• "The legal form of ownership of urban properties, horizontal or vertical, is not capable of, under penalty of violation of the principle of contributory capacity, a corollary of the principle of equality referred to in Article 13 of the Constitution of the Portuguese Republic (CRP), being reflected in the incidence of stamp duty tax of item 28.1 of the General Table".

• "Item 28 of the General Table provides for stamp duty tax to be levied on the ownership, usufruct or right of superficies of urban properties whose patrimonial value recorded in the property registry, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding €1,000,000.00".

• "According to item 28.1, in the case of urban properties with residential purpose, the tax is levied on the patrimonial value used for the purposes of municipal property tax (IMI)".

• "The patrimonial value relevant for the purposes of the incidence of the tax is, therefore, the total patrimonial value of the urban property and not the patrimonial value of each of the parts that comprise it, even when capable of independent use".

• By which it is not understood how the challenged assessments could have violated the literal wording of item 28.1 of TGIS.

• Under Article 80, No. 2 of CIMI, each property corresponds to a single article in the property registry, except in the case of mixed properties and those constituted under horizontal property ownership, cf. the provisions of Articles 84 and 92, respectively.

• In relation to these, each autonomous unit is deemed to constitute a property, cf. Article 2, No. 4 of CIMI.

• In the case of properties under the regime of vertical ownership, each storey or part of property capable of independent use is considered separately in the property registry registration, which also discriminates its respective patrimonial value, cf. Article 12, No. 3 of CIMI.

• "The unity of the urban property in vertical ownership composed of several storeys or divisions is not, however, affected by the fact that all or part of these storeys or divisions are capable of independent economic use".

• Not ceasing such property to be only one nor its distinct parts being legally equated to autonomous units under horizontal property ownership.

• Its right of ownership cannot be attributed to more than one owner, without prejudice to the regime of co-ownership.

• Horizontal and vertical ownership are differentiated legal institutes.

He concludes, arguing for the merit of the dilatory exception of non-challengeability of the object of the request for arbitral decision, with the consequent dismissal of the claim, or, subsidiarily, for the lack of merit of the said request as a result of the assessment acts, expressed in the collection notices, being in conformity with the law.

On 19 October 2016 the Claimant was notified to respond to the exception invoked by the Respondent (non-challengeability of the object of the request for arbitral decision), which it did in the following terms:

"(…) the Claimant may autonomously challenge the assessment of each of the instalments of stamp duty tax, concerning the same property and concerning the same stamp duty tax, in three separate arbitral proceedings".

"In April 2015 the Claimant was notified to proceed with the payment of the 1st instalment of stamp duty tax for 2015, which does not fail to constitute a tax act".

"By being notified of the payment of each of the instalments (1st, 2nd and 3rd instalments), the Claimant is notified of the assessment of isolated tax acts and with autonomous periods for challenge".

"With the Respondent issuing individualized collection notices".

"The Claimant being able to resort to arbitral tribunals (…) to request the assessment and/or proceed with the challenge of the said acts", "having a period of 90 days, counted from the notification of each of the instalments of stamp duty tax for this purpose".

He concludes, arguing for the lack of merit of the exception invoked by the Respondent.

4. Object of the Dispute

The question that constitutes the thema decidendum comes down to knowing whether, in a property not subject to the regime of horizontal property ownership, the subjection to stamp duty tax, under the terms of item 28.1 of the General Stamp Duty Tax Table, is determined by the patrimonial value (VPT) that corresponds to each of the parts of the property, economically independent and with residential purpose, as argued by the Claimant or whether, on the contrary, it is determined by the global VPT of the property, which would correspond to the sum of all VPTs of the storeys or divisions of independent use and with residential purpose that comprise it, as maintained by AT.

5. Reasoning

5.1 Established Facts

With relevance for the assessment and decision of the substantive issues raised, the following facts are established and proven:

5.1.1 The Claimant is the owner of the urban property, intended for residential use, located at Street ..., no. ..., in Lisbon, registered in the property registry of the parish of ..., municipality of Lisbon, under article..., constituted by storeys or divisions with independent use (full or vertical ownership).

5.1.2 The property is not constituted under the regime of horizontal property ownership, provided for in Article 1414 et seq. of the Civil Code.

5.1.3 The patrimonial value (VPT) of the various storeys or divisions with independent use, in the amount of €1,147,130.00, was determined separately, in accordance with the provisions of Article 7, No. 2, paragraph b) of the Municipal Property Tax Code (CIMI).

5.1.4 The VPT of each of the aforementioned storeys or divisions with independent use is less than €1,000,000.00, ranging between €99,590.00 and €190,140.00.

5.1.5 The assessments of stamp duty tax (item 28.1 of TGIS) to which these proceedings refer relate to the year 2015 and were effected on 05 April 2016, for payment in three instalments during the months of April, July and November of that same year, containing the respective notices the following identification elements, as per the documents appended to the request for arbitral decision.

5.2 Unproven Facts

There are no facts relevant to the decision of the case that should be considered unproven.

5.3 Motivation

Regarding the factual matter, the Tribunal does not have the duty to rule on all the alleged matter, but rather has the duty to select that which is relevant for the decision, taking into account the cause (or causes) of action that grounds the request formulated by the claimant [(cf. Articles 596, No. 1 and 607, Nos. 2 to 4 of CPC, applicable ex vi of Article 29, No. 1, paragraphs a) and e) of RJAT)] and to record whether it considers it proven or unproven (cf. Article 123, No. 2 of CPPT).

According to the principle of free assessment of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and assessment it makes of the means of proof brought to the proceedings and in accordance with its experience of life and knowledge of persons (cf. Article 607, No. 5 of CPC). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents, cf. Article 371 of the Civil Code) does the principle of free assessment of evidence not dominate in the assessment of the evidence produced.

Thus, the Tribunal's conviction was founded on the documentary evidence appended to the proceedings as well as on the positions assumed by the Parties.

5.4 Legal Matter (Reasoning)

Because the dilatory exception invoked may result in the dismissal of the claim, cf. Article 576, No. 2 of the Code of Civil Procedure (CPC), the same should be known ex officio and prioritarily (Article 578 of CPC).

Indeed, in accordance with the provisions of Article 608 of the Code of Civil Procedure (CPC), applicable by virtue of the provisions of paragraph e), No. 1, Article 22 of RJAT, "(…) the judgment knows, in the first place, of the procedural questions that may determine the dismissal of the claim, according to the order imposed by their logical precedence" and the judge must "resolve all questions that the Parties have submitted for its assessment, except those whose decision is prejudiced by the solution given to others (…)"

Issues to decide:

• On the non-challengeability of the object of the request for arbitral decision; and

• On the illegality of the challenged assessments.

On the non-challengeability of the object of the request for arbitral decision

From the request for arbitral decision as well as from the response to the dilatory exception invoked, it is clear that the Claimant's claim consists in the declaration of illegality of the acts of assessment of stamp duty tax for the year 2015 (item 28.1 of TGIS), relating to the first instalment, whose deadline for payment occurred in the month of April 2016 and to which correspond the collection documents appended.

Thus, the question to be assessed consists in knowing whether the challenge of each instalment of the assessment act, independently, in this case the first of three instalments, may be subject to arbitral decision, insofar as the dates and periods for challenge are differentiated.

Accordingly, we consider it pertinent to bear in mind the operations of assessment in a broad and strict sense[1]: "Assessment in a broad sense, that is, as a set of all operations intended to ascertain the amount of the tax, comprises:

1 - subjective assessment intended to determine or identify the taxpayer or taxpayer of the tax legal relationship,

2 - objective assessment through which the taxable or subject-to-tax matter of the tax is determined,

3 - assessment in the strict sense translated into the determination of the tax collected through the application of the rate to the taxable or subject-to-tax matter, and

4 - (eventual) deductions from the tax collected".

Thus, as follows from the concept of assessment transcribed above, for each taxable event there will, in principle, be a single assessment by which the tax collected will be determined, an understanding that flows from the provisions of Article 23, No. 7 of CIS, under which "where the tax is due for the situations provided in item No. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the IMI Code".

In turn, in accordance with the provisions of Article 113, No. 1 of CIMI, "The tax is assessed annually, in relation to each municipality, by the central services of the Directorate-General of Taxes[2], based on the patrimonial values of the properties and in relation to the taxpayers that appear in the property registries on 31 December of the year to which it relates", with the assessment being effected in the months of February and March of the following year, cf. No. 2 of the same legal provision, and the tax being paid in one, two or three instalments, respectively in the months of April, April and November or April, July and November, depending on whether its amount is equal to or less than €250, more than €250 but equal to or less than €500 or more than €500, cf. paragraphs a), b) and c) of No. 1 of Article 120 of CIMI.

Article 119, No. 1 of CIMI further states that "The services of the Directorate-General of Taxes send to each taxpayer, by the end of the month prior to that of payment, the competent collection document, with discrimination of the properties, their parts capable of independent use, respective patrimonial value (…)".

From the fact that IS, provided in item 28 of TGIS, is paid in instalments, it does not follow that several assessments have been made.

In reality, the tax assessment is only one and only it will constitute a harmful act, capable of being the object of a single challenge, by which when the law provides for its payment in several instalments, staggered over time, the annulment of the tax act will have consequences in relation to all of them, ceasing the obligation to pay or imposing the obligation to repay the amounts of tax already paid by the taxpayer.

What the law does not provide for, either in arbitral proceedings or in judicial challenge proceedings, is the aim to annul payment of isolated tax instalments, since such effect will only result from the annulment of the tax assessment act which, as we have seen, consists in the quantification of the total amount to be paid and which is only and solely a single tax act.

Thus, from the above it follows that the collection notices for Stamp Duty Tax, object of this request for arbitral decision, are not challengeable per se, since they do not constitute acts of assessment of taxes (and, therefore, are to be considered non-challengeable in light of the applicable legislation), but only one of the instalments in which payment of those taxes may be made.

In this sense, among others, may be seen the arbitral decisions rendered in proceedings Nos. 120/2012-T, 408/2014-T, 726/2014-T; 736/2014-T, 90/2015-T and 668/2015-T.

An excerpt from this last arbitral decision is transcribed below:

"(…) In reality, what must be the object of challenge is the tax assessment act and not the collection to which it gives rise since, following closely the arbitral decisions cited by the Respondent, "the instalments of a tax assessment are not autonomously challengeable, as they constitute portions of a global obligation, originating from the same obligation". And these instalments are not autonomously subject to review, as the Respondent rightly refers. Their relevance is to be assessed, for the purposes of the deadline for submission of the challenge of the act, which, under Article 102, No. 1, paragraph a) of CPPT, applicable ex vi the provisions of Article 10, No. 1, paragraph a) of RJAT, only runs from the end of the deadline for payment of the tax contained in the last instalment collected.

In light of the above, and considering what is indicated, the question – this Arbitral Tribunal understands – will not so much pass by defining whether the act challenged in the present proceedings is an instalment of the assessed tax or the assessment act itself. For this Arbitral Tribunal, and faced with the justification set out above, the challenge should always focus on the assessment of the tax, as a whole (…)".

Also the jurisprudence of the administrative and tax courts has been deciding in the same sense, as, among others, the ruling of the Central Administrative Court South of 27-10-2016, rendered in Proceedings No. 09711/16, from which the following part is transcribed:

"(…) In the concrete case, first of all, it should be said that the payment instalments (two or three, depending on the total amount of the tax to be paid annually) of an assessment of Stamp Duty Tax, made under Article 28 of TGIS, are not autonomously subject to review because they originate from a single annual obligation (cf. Article 23, No. 7, of Stamp Duty Code), and the division of an annual assessment into instalments is merely a technique for revenue collection (cf. Article 120, No. 1, of CIMI, "ex vi" of Article 67, No. 2, of Stamp Duty Code; A. Braz Teixeira, Principles of Tax Law, Volume I, 3rd edition, Almedina, 1995, p. 243 et seq.).

Despite what has just been mentioned, it is certain that, in the initial pleading that gave rise to the arbitral proceedings, the challenged company constitutes as its object the second instalments of the assessments of Stamp Duty Tax, relating to the year 2014 and in the total amount of €10,337.92, inciding on the properties contained in the urban property registry of the parish of ..., municipality of ..., under the numbers … and … (cf. p.i. appended to pp. 2-7 of the arbitral proceedings appended on CD). A position that it reaffirms in the response pleading to the exception raised by AT and appended to pp. 113-115 of the arbitral proceedings appended on CD".

In these terms, in light of the above, it is verified that the acts object of this request for arbitral decision are non-challengeable, by which the dilatory exception invoked by the Respondent is judged to have merit, and, in consequence, the tribunal is prevented from hearing the merits of the case, cf. Article 576, No. 2 of CPC.

6. Decision

In light of the above, it is decided:

a) To judge the dilatory exception of non-challengeability of the object of the request for arbitral decision, provided in paragraph i), No. 4, Article 89 of the Code of Procedure in the Administrative Courts (CPTA), to have merit, the tribunal being prevented from hearing the merits of the case; and

b) To dismiss the Respondent from the claim (No. 2 of Article 89 of CPTA).

c) To condemn the Claimant to payment of the costs of the arbitral proceedings, in the amount of €612.00, cf. No. 1 of Article 527 of CPC and Article 4 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

7. Value of the Proceedings

In accordance with the provisions of Articles 306, No. 2, of CPC, 97-A, No. 1, paragraph a) of CPPT and 3, No. 2 of RCPAT, the value of the proceedings is fixed at €3,823.80.

8. Costs

Under Article 22, No. 4 of RJAT, the amount of costs is fixed at €612.00, in accordance with Table I, annexed to RCPAT, at the charge of the Claimant.

Notify.

Lisbon, 30 November 2016.

The Arbitrator,

(Rui Ferreira Rodrigues)

Text prepared by computer, in accordance with the provisions of Article 131, No. 5, of CPC, applicable by cross-reference from Article 29, No. 1, paragraph e), of RJAT.

[1] José Casalta Nabais, in "Tax Law", Almedina, 2000, p. 253

[2] Provision to be corrected, since this directorate-general was extinguished by Article 27, No. 3, paragraph a) of Decree-Law No. 117/2011, of 15 December, with the Tax and Customs Authority being created, under paragraph a), No. 2 of the same article