Stamp Tax on Vertical Property: CAAD Ruling on Clause 28.1 TGIS for Properties Over €1M

ARBITRAL DECISION [1]

Claimant – A..., S.A.

Respondent - Tax and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 8 July 2014, with respect to the above-identified case, decided as follows:

1. REPORT

1.1

A..., S.A. (hereinafter referred to as the "Claimant"), Legal Entity no. ..., with registered address at Rua ..., in Lisbon, submitted a request for arbitral pronouncement and for the constitution of a single arbitral tribunal on 5 May 2014, pursuant to the provisions of article 4 and no. 2 of article 10 of Decree-Law no. 10/2011 of 20 January [Legal Regime for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter referred to as the "Respondent").

1.2

The Claimant requests that the Arbitral Tribunal declare:

1.2.1

"(...) the Request for Arbitral Pronouncement (...) to be well-founded and, as a consequence, the act of tacit dismissal of the hierarchical appeal in question to be replaced by a decision granting the aforementioned request, thereby revoking the appealed Dispatch and replacing it with another that grants the administrative review petition presented against the identified acts of Stamp Tax assessment and that annuls the aforementioned assessment acts, with the further legal consequences (...)".

1.3

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD and automatically notified to the Respondent on 6 May 2014.

1.4

The Claimant did not proceed to appoint an arbitrator, whereby, pursuant to the provisions of article 6, no. 2, paragraph a) of RJAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of CAAD, the appointment having been accepted within the legally prescribed period and terms.

1.5

On 23 June 2014, both parties were duly notified of this appointment and did not manifest their will to refuse the arbitrator's appointment, in accordance with the provisions of article 11, no. 1, paragraphs a) and b) of RJAT in conjunction with articles 6 and 7 of the Deontological Code.

1.6

Accordingly, in compliance with the provision of paragraph c) of no. 1 of article 11 of RJAT, the Arbitral Tribunal was constituted on 8 July 2014, and an arbitral order was issued on 9 July 2014, to the effect of notifying the Respondent to, in accordance with the provisions of article 17, no. 1 of RJAT, present its response within a maximum period of 30 days and, if it so wished, request the production of additional evidence.

1.7

On 29 September 2014 (with effect from 1 October 2014), the Tax and Customs Authority presented its Response, having defended itself by objection and concluding that:

1.7.1

"Item 28.1 of the General Stamp Tax Schedule (TGIS) applies to urban properties with residential use.

1.7.2

The taxable property value equal to or exceeding EUR 1,000,000.00 upon which the application of this rule depends is, as explicitly results from its wording, the taxable property value of each property and not of its separate parts, albeit capable of independent use.

1.7.3

The unit of urban property in vertical ownership composed of several floors or divisions is not, however, affected by the fact that all or part of these floors or divisions are capable of independent economic use, nor by the property of the immovable asset being of undivided inheritance.

1.7.4

Any other interpretation violates the principle of legality enshrined in article 103, no. 2 of the Constitution of the Portuguese Republic (CRP).

1.7.5

The principle of tax equality prohibits only arbitrary or unjustified discriminations, but not discriminations that may be justified by the more advanced nature of the legal institutions or by the coherence of the tax system.

1.7.6

The tax act in question did not thus violate any legal or constitutional provision and should therefore be upheld.

1.7.7

The taxation in Stamp Tax likewise did not violate the principle of non-retroactivity of taxes.

1.7.8

This is what follows from Law no. 55-A/2012 being prior to the occurrence of the tax event of Stamp Tax of that year, which occurred on 31 December 2012".

1.8

In these terms, the Respondent concludes requesting that "the request for annulment of the disputed assessments for error as to facts and law and consequently lack of legal basis should be judged unmerited, absolving the Tax Authority of all requests, all with the due and legal consequences".

1.9

By order of the Arbitral Tribunal of 5 October 2014, the date of 14 October 2014 was designated for, in accordance with the terms and for the purposes provided for in article 18 of RJAT, the first arbitral hearing to be held at CAAD, which was not held given the request for waiver thereof presented by the Respondent on 10 October 2014 and confirmed by the Claimant on 28 October 2014, the latter likewise dispensing with the examination of the witnesses it had called.

1.10

In these terms, by order of this Arbitral Tribunal dated 26 October 2014, the Claimant and the Respondent were notified to "in this order and successively, present written submissions within 15 days, with the period for the Respondent commencing upon notification of the Claimant's submissions".

1.11

The date of 18 December 2014 was further designated in the aforesaid order for purposes of rendering the arbitral decision and the Claimant was further warned that "until the date of rendering the arbitral decision it should proceed to pay the subsequent arbitral fee, in accordance with the provisions of no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate this payment to CAAD".

1.12

On 14 November 2014, the Claimant presented written submissions reiterating "the illegality of the assessments that were made, for a number of reasons, namely:

1.12.1

The fact that such assessments contravene what is the purpose of Law no. 55-A/2012 of 29 October, particularly the introduction of Item 28 in TGIS;

1.12.2

The violation of the constitutional principles of equality, material justice, taxation of real income, proportionality and fiscal legality;

1.12.3

The violation of the principle of non-retroactivity of tax law;

1.12.4

The existence of duplicate collection".

1.13

Concluding "as in the request for arbitral pronouncement" (see point 1.2.1 above).

1.14

On the same date, an arbitral order was issued to notify the Respondent of the presentation of submissions by the Claimant, so that it could comply with the tenor of the arbitral order of 26 October 2014 (see point 1.10 above).

1.15

On 25 November 2014, the Claimant presented a motion to "correct the value of the case to EUR 12,495.50" by including therein the entirety of the amount assessed on 21 March 2013, by reference to the year 2012 and, as a consequence, "the arbitral pronouncement be issued on the entirety of the collection of that year, further requesting that permission be granted to proceed with payment of the supplement to the arbitral fee (...)".

1.16

Despite being notified on 26 November 2014 to pronounce itself within 5 days on the tenor of the motion presented by the Claimant (see preceding point), the Respondent made no submission regarding the tenor thereof.

1.17

The Respondent also did not present submissions, despite being timely notified to do so (see points 1.10 and 1.14 above).

1.18

On 10 December 2014 an arbitral order was issued to notify the Claimant to annex to the case file the documents supporting the motion identified in point 1.15 above, which were appended to the case on 16 November 2014.

2. CAUSE OF ACTION

The Claimant supports its request in summary in the following manner:

2.1

"The Claimant is the registered owner in the urban property matrix of the urban property located at (...) Parish of ..., in Lisbon (...), the property in question being a property in full ownership with floors capable of independent use, composed of shops, 4 floors, attics, which is thus destined for commerce as well as for habitation".

2.2

"The aforementioned urban property was appraised in the year 2011, at the initiative of the Tax Administration (...), with the appraisal carried out having considered individually each of the floors capable of independent use, whereby the taxable property value (TPV) ascertained" (EUR 1,485,850.00) "corresponds to the result of the sum of the TPV attributed to each of those floors with independent use".

2.3

Despite the Claimant having "acquired the property in 1980 by public deed (...) it has not, to the present date, succeeded in registering its acquisition of the property in the respective property register (...)" whereby "it has also not yet succeeded in constituting the horizontal property regime of the aforementioned property".

2.4

"By being the registered owner in the urban property matrix of the property (...) the Claimant was notified, in that capacity, of the Stamp Tax assessment acts", copies of which are annexed to the case file "and are given as fully reproduced", in the total amount of EUR 12,495.50, relating to the year 2012 (assessments dated 21 March 2013).

2.5

Not agreeing with the assessments referred to in the preceding point, "the Claimant, on 19 April 2013, presented an administrative review petition against them (...) requesting the annulment of the aforementioned assessment acts (...)".

2.6

"Notwithstanding having articulated the facts demonstrative (...) of the illegality of the aforementioned assessments, the Claimant was notified of a draft decision dismissing the administrative review petition presented (...)", having exercised the right of prior hearing by motion sent by fax on 25 October 2013 and registered letter on 28 October 2013, without prejudice to the "draft dismissal having been upheld and the administrative review petition having been dismissed" by decision of 31 October 2013.

2.7

Not conforming to the aforementioned decision, "the Claimant filed a hierarchical appeal" on 11 December 2013, "with the hierarchical appeal presented having obtained no response whatsoever from the Tax Administration", whereby the Claimant understood the conditions to be met to presume its tacit dismissal following the expiration of the 60-day period provided for in article 66, no. 5 of the Tax Procedure and Process Code (CPPT).

2.8

In this regard, what is at issue is the application to the property described above in point 2.1 of the provisions of item no. 28 of TGIS, added by article 4 of Law no. 55-A/2012 of 29 October, pursuant to which, "Stamp Tax applies to property, usufruct or right of superficies of urban properties whose TPV recorded in the matrix, in accordance with the Municipal Property Tax Code (IMI), is equal to or greater than EUR 1,000,000.00 (on the TPV used for IMI purposes)" at the rate of 1% per property with residential use.

2.9

Additionally, and according to the Claimant, what is also at issue is the articulation of the aforementioned provision with the provision of article 6 of Law no. 55-A/2012, pursuant to which it is established that "in 2012, the following rules must be observed by reference to the assessment of Stamp Tax provided for in item no. 28 of the respective General Schedule:

2.9.1

The tax event occurs on 31 October 2012;

2.9.2

The tax debtor is the one mentioned in no. 4 of article 2 of the Stamp Tax Code on the date referred to in the preceding paragraph;

2.9.3

The TPV to be used in the assessment of the tax corresponds to what results from the rules provided for in the IMI Code by reference to the year 2011;

2.9.4

The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

2.9.5

The tax should be paid in a single instalment by tax debtors by 20 December 2012;

2.9.6

The applicable rates vary between 0.5% (properties with residential use appraised in accordance with the IMI Code), 0.8% (properties with residential use not yet appraised in accordance with the IMI Code) (...);

2.9.7

In 2013, the assessment of Stamp Tax provided for in item no. 28 of the respective General Schedule must apply to the same TPV used for IMI assessment purposes to be carried out in that year;

2.9.8

The non-payment, in whole or in part, within the stated period, of the amounts assessed as Stamp Tax constitutes a tax violation, punished in accordance with the law".

2.10

The Claimant argues "as it was announced (...) the purpose of these measures was that those who were wealthier, who could contribute more, by having more, would be subject to greater taxation regarding their assets" whereby "those who had a residential property with a TPV equal to or greater than EUR 1,000,000.00 should (...) contribute more (...) thus creating an additional burden (...) to tax the rich who were owners of such luxury properties".

2.11

And it was in this context and with these objectives that, according to the Claimant, "Law no. 55-A/2012 was approved" having regard to the provisions of:

2.11.1

Either in the General Tax Law (LGT), which provides that "in determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed";

2.11.2

Either in the Civil Code, which establishes that "interpretation should not limit itself to the letter of the law, but reconstitute from the texts the legislative intent, taking above all into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied".

2.12

Accordingly, the Claimant reiterates that "in case of doubt as to the meaning of the tax incidence rules to be applied, account should be taken of the economic substance of the tax facts".

2.13

On the other hand, as regards the fact that the urban property subject of the assessments under analysis is constituted in vertical ownership, "although formally the property is not constituted in horizontal property regime and therefore there are no autonomous units in a legal sense, the property is composed of floors with independent use, material and functional, which are distinct and isolated from each other, all with their own access, some to a common part of the property, others to public thoroughfare (...) thus fulfilling all the legal requirements for the constitution of horizontal property regime".

2.14

Despite some of the floors of the property being dedicated to habitation and others to commerce, "the Tax Authority (...) proceeded to carry out the assessments relating only to the floors with independent use that are dedicated to habitation", "using (...) the criterion of considering separately the floors of the property, taking them individually, which was more convenient for considering their dedication to habitation (...)".

2.15

In fact, "otherwise, considering the property globally, it would have as its dedication also commerce (...) which would not correspond to the dedication required for purposes of item no. 28 of TGIS".

2.16

"And using, by contrast, also as it was convenient for it, the criterion of summing and combining the floors dedicated to habitation so that their taxable property value thus considered would be greater than EUR 1,000,000.00" because, otherwise, "if the floors are considered separately, their respective taxable property value of each one is not even close to the aforementioned amount, whereby it would not exceed the amount from which item no. 28 of TGIS would be applicable".

2.17

The Claimant holds that "the fact that the Tax Authority (i) had separately appraised each of the floors, (ii) had separately assessed Stamp Tax for each of the floors dedicated to habitation, (iii) had proceeded to issue different assessment documents for each of the floors dedicated to habitation and (iv) had indicated distinct payment references for each of the floors dedicated to habitation, would necessarily lead to the separate consideration of the TPV of each floor (...) and, consequently, to no taxation, given that each of those taxable property values is less than EUR 1,000,000.00".

2.18

Thus, according to the Claimant, "a clear violation of the principle of equality is evident when it is found to be admissible that an owner of a property constituted in horizontal property regime, whose sum of the respective taxable property values exceeds EUR 1,000,000.00, is not taxed (...) while an owner of a property in all respects identical to that of another, in which the floors that make up the property are material and functionally independent units and meet the requirements demanded for the constitution of property, but such horizontal property regime has not yet been constituted, is taxed (...)".

2.19

The Claimant, to reinforce its argument, further cites various decisions issued by the Administrative Arbitration Centre (CAAD) in a sense concordant with its position.[2]

2.20

In summary, "what constitutes the object of the present Request for Arbitral Pronouncement is the presumption of tacit dismissal of the hierarchical appeal (...) filed against the dispatch dismissing (...) relating to the administrative review petition (...) presented by the Claimant against the Stamp Tax assessment acts (...) relating to the floors with independent use designated by "1-107", "1D", "1E", "2D", "2E", "2º", "3D", "3º", "4D", "4E", "4º", "AFD", "AFE", "AFURT", of the urban property located (...) in the Parish of ..., in Lisbon (...)".

2.21

Concluding the Claimant that "the application of item no. 28 of TGIS to properties in vertical ownership (...) is arbitrary and illegal, violating basic constitutional principles".

2.22

On the other hand, the Claimant holds that having regard to the assessments issued on 07 November 2012, with "the promotion of the Stamp Tax assessments under analysis, the Tax Administration did nothing more than promote the duplication of taxation in the context of Stamp Tax (...) concerning the year 2012 (...)".

2.23

In fact, according to the Claimant "it must be understood that the tax event of the tax collected by the Tax Administration in November 2012 was understood to have occurred on 31.10.2012, even though the basis of calculation of the tax had as reference a taxable value ascertained at an earlier date (...) whereby it is unquestionable that the Tax Administration, in both cases" (both in the assessments issued on 07 November 2012, as in those issued on 21 March 2013 and subject of the present proceedings) "is requiring from the Claimant the payment of Stamp Tax (item no. 28 of TGIS), relating to the year 2012".

3. RESPONDENT'S ANSWER

3.1

The Respondent responded sustaining, as a last resort, the unmeritedness of the request for arbitral pronouncement, and invoking the following arguments:

3.2

The Claimant requests "with the present request for arbitral pronouncement the annulment on the grounds of error as to facts and law and consequent lack of legal basis of the fourteen Stamp Tax assessment acts relating to the floors and divisions of the urban property in full ownership" identified in the case file (emphasis ours).

3.3

The Respondent does not agree with the aforementioned request for arbitral pronouncement inasmuch as it holds that Stamp Tax was correctly assessed with respect to the TPV of EUR 1,249,550.00, relating to the sum of the 14 floors and divisions dedicated to habitation and capable of independent use.

3.4

In this regard, the Respondent does not agree with what was alleged by the Claimant that "the criterion for taxation of autonomous parts of properties in vertical ownership must be based on the same manner as the taxation of properties in horizontal property regime".

3.5

Thus, the Respondent contends that "the principle that to each property there corresponds only one property registry entry is only excepted (...) with respect to mixed properties in which (...) each of the separate parts is registered in the property matrix in the part that corresponds to it and with respect to properties constituted in horizontal property regime in which (...) each autonomous unit is deemed to constitute a property" whereby "to each building in horizontal property regime corresponds only one property registry entry".

3.6

Now, the property urban in question in the present proceedings not being "(...) in horizontal property regime (...) each of the autonomous units would be deemed to be an urban property, including for purposes of the subjection to the Stamp Tax of item 28.1 of the General Schedule, but in vertical property regime".

3.7

In these terms, according to the Respondent, "the tax event of the Stamp Tax of item 28.1 consists of the property, usufruct or right of superficies of urban properties whose TPV recorded in the matrix (...) is equal to or greater than EUR 1,000,000.00".

3.8

Thus, "the taxable property value relevant for purposes of the incidence of the tax is (...) the total taxable property value of the urban property and not the taxable property value of each of the parts that compose it, even when capable of independent use", "it not being seen", in the view of the Respondent, "how the assessment (...) impugned could have violated the literal tenor of item 28.1 of the General Schedule".

3.9

And the Respondent continues, contending that "the unity of the urban property in vertical ownership composed of several floors or divisions is not (...) affected by the fact that all or part of these floors or divisions are capable of independent economic use (...) nor are, thus, its distinct parts juridically equated to autonomous units in horizontal property regime".

3.10

And the Respondent concludes that "the TPV upon which the incidence of Stamp Tax of item 28.1 of the General Schedule depends had to be, as it was, the total taxable property value of the property and not that of each one of its independent parts".

3.11

Additionally, the Respondent holds that "the fact that IMI was ascertained based on the TPV of each part of property with independent economic use does not equally affect the application of item 28, no. 1 of the General Schedule", inasmuch as "this is what follows from the determining fact of the application of that item (...) being the total taxable property value of the property and not separately that of each one of its parcels".

3.12

The now Respondent contends that "another interpretation would violate (...) the letter and spirit of item 28.1 of the General Schedule and the principle of legality of the essential elements of the tax provided for in article 103, no. 2 of CRP", whereby "it is, thus, unconstitutional, as offensive of the principle of tax legality, the interpretation of item 28.1 of the General Schedule to the effect that the taxable property value upon which its incidence depends be ascertained globally and not floor by floor or division by division".

3.13

On the other hand, the Respondent further argued that "the taxation in question did not violate (...) the principle of equality" inasmuch as "horizontal ownership and vertical ownership are differentiated legal institutions", whereby "the legislator may (...) subject to a distinct legal and tax framework, thus, discriminatory, the properties in horizontal and vertical ownership regimes, in particular, benefiting the more legally advanced institution of horizontal ownership, without such discrimination having to be considered necessarily arbitrary", being able to "also be imposed by the need to impose coherence on the tax system".

3.14

Finally, the Respondent came to contend that "nor does the taxation in question violate the principle of non-retroactivity of taxes", given that "non-retroactivity of taxes is verified in the event the creation of taxes is posterior to the tax event".

3.15

Now in the case under analysis, according to the Respondent, with "the tax event of Stamp Tax of 2012 having occurred on 31 December 2012 (...), the Stamp Tax of item 28 was (...) created prior to 31 December 2012", through Law no. 55-A/2012 of 29 October.

3.16

In these terms, the Respondent concludes its submitted response to the effect that:

3.16.1

"Item 28.1 of the General Schedule of Stamp Tax applies to urban properties with residential use.

3.16.2

The TPV equal to or greater than EUR 1,000,000.00 upon which the application of that legal rule depends is, as explicitly results from its wording, the taxable property value of each property and not of its separate parts, albeit capable of independent use.

3.16.3

The unity of the urban property in vertical ownership composed of several floors or divisions is not, however, affected by the fact that all or part of these floors or divisions are capable of independent economic use, nor by the property of the immovable asset being of undivided inheritance.

3.16.4

Any other interpretation violates the principle of legality enshrined in article 103, no. 2 of CRP.

3.16.5

The principle of tax equality prohibits only arbitrary or unjustified discriminations, but not discriminations that may be justified by the more advanced nature of the legal institutions or by the coherence of the tax system.

3.16.6

The tax act in question did not violate any legal or constitutional provision and should therefore be upheld.

3.16.7

The taxation in Stamp Tax likewise did not violate the principle of non-retroactivity of taxes".

4. PRELIMINARY ORDER

4.1

The request for arbitral pronouncement is timely inasmuch as it was presented within the period provided for in paragraph a) of no. 1 of article 10 of RJAT.

4.2

The parties have legal personality and capacity, have standing regarding the request for arbitral pronouncement and are duly represented, in accordance with the provisions of articles 4 and 10 of RJAT and of article 1 of Ordinance no. 112-A/2011 of 22 March.

4.3

The Tribunal is competent with respect to consideration of the request for arbitral pronouncement formulated by the Claimant.

4.4

Having regard to the motion presented on 25 November 2014 by the Claimant to the effect of "correct the value of the case to EUR 12,495.50" by including therein the entirety of the amount assessed on 21 March 2013 by reference to the year 2012, it is necessary to preliminarily analyze the admissibility of this motion before proceeding to the analysis of the request for arbitral pronouncement proper.

4.5

In this regard, we are not faced with any alteration (allegation of new facts integrating a fact constitutive of the right which the claimant intends to introduce in substitution of the initial request) or any expansion (which occurs when the new alleged facts integrate another fact constitutive of the claimant's right, to be pleaded alongside the first) of the cause of action, nor of any modification by alteration or by expansion (deduction of another request suppressing the initial request) of the initial request.[3]

4.6

In fact, the request for arbitral pronouncement presented by the Claimant on 5 May 2014 was to the effect that the Stamp Tax assessment acts relating to the year 2012 (assessed on 21 March 2013) be annulled, with a copy of the documents relating to the first instalment of each of the assessments having been annexed to the case file (see point 5.2.5 below).

4.7

However, having regard to the individual value of each of those assessments, payment of the tax had to be carried out in three instalments[4] in the months of April, July and November (of the year 2013), whereby the possible annulment of the aforementioned assessments will involve the annulment of all the tax payments associated therewith.

4.8

In this sense, the correction of the value of the case is admitted, from EUR 4,165.26 to EUR 12,495.50, with the consequent effect thereof on the Initial Arbitration Fee, from EUR 306.00 to EUR 459.00 (see point 7 below).

4.9

No nullities are verified whereby it is necessary now to rule on the merits of the request.

5. FACTS

5.1

Of the facts proved

5.2

The following are considered as proved the facts documented by the following documents joined to the case file:

5.2.1

The Claimant is the owner of the urban property located at Rua ..., in Lisbon, which is registered in the urban property matrix under article ... of the parish– ... (as per documents no. 5 no. 4 annexed with the request);

5.2.2

The total TPV of the aforementioned urban property is EUR 1,485,850.00, this having been determined in 2011 at the initiative of the Respondent, with such appraisal having been carried out considering individually each of the floors capable of independent use and with the TPV ascertained being the result of the sum of the value attributed individually to each of those floors with independent use (as per document no. 4 annexed with the request);

5.2.3

The aforementioned urban property is not in horizontal property regime, comprising 6 storeys with a total of 19 floors or divisions capable of independent use, 14 of such divisions being dedicated to habitation and the remaining 5 to commerce (as per documents no. 5 and no. 4 annexed with the request);

5.2.4

The total TPV of the areas dedicated to habitation is EUR 1,249,550.00 (as per document no. 4 annexed with the request);

5.2.5

The Claimant was notified of the following Stamp Tax assessments, dated 21 March 2013, the payment deadline for which was "April/2013" (1st instalment):

5.2.6

The Claimant presented, through registered letter with acknowledgement of receipt of 28 August 2013, an administrative review petition (case no. ...) against the Stamp Tax assessment acts referred to in the preceding point (as per document no. 3 annexed with the request);

5.2.7

The Claimant was notified to exercise, within 15 days, the right of participation in the decision, in the form of prior hearing (as per document no. 21 annexed with the request);

5.2.8

The Claimant exercised the right of prior hearing provided for in the preceding point on 29 October 2013 (as per document no. 22 annexed with the request);

5.2.9

The administrative review petition presented by the Claimant and above identified (point 5.2.6) was dismissed by dispatch of 31 October 2013 (as per document no. 2 annexed with the request);

5.2.10

The Claimant presented on 6 December 2013 by fax a hierarchical appeal against the dispatch dismissing the administrative review petition above referred to (point 5.2.6), (as per document no. 6 annexed with the request), the same having been filed in paper form at the Lisbon Finance Directorate (DDF) on 11 December 2013, (as per document no. 1 annexed with the request);

5.2.11

The Claimant was notified of the following Stamp Tax assessments, dated 07 November 2012, the payment deadline for which was "20 December 2012":

5.3

The Claimant was notified to proceed with payment of the 2nd and 3rd instalments relating to the Stamp Tax assessments dated 21 March 2013 above identified in point 5.2.5 (as per documents no. 2, 3, 5, 6, 8, 9, 11, 12, 14, 15, 17, 18, 20, 21, 23, 24, 26, 27, 29, 30, 32, 33, 35, 36, 38, 39, 41 and 42 annexed with the motion of the Claimant dated 16 December 2014).

5.4

No other facts capable of affecting the decision on the merits of the request were proved.

5.5

Of the facts not proved

5.6

It was not clarified whether the Claimant made payment of the Stamp Tax assessments subject of the Request for Arbitral Pronouncement within the voluntary payment period or whether the same are/were subject to compulsory collection, having regard to the fact that it is requested in the conclusion of that Request the annulment of the "(...) aforementioned assessment acts, with the further legal consequences, which include the lifting of all attachments that may have been made as a result of the assessments in question and the restitution of all amounts already collected by compulsion (...)".

5.7

No other facts were verified as not proved with relevance to the arbitral decision.

6. LEGAL GROUNDS

6.1

In the case file, the essential question to be decided is whether, with reference to properties not constituted in horizontal property regime (vertical ownership), integrated by various floors and divisions with independent use, which is the TPV relevant.

6.2

That is, whether the TPV relevant as incidence criterion of the tax is the one corresponding to the sum total of the TPV attributed to the different parts or floors (global TPV) or, on the contrary, the TPV attributed to each of the residential parts or floors.

6.3

The response to this question requires the analysis of the applicable legal norms in order to determine which the correct interpretation is in light of what is provided for in Law and in the Constitution, given that it is a matter of assessing a tax incidence requirement carefully protected by the principle of tax legality resulting from the provision of article 103, no. 2 of CRP.

6.4

In the case under analysis, there will be three questions of law in dispute underlying the Request for Arbitral Pronouncement, in order to assess the legality of the Stamp Tax assessments notified to the Claimant by reference to the year 2012:

6.4.1

Is the subjection to Stamp Tax in accordance with what is provided for in item no. 28 of TGIS determined by the TPV that corresponds to each of the parts of the property with residential use or is it, by contrast, determined by the global TPV of the property, which would correspond to the sum of all the TPV of the floors (with that type of use) of which it consists?

6.4.2

Is item no. 28 of TGIS or is it not unconstitutional by violation of the principle of equality, as well as by violation of the provision of article 104, no. 3 of CRP ("the taxation of assets should contribute to equality between citizens")?

6.4.3

Is the understanding adopted by the Respondent regarding the interpretation to be given to article 6, no. 2 of Law no. 55-A/2012 of 29 October, as regards "the assessment of Stamp Tax for the year 2012" or is it not unconstitutional, having regard to "the violation of the prohibition of the obligation to pay retroactive taxes"?

6.5

Regarding the response to be given to the first of the questions formulated above (point 6.4.1), it is important to analyze the essence of item no. 28 of TGIS, added by article 4 of Law no. 55-A/2012 of 29 October, pursuant to which the following is established:

"28. Property, usufruct or right of superficies of urban properties whose TPV recorded in the matrix, in accordance with the Municipal Property Tax Code (IMI), is equal to or greater than EUR 1,000,000.00 – on the TPV for IMI purposes:

28.1 – Per property with residential use – 1%.

28.2 – (...)".

6.6

Notwithstanding Law no. 55-A/2012 (in effect since 30 October 2012) not having proceeded to qualify the concepts contained in the aforementioned item no. 28, particularly the concept of "property with residential use", if what is provided for in article 67, no. 2 of the Stamp Tax Code (also added by the aforementioned Law no. 55-A/2012) is observed, it is verified that "to matters not regulated in the present Code relating to item 28 of the General Schedule, the IMI Code is subsidiarily applied".

6.7

Now, from reading the IMI Code, we easily perceive that the concept of "property with residential use" refers naturally to the concept of "urban property" defined in accordance with articles 2 and 4 of that Code.

6.8

In fact, in accordance with the provision of article 2, no. 1 of the IMI Code, "for purposes of the present Code, property is any parcel of land, including waters, plantations, buildings and structures of any kind incorporated in or situated on it, having the character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or structures in the circumstances referred to above, having economic autonomy in relation to the land on which they are situated, although situated on a parcel of land that constitutes an integral part of different assets or does not have a patrimonial nature" (emphasis ours).

6.9

Still in accordance with nos. 2 and 3 of that same article, "buildings or structures, although movable by nature, are deemed to have the character of permanence when devoted to non-transitory purposes" and it is presumed "the character of permanence when the buildings or structures are situated in the same location for a period exceeding one year".

6.10

For IMI purposes, "each autonomous unit in horizontal property regime is deemed to constitute a property".

6.11

In accordance with the provision of article 4 of the IMI Code, "urban properties are all those which should not be classified as rural (...)".

6.12

Among the various kinds of "urban properties" referred to in article 6 of the IMI Code are expressly mentioned "residential urban properties" [no. 1, paragraph a)], with no. 2 of the same article adding that these "are buildings or structures licensed for such purpose or, in the absence of license, which have as their normal destination each of these purposes".

6.13

If it is true that no. 4 of article 2 of the IMI Code refers to the fact that "for purposes of this tax, each autonomous unit in horizontal property regime is deemed to constitute a property", it is also true that there is nothing in the law that points to discrimination between properties in horizontal and vertical ownership regarding their identification as "residential urban properties", from which it can be concluded that the autonomous parts of properties in vertical ownership with residential use should be considered as "residential urban properties".

6.14

As contended in the Arbitral Decision issued in Case 88/2013-T, "in the legislator's view, the legal-formal rigor of the concrete situation of the property does not matter but rather its normal use, the purpose to which it is destined".

6.15

Whereby "it must thus be concluded that for the legislator it is irrelevant whether the property is constituted in vertical or horizontal ownership, what is relevant being only the material truth underlying its existence as an urban property and its use".

6.16

In fact, in the interpretation of the legal text, it makes no sense to distinguish what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus) for to distinguish in this context between properties constituted in horizontal ownership and properties constituted in full ownership would be an "innovation" without associated legal support.

6.17

In fact, nothing indicates either in item no. 28 of TGIS or in the provision of the IMI Code a justification for that particular differentiation.[5]

6.18

In fact, it can be affirmed that it is today a settled understanding that tax laws are interpreted like any others, it being necessary to determine their true meaning in accordance with the techniques and interpretative elements generally accepted by doctrine (cf. article 9 of the Civil Code and article 11 of LGT).[6]

6.19

On the other hand, it is necessary to have regard to the fact that the norms concerning the incidence of taxes as well as those granting exemptions or exclusions from taxation must be interpreted in their exact terms, without resorting to analogy, making prevalence of certainty and security in their application.[7]

6.20

In these terms, the uniform criterion that is necessary is that which determines that the incidence of the provision in question (item 28 of TGIS) only takes place when some of the parts, floors or divisions with independent use of a property in horizontal (or full) ownership with residential use, possesses a TPV exceeding EUR 1,000,000.00 (emphasis ours).

6.21

Thus "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 clearly established a criterion which has to be unique and unequivocal for the definition of the rule of incidence of item 28.1 of TGIS" [8], whereby setting as the reference value for the incidence of the new tax the global TPV of the property in question, as the Respondent intends, finds no basis in the applicable legislation.[9]

6.22

Finally, it is also important to investigate what the ratio legis underlying the rule of item 28 of TGIS is and, in obedience to the provision of article 9 of the Civil Code[10], what are the circumstances in which the norm was drafted and what are the specific conditions of the time in which it is applied.

6.23

In fact, the legislator intended to introduce a principle of taxation on wealth demonstrated in the ownership, usufruct or right of superficies of luxury urban properties with residential use having considered, as the determining element of tax-paying capacity, urban properties with residential use of high value (luxury) that is, of value equal to or greater than EUR 1,000,000.00, on which would (and did) apply a special rate of Stamp Tax.

6.24

And we understand that this is exactly what can be concluded from the analysis of the discussion of the Bill no. 96/XII in the National Assembly[11], with no different interpretative rationale being invoked from that presented here.[12]

6.25

In fact, the justification for the measure designated as "special tax on highest-value residential urban properties" is thus based on the invocation of the principles of social equity and tax justice, calling upon those holding high-value properties intended for habitation to contribute in a more intensive manner, thus making the new special tax apply to "houses of value equal to or greater than 1 million euros".

6.26

Now, if such logic appears to make sense when applied to a "habitation" (whether it be a house, an autonomous unit, a part of property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, a tax-paying capacity above the average (and in that measure susceptible to determine a special contribution to guarantee just distribution of the tax burden), it would already make no sense if applied "unit by unit" in order, through the sum of the TPV of the same (because held by the same individual), to ascertain such value equal to or greater than one million euros.

6.27

It is further added that admitting the differentiation of treatment could produce results incomprehensible and discriminatory from a legal point of view, being contrary to the objectives (of promoting social equity and tax justice) which the legislator contended to have in adding item no. 28.

6.28

In fact, the existence of a property in vertical or horizontal ownership cannot by itself be indicative of tax-paying capacity, it resulting from the law that one and the other should receive the same tax treatment in obedience to the principles of justice, tax equality and material truth.

6.29

Conversely, the existence in each property of independent habitations in horizontal or vertical property regime may be susceptible of triggering the incidence of the new tax if the TPV of each of the parts or fraction is equal to or greater than the limit defined by law, that is, at EUR 1,000,000.00.

6.30

In this way, it is illegal and unconstitutional to consider that the reference value for the assessment of the tax corresponds to the sum total of the TPV attributed to each part or division, above all because we would be faced with a clear violation of the principle of equality and proportionality in tax matters.

6.31

The tax legislator cannot treat equal situations differently based on whether we are or are not dealing with a property in horizontal or full ownership.

6.32

Now, if the property under analysis were to be found in horizontal property regime, it would be clear that none of the residential fractions composing it would suffer incidence of the new tax.

6.33

For this very reason is it that article 12, no. 3 of the IMI Code provides that "each floor or part of property capable of independent use is considered separately in the property registry entry which equally discriminates the respective TPV".

6.34

In fact, the constitution of horizontal property regime implies a mere legal alteration of the property without even imposing a new appraisal, whereby the material truth is that which is imposed as the determining criterion of tax-paying capacity and not the mere legal-formal reality of the property.

6.35

As a consequence, the discrimination operated by the Respondent translates into arbitrary and illegal discrimination, given that the law does not impose an obligation to constitute horizontal property regime.

6.36

And having regard to the entire social and economic reality (sometimes present in many of the properties existing in vertical ownership), the very tax legislator in the IMI Code treated the two situations (horizontal and vertical ownership) in an equitable manner, applying the same criteria.

6.37

In fact, let it be reiterated that the Respondent cannot distinguish where the legislator itself understood it not to do so, under penalty of violating the coherence of the tax system and the principles of tax legality (article 103, no. 2 of CRP), of justice, equality and tax proportionality included therein.

6.38

Analyzing the situation sub judice it is verified that the TPV of the floors (autonomous units) with residential use varies between EUR 58,680.00 and EUR 162,730.00 whereby in any of them individually considered the said TPV is less than EUR 1,000,000.00.

6.39

Thus, having regard to the above exposition and in response to the first of the questions placed above (see point 6.4.1), it is concluded that Stamp Tax to which item no. 28 of TGIS refers cannot apply to the floors with residential use (of the property identified in the case file) being therefore illegal the assessment acts subject of the Request for Arbitral Pronouncement presented by the Claimant.

6.40

Additionally, having also regard to everything previously stated, we can conclude that regarding the response to be given to the second of the questions above enunciated (see point 6.4.2) the interpretation made by the Respondent is not in conformity with the Law and the Constitution inasmuch as it violates the principle of equality (article 13 of CRP) and does not contribute to equality between citizens (article 104, no. 3 of CRP).

6.41

In this regard it is concluded that item no. 28 of TGIS by opening the possibility of taxing in a differentiated manner the ownership of immovable assets of equal value held by different persons based on criteria that can contravene without any justification particularly the principle of tax-paying capacity cannot but be considered unconstitutional given the violation of the principle of equality.

6.42

Regarding the response to be given to the last of the questions above enunciated (see point 6.4.3) to the effect of whether the understanding adopted by the Respondent regarding the interpretation to be given to the provision of article 6 no. 2 of Law no. 55-A/2012 of 29 October regarding "the assessment of Stamp Tax for the year 2012" is or is not unconstitutional having regard to "the violation of the prohibition of the obligation to pay retroactive taxes" it is necessary to analyze the following:

6.43

In the request for arbitral pronouncement the Claimant requests that "(...) the act of tacit dismissal of the hierarchical appeal in question be replaced by a decision granting the aforementioned request revoking thus the appealed Dispatch and replacing it with another that grants the administrative review petition presented against the identified Stamp Tax assessment acts and that annuls the aforementioned assessment acts with the further legal consequences (...)".

6.44

That is a request for the annulment of the Stamp Tax assessments dated 21 March 2013 relating to the year 2012 enumerated at the start of the request for arbitral pronouncement and identified in the table above presented in point 5.2.5.

6.45

Whether in the aforementioned hierarchical appeal presented by the Claimant or in the administrative review petition (no. ...) whose dismissal dispatch it is sought to review the underlying tax acts and whose legality is questioned are the assessments referred to in the preceding point and not those referred to in article 87 of the Request for Arbitral Pronouncement (and also referred to in article 74 of the hierarchical appeal presented as well as in article 66 of the administrative review petition above identified) inasmuch as these latter will have been according to what the Claimant states subject to "(...) competent judicial challenge (...)" (see also in this regard article 75 of the already referred hierarchical appeal and article 67 of the already identified administrative review petition).

6.46

In fact the reference in this case to the Stamp Tax assessments dated 7 November 2012 is made with the intention of demonstrating that with the Stamp Tax assessments dated 21 March 2013 there will have been in the Claimant's view "(...) double internal taxation under Stamp Tax by reference to the year 2012 given that the legal fact occurs in both cases in that year" (see article 97 of the Request for Arbitral Pronouncement).

6.47

Given that the aforementioned assessments are not themselves subject of the Request for Arbitral Pronouncement presented inasmuch as it is not requested to review the respective assessment acts or possibly the outcome of the administrative review petition presented (but not identified in the present case file) which is indeed unknown to this tribunal and having regard to what is stated above regarding the analysis of the question of illegality of the assessments dated 21 March 2013 this tribunal will not carry out any analysis regarding the Stamp Tax assessments dated 7 November 2012.

6.48

Finally regarding the request presented by the Claimant for "restitution of all amounts already collected (...) plus compensatory interest calculated at legal rate until full payment" it is important to note that in accordance with the provision of paragraph b) of no. 1 of article 24 of RJAT and in accordance with what is established there "the arbitral decision on the merits of the claim which is not subject to appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge and this must restore the situation which would have existed if the tax act subject of the arbitral decision had not been carried out adopting the necessary acts and operations for that purpose"[13] (emphasis ours).

6.49

In fact in accordance with the provision of article 100 of LGT applicable in the case by force of the provision of paragraph a) of no. 1 of article 29 of RJAT "the tax administration is obliged in case of total or partial upholding of administrative reviews or appeals or of judicial proceedings in favor of the tax debtor to the immediate and full restoration of the situation which would have existed if the illegality had not been committed including the payment of compensatory interest in accordance with the terms and conditions provided for in law" (emphasis ours).

6.50

In the situation under analysis and following the illegality of the assessment acts above already identified there will have to be the reimbursement of the amounts possibly already paid by the Claimant whether as to the tax supported or as to the corresponding compensatory interest as a way of achieving the restoration of the situation which would have existed if the illegality had not been committed.

6.51

As for the compensatory interest requested by the Claimant it appears that having regard to what is established in article 61 of CPPT and with the requirements of the right to compensatory interest fulfilled (that is verified the existence of error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due as provided for in no. 1 of article 43 of LGT) the Claimant has a right to compensatory interest at legal rate calculated on the amounts paid regarding the Stamp Tax assessments dated 21 March 2013 (and relating to the year 2012) which will be counted in accordance with the provision of no. 3 of article 61 of CPPT above already referred to that is from the date of payment of the improper tax until the date of issue of the respective credit note.

7. DECISION

7.1

In harmony with the provision of article 22 no. 4 of RJAT "the arbitral decision issued by the arbitral tribunal includes the fixing of the amount and the distribution between the parties of the costs directly resulting from the arbitral proceedings".

7.2

In this regard the basic rule concerning responsibility for process costs is that the party who gave cause to them should be condemned in the proportion to which it did [article 527 nos. 1 and 2 of the Civil Procedure Code (CPC)].

7.3

In the case under analysis having regard to the above the principle of proportionality requires that the whole responsibility for costs be attributed to the Respondent.

7.4

In these terms having regard to the analysis carried out this Arbitral Tribunal decided:

7.4.1

To judge the request for arbitral pronouncement presented by the Claimant to be well-founded and to condemn the Respondent regarding the request for declaration of illegality of the Stamp Tax assessments dated 21 March 2013 relating to the year 2012 and identified in this proceeding annulling in consequence the respective tax acts;

7.4.2

To judge well-founded the request to condemn the Respondent for the reimbursement of the amounts improperly paid by the Claimant plus compensatory interest at legal rate counted in accordance with legal terms;

7.4.3

To condemn the Respondent to payment of the costs of the present proceedings.

Value of the case: Having regard to what is stated above in points 4.4 to 4.8 as well as the provision of articles 306, no. 2 of CPC article 97-A no. 1 of CPPT and article 3 no. 2 of the Regulation of Costs in Tax Arbitration Proceedings the value of the case is fixed at EUR 12,495.50.

As a consequence of the alteration of the value of the case the value of the Initial Arbitration Fee is fixed at EUR 459.00 in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings with the need for regularization of the difference by the Claimant regarding what was initially paid (EUR 306.00).

Costs of the proceedings: In accordance with the provision of Table I of the Regulation of Costs of Tax Arbitration Proceedings the value of the costs of the Arbitral Proceedings is fixed at EUR 918.00 charged to the Respondent in accordance with article 22 no. 4 of RJAT.

Let notice be given.

Lisbon, 18 December 2014

The Arbitrator

Sílvia Oliveira

[1] The drafting of the present decision is governed by the orthography prior to the Orthographic Agreement of 1990.

[2] Namely the decision issued within Case no. 50/2013-T (of 29.10.2013) the decision issued within Case no. 132/2013-T (of 16.12.2013) and the decision issued within Case no. 218/2013-T (of 24.02.2014).

[3] See in this sense with the necessary adjustments the Decision of TRP no. 501/08.2TBPVZ-B.P1 of 19 January 2010.

[4] In accordance with the provision of article 120 of the IMI Code by reference of article 44 no. 5 of the Stamp Tax Code.

[5] In this regard pay attention to the provision of article 12 no. 3 of the IMI Code when referring to the fact that "each floor or part of property capable of independent use is considered separately in the property registry entry which equally discriminates the respective TPV".

[6] In this sense see AC TCAS Case 07648/14 of 10 July 2014.

[7] See AC TCAS Case 5320/12 of 2 October 2012 AC TCAS Case 7073/13 of 12 December 2013 and AC TCAS 2912/09 of 27 March 2014.

[8] See Case 50/2013-T (CAAD).

[9] Which is the IMI Code given the reference made by the cited article 67 no. 2 of the Stamp Tax Code.

[10] According to which the interpretation of the legal norm should not limit itself to the letter of the law but reconstitute the legislative intent from the texts and the remaining elements of interpretation taking into account the unity of the legal system.

[11] Available for consultation in the Journal of the National Assembly I series no. 9/XII/2 of 11 October 2012.

[12] As already referred to in various Arbitral Decisions issued by CAAD (see Case no. 48/2013-T and Case no. 50/2013-T).

[13] In this sense see Arbitral Decision 27/2013-T of 10 September 2013 regarding Vehicle Circulation Tax (IUC) regarding the "reimbursement of the total amount paid and compensatory interest".