Stamp Tax on Urban Properties in Total Ownership: Independent Units and VPT Threshold (CAAD 376/2016-T)

ARBITRAL DECISION

I. REPORT

1. On 8 July 2016, the commercial company A…, S.A., NIPC …, with registered office at Rua …, no.…, … (hereinafter, Claimant), filed a request for constitution of an arbitral tribunal, under 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 of 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 Table of Stamp Tax (hereinafter, TGIS)] for the year 2015 and relating to an urban property in full ownership with storeys or divisions capable of independent use, registered under article … in the urban property matrix of the Joint Parishes of … and …, municipality of Cascais, district of Lisbon, of which it is the owner, in the total amount of € 11,331.90.

The Claimant attached 35 (thirty-five) documents and identified 2 (two) witnesses, not having requested production of any other evidence.

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

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

• It is the owner of an urban property in full ownership, composed of 8 units capable of independent use, one of which is intended for commerce (restaurant), four are intended for short-term accommodation and the remainder have residential purposes;

• The sum of the taxable property value of the fractions intended for housing is € 555,300.00, and none of the individual units has a value exceeding 1 million euros;

• The AT, pursuant to item 28.1 of the TGIS, assessed Stamp Tax on the taxable property value of each of the independent units of the property, with the exception of the restaurant;

• The Claimant did not have the opportunity to be heard before the assessment, and such omission of prior hearing constitutes the non-compliance with an essential formality within the scope of the tax procedure in question, which results in the annulment of the assessments sub judice, by violation of paragraph a) of no. 1 of article 60 of the LGT;

• The tax acts underlying the present request for arbitral decision had as an incorrect premise the taxable property value of € 1,133,190.00, resulting from the sum of the taxable property values of all "potentially" residential fractions of the said urban property;

• However, the incidence norm of item 28 of the TGIS, to operate, depends on the value attributed to each of the fractions considered separately, whose taxable property value must be superior to 1 million euros, since each of the independent units is subsumable under the concept of "urban property" for the purposes of applying that item of the TGIS;

• The property in question was subject to general assessment, under the terms of article 38 of the CIMI and article 15-D of Decree-Law no. 287/2003 of 12/11, on 03.10.2013, and the taxable property value of each of the fractions was assessed and attributed separately to each of them;

• For the purposes of IMI, the AT considered the real estate separately, assessing the respective collection individually, however, for the purposes of the incidence of item 28 of the TGIS, the AT summed the taxable property value of the 7 independent fractions considered;

• Insofar as the registration in the property matrix of properties in full ownership, consisting of different parts, storeys or divisions with independent use, under the terms of the IMI Code, follows the same registration rules as properties constituted in condominium ownership, and their respective IMI is assessed individually in relation to each of the parts, then there is no doubt that the incidence requirements of item 28 of the TGIS must be the same;

• That being the legislator's intention, in defining in article 67, no. 2, of the CIS that to matters not regulated with respect to (expressly) item 28 of the TGIS applies the IMI Code, whereby the value of incidence of the tax must be the value corresponding to the taxable property value of each of the storeys or divisions capable of independent use and individually considered in relation to the part of the property corresponding to that storey, and the Administration cannot reshape the incidence requirements of the tax by partially resorting to a statute to which the legislator refers in full;

• Thus, there will only be incidence of item 28.1 of the TGIS if any of the parts, storeys or divisions with independent use and with an actual residential purpose, presents a taxable property value superior to € 1,000,000.00, which does not occur in the present case;

• It makes no sense to differentiate, for tax purposes and with respect to the application of item 28 of the TGIS, the regime between condominium and full ownership, since, proceeding from the assumption that there may be properties in condominium ownership with a single owner, the Tax Administration would be discriminating against and burdening those who in formal terms are in full ownership and whose patrimonial reality is similar to those in condominium ownership and whose incidence did not occur;

• In this way, none of the units capable of independent use object of the disputed assessments is subject to Stamp Tax, which determines the annulment of those assessments due to the defect of violation of law;

• Even under the erroneous interpretation that the legal requirement would be met for the enforcement of the assessments sub judice, the factual requirements for the assessment of the tax do not exist either, insofar as four of the independent units are intended and were intended as of 31/12/2015 for short-term accommodation, not thereby having an actual residential purpose but rather a service purpose (provision of short-term accommodation services);

• In the present case, those four fractions are marketed for tourist purposes, being that their allocation as of 31.12.2015 and being legally authorized, whereby the actual and legally permitted allocation of those fractions does not fit within the concept of residential purpose for the purposes of item 28 of the TGIS;

• Notwithstanding the fraction being suited for housing, the purpose may be another, such as the possibility of serving as short-term accommodation, not being a tourist enterprise or a hotel unit, but having a purpose of tourist services;

• The generic concept of residential purpose to which the legislator makes reference must invariably yield to concrete and factual realities, fraction by fraction, regarding the actual destination of each of the units;

• By taxing these units intended for short-term accommodation, the AT would be discriminating against commercial companies dedicated to providing tourist accommodation services in clear favour of hotel units and/or tourist enterprises, which also provide hotel services, violating the principle of equality, not only because they provide the same services, but also due to the limitation of equal opportunities, which should guide the aims of taxation, as provided in article 5, no. 1, of the LGT;

• The AT cannot, through item 28 of the TGIS, burden the activity of commercial companies dedicated to providing services "in everything similar to those provided in hotel-type establishments" and whose units are intended (in the present case of those fractions) for short-term accommodation, creating evident imbalances and inadmissible economic discriminations;

• In this way, it is manifestly illegal for the AT to assess a tax on fractions/independent units not intended for a residential purpose;

• Adding the taxable property values of the fractions with a residential purpose, as of 31.12.2015, the value globally considered will be € 555,300.00, that is, inferior to 1 million euros, whereby, also hereby, the factual requirement that would allow the incidence of the tax sub judice is not verified, imposing the annulment of the said assessments due to the defect of violation of law.

The Claimant concludes its initial pleading by petitioning the following:

"ON THESE GROUNDS AND ON ALL OTHERS IN LAW, given the non-compliance with an essential formality within the scope of the tax procedure, as well as the errors in the factual and legal requirements in the application of items 28 and 28.1 of the TGIS, the tax assessments sub judice must be annulled as illegal and unjust, with all legal consequences."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to the AT on 2 August 2016.

2. The Claimant did not proceed with the appointment of an arbitrator, whereby, under the terms of no. 1 of article 6 and paragraph a) of no. 1 of article 11 of the RJAT, the President of the Ethics Council of CAAD appointed the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

3. On 15 September 2016, the Parties were duly notified of that appointment, not having manifested willingness to refuse the appointment of the arbitrator, under the combined terms of article 11, no. 1, paragraphs b) and c), of the RJAT and articles 6 and 7 of the Ethics Code of CAAD.

4. Thus, in accordance with the provision of paragraph c) of no. 1 of article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 30 September 2016.

5. On 19 October 2016, the Respondent, duly notified for that purpose, filed its Reply in which it specifically refuted the arguments put forward by the Claimant, concluding on the merits that the present action was unfounded, requesting its absolution of the claim.

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

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

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

• The disputed assessments did nothing more than apply a rate to the taxable property value fixed according to the declaration presented by the taxpayer, which, if it had disagreed with the taxable property value fixed, could have intervened through the legally established mechanisms for this purpose, requesting a second assessment or challenging the act fixing the taxable property value;

• Having not done so, it accepted the taxable property value fixed for the property, whereby the Stamp Tax assessments fall within the scope of the exemption from prior hearing, provided for in paragraph a) of no. 2 of article 60 of the LGT;

• The property value relevant for the purposes of incidence of the Stamp Tax of item 28.1 of the TGIS is the total property value of the urban property and not the property value of each of the parts that compose it, even though capable of independent use;

• The unit of the urban property in full ownership composed of various storeys or divisions is not affected by the fact that all or part of those storeys or divisions are capable of independent economic use;

• Such property remains, therefore, only one, and its parts are not, therefore, legally equiparated to autonomous fractions under the condominium ownership regime;

• In the present case, the taxable property value on which the incidence of item 28.1 of the TGIS depends had to be, as it was, the total property value of the property and not that of each of its storeys or independent parts;

• The fact that the IMI is calculated based on the taxable property value of each storey or part of properties with independent economic use does not affect the application of item 28.1 of the TGIS;

• Although the assessment of Stamp Tax, in the situations provided for in item 28.1 of the TGIS, is carried out according to the rules of the IMI Code, the legislator reserves the aspects that require proper adaptation, such as is the case of properties in full ownership, even though with storeys or divisions capable of independent use, since, although IMI is assessed in relation to each part capable of independent use, for the purposes of Stamp Tax, the property in its entirety is relevant since divisions capable of independent use are not regarded as property, but only autonomous fractions under the condominium ownership regime;

• The provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality nor of the principle of legality, with no arbitrary discrimination existing in the taxation of properties constituted in condominium ownership and properties in full ownership with storeys or divisions capable of independent use;

• Item 28.1 of the TGIS is a general and abstract norm, applicable in an indistinct manner to all cases in which its respective factual and legal requirements are verified;

• The different valuation and taxation of a property in full ownership as opposed to a property constituted in condominium ownership derives from the different legal effects inherent to these two figures;

• A type of incidence according to which the taxable property value of urban properties on which the application of item 28.1 of the TGIS depends is the value of each storey or division capable of independent use and not the total taxable property value of the urban property with residential allocation has no expression in the law;

• No defects are attributable to the disputed assessments, whereby they must be maintained in the legal order, as they constitute a correct application of the law to the facts.

The Respondent thus concludes its pleading:

"Under the terms set forth above, and on all others in law that Your Excellencies shall duly supply, the present request for arbitral decision must be judged unfounded, absconding the Respondent entity of the claim."

1. On 2 November 2016, the Claimant, duly notified for that purpose, waived the examination of the witnesses it had identified, the holding of the meeting referred to in article 18 of the RJAT and the presentation of submissions.

7.1. Within the scope of the same request, the Claimant also requested the attachment to the file of 7 (seven) collection documents referring to the third instalments of the Stamp Tax assessments impugned, which was admitted.

1. On 3 November 2016, given the converging positions assumed by the Parties in that sense, an order was issued dispensing with the holding of the meeting referred to in article 18 of the RJAT, as well as the presentation of any submissions, and fixing 21 December 2016 as the deadline for rendering the arbitral decision.

II. SANITATION

The Arbitral Tribunal was regularly constituted and is competent.

The process does not suffer from nullities.

The parties enjoy legal personality and capacity, are duly represented and are legitimate.

The cumulation of claims is admitted – several acts of Stamp Tax assessment are at issue, with the declaration of illegality and annulment of each of them being petitioned – by virtue of it being verified that the merits of the claims formulated by the Claimant depend essentially on the assessment of the same factual circumstances – rooted in the Claimant's ownership of an urban property in full ownership with storeys or divisions capable of independent use – and on the interpretation and application of the same legal principles or rules – in casu, of item 28.1 of the TGIS (cf. article 3, no. 1, of the RJAT).

There are no other exceptions or prior matters that prevent the consideration of the merits and of which it is necessary to be aware.

III. REASONING

III.1. FACTS

§1. PROVEN FACTS

The following facts are considered proven:

a) In the year 2015, the Claimant was the owner of the urban property, in full ownership with storeys or divisions capable of independent use, located on Avenue …, no.…, with entrance also via Rua …, no.…, Joint Parishes of … and …, municipality of Cascais, district of Lisbon, registered in the respective property matrix under article…, described in the … Registry Office of Real Property of Cascais under no. … of the parish of … and with the Operating License no.…, issued in … August 1982 by the Municipal Chamber of … [cf. Docs. nos. 15 to 17 attached to P.I.]

b) In that same year, the said urban property was described as follows in the respective property matrix [cf. Doc. no. 15 attached to P.I.]:

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

Number of floors of the article: 6

Number of storeys or divisions with independent use: 8

Total property value: € 2,180,580.00"

c) The storeys or divisions capable of independent use forming part of that same urban property have their own taxable property value, calculated under the terms of the IMI Code, and the storeys or divisions with independent use, described in the property matrix as allocated to housing, were assigned, in 2015, the following unit taxable property values [cf. Docs. nos. 15 and 27 to 34 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 storey or division with independent use, allocated to commerce (restaurant), whose taxable property value was likewise determined in the year 2015 [cf. Docs. nos. 15 to 18 attached to P.I.]:

e) On 5 April 2016, the AT assessed Stamp Tax, reported to the year 2015 and relating to the storeys or divisions with independent use, described in the property matrix as allocated to housing, listed in proven fact c), with the total collection amounting to € 11,331.90. [cf. Docs. nos. 1 to 14 attached to P.I. and the 7 (seven) documents attached to the request of 2 November 2016, of the Claimant]

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 one of the storeys or divisions with independent use, described in the property matrix as allocated to housing, listed in proven fact c). [cf. Docs. nos. 1 to 14 attached to P.I. and the 7 (seven) documents attached to the request of 2 November 2016, of the Claimant]

g) Following the Stamp Tax assessments referred to in proven fact e), the Claimant was notified of the unified collection documents discriminated below, in the total amount of € 11,331.90 [cf. Docs. nos. 1 to 14 attached to P.I. and the 7 (seven) documents attached to the request of 2 November 2016, of the Claimant]:

h) In 2015, the following storeys or divisions with independent use, integrated in the urban property identified above in proven fact a), were allocated to short-term accommodation activity and, for such purpose, registered in the National Tourism Registry – RNAL, under nos. …/AL, 6921/AL, …/AL and …/AL: Ground Floor D, 1st Floor DT, 1st Floor E and 2nd Floor E. [cf. Docs. nos. 19 to 22 attached to P.I.]

i) On 8 July 2016, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present process. [cf. management information system of the CAAD]

§2. UNPROVEN FACTS

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

§3. REASONING ON THE FACTUAL MATTER

The Tribunal's conviction was based on the facts pleaded by the Parties, whose adherence to reality was not challenged, and on the documents attached to the file.

III.2. LAW

The Claimant points to the following defects invalidating the disputed Stamp Tax assessments:

• lack of prior hearing before the assessment;

• violation of law, by error as to the factual and legal requirements, embodied in the erroneous interpretation and application of item 28.1 of the TGIS.

It is thus necessary to begin by establishing the order of consideration of the said defects, for which we must invoke article 124 of the CPPT, applicable ex vi article 29, no. 1, paragraph a), of the RJAT, which provides as follows:

"Article 124

Order of consideration of defects in the judgment

1. In the judgment, the court shall assess as a priority the defects that lead to the declaration of non-existence or nullity of the impugned act and, thereafter, the defects alleged that lead to its annulment.

2. Within the said groups, the assessment of defects is made in the following order:

a) In the first group, of the defects whose procedence determines, according to the sound discretion of the judge, the most stable or effective protection of the offended interests;

b) In the second group, that indicated by the impugning party, whenever it establishes among them a relation of subsidiarity and no other defects are alleged by the Public Prosecutor or, in other cases, that fixed in the preceding subparagraph."

This legal provision establishes a priority for the consideration of defects whose procedence determines, according to the sound discretion of the judge, the most stable or effective protection of the offended interests.

Reverting to the case at issue, it is unequivocal that none of the defects invoked by the Claimant can be considered as arising from situations that may determine the nullity of the impugned tax acts, in light of the legal criteria that characterize them.

Furthermore, we note that the Claimant did not establish a relation of subsidiarity among the defects it invoked against the disputed Stamp Tax assessments.

Within this framework, the maximum effectiveness in the protection of the Claimant's interests requires the priority consideration of the defect of violation of law in relation to the defect of lack of prior hearing, and we shall only pronounce ourselves on the latter if we come to the conclusion that the impugned Stamp Tax assessments do not suffer from the defect of violation of law since, otherwise, it would make no sense, given the provision of article 124 of the CPPT (effectively, if in considering a defect that leads to the legal elimination of the impugned act and that prevents its permanent renewal, the judge were to consider all the defects attributed to the act, it would be indifferent to the order of consideration).

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

At the epicentre of the disagreement that opposes the Parties in this process is the norm of tax incidence contained in item 28.1 of the TGIS, whereby it is necessary, naturally, to begin by proceeding with the interpretation of this norm, with a view to determining its scope and, thereby, delimiting its field of application.

Law no. 55-A/2012, of 29 October, introduced several 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 taxable property value recorded in the matrix, under the terms of the Municipal Real Estate Tax Code (CIMI), is equal to or superior to € 1,000,000 – on the taxable property value used for the purpose of IMI:

28.1 – For property with residential allocation– 1%;

28.2 – For property, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, listed 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), having the latter taken the following form [applicable ratione temporis to the situation sub iudice]:

"28.1 – For residential property or for land for construction whose building, authorized or foreseen, is for housing, under the terms of the provision in the IMI Code– 1%"

The interpretation of the norm of incidence contained in item 28.1 of the TGIS cannot fail to be made on the basis of the interpretative guidelines arising from article 11 of the 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 they apply, the general rules and principles of interpretation and application of laws are observed.

2. Whenever, in tax norms, terms proper to other branches of law are employed, they must be interpreted in the same sense they have therein, unless otherwise directly derived from the law.

3. If doubt persists as to the meaning of the incidence norms to be applied, account must be taken of the economic substance of the tax facts.

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

"Article 9 [Civil Code]

Interpretation of law

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

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

3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express its thought in adequate terms."

On the subject of this interpretative task, with due respect, we appropriate here the following considerations set forth in the arbitral decision rendered in process no. 53/2013-T of the CAAD:

"The relevance of the text of the law is especially accentuated in the matter of interpretation of norms of incidence of Stamp Tax, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on patrimony, on acts, etc.), which leaves no appreciable margin for application of the principal interpretative criterion, which is the unity of the legal system, which demands its global coherence.

The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this item no. 28.1, hastily included on the margins of the State General Budget, by a tax legislator without perceptible global tax guidance, which is successively implementing norms of tax increase as a result of budgetary setbacks, the impositions of international institutional creditors (represented by the "troika") and the supervision of the Constitutional Court.

In truth, although in the "Explanatory Memorandum" of the Bill no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the government's commendable concern to "reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program" and to its commitment "to ensure that the distribution of these sacrifices will be made by all and not just by those who live on the income of their work," it is manifest, on one hand, that those reasons of equity, certainly existing, did not begin to have value in mid-2012, already existing at the beginning of the year, when the State General Budget entered into force, and, on the other hand, that the scope of item no. 28.1, by additionally taxing properties with residential allocation and not also properties that do not have it, reveals that the concerns of social equity and the proclaimed intention of distribution of sacrifices among all reaches much more some than properly all.

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

That said. Having analyzed the wording – both the original and the current – of item 28.1 of the TGIS, we find that this norm has an essentially remissive character, since its relevant regulatory content depends on the normativity ad quam contained in the IMI Code.

In fact, whether as regards the objective incidence, with reference to "urban properties" and to "taxable property value recorded in the matrix, under the terms of the Municipal Real Estate Tax Code," or as regards the fixing of the taxable matter, with reference to "taxable property value used for the purpose of IMI," the regulatory content of this item 28 of the TGIS results from the delegation – in the terms of a general remission – to the regulatory whole found in the IMI Code.

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

Within this framework, it is thus necessary to collect the norms of the IMI Code that appear pertinent to the understanding and, therefore, to 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 the purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a permanent character, provided that it is part of the patrimony of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature.

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

2. Permanent character is presumed when buildings or constructions are situated on the same site for a period exceeding one year.

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

Thereafter, in articles 3 to 5 of the CIMI, the species of existing properties are enumerated, namely:

Rural Properties (article 3):

"Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, under the terms of no. 3 of article 6, provided that:

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

b) Not having the allocation indicated in the preceding subparagraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Rural properties also include lands situated within an urban agglomeration, provided that, by virtue of legally approved disposition, they cannot have use generating any income or can only have use generating agricultural income and are actually having this allocation.

3 – Rural properties also include:

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

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

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

Urban Properties (article 4):

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

Mixed Properties (article 5):

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

1. If none of the parts can be classified as main, the property is regarded as mixed."

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

"1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others.

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

2. Land for construction is considered to be land situated within or outside an urban agglomeration, for which a license or authorization has been granted, admission of prior notification or favorable prior information issued for subdivision or construction operation, and also those that have been thus declared in the acquisition title, excepting lands in which the competent entities forbid any of those operations, namely those located in green areas, protected areas or which, according to the municipal land planning plans, are allocated to spaces, public infrastructure or equipment.

3. The provision of subparagraph d) of no. 1 encompasses land situated within an urban agglomeration that is not land for construction nor is encompassed by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of license, that have as their normal destination other purposes than those referred to in no. 2 and also those of the exception of no. 3."

On the taxable property value, article 7 of the CIMI provides as follows:

"1. The taxable property value of properties is determined under the terms of this Code.

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

a) If one of the parts is principal and the other or others merely accessory, by application of the evaluation rules of the principal part, taking into account the valorization 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, the value of the property being the sum of the values of its parts.

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

Under the heading "Concept of property matrices," article 12 of the CIMI provides as follows:

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

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

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

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

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

Still on the subject of property matrices, it is important to consider no. 1 of article 13 of the CIMI, from which it follows that "[r]egistration of properties in the matrix and its updating are effected on the basis of a declaration presented by the taxpayer".

Regarding the determination of taxable property value, it is important here to invoke article 38 of the CIMI, headed "Determination of taxable property value":

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

Vc = base value of built properties;

A = gross building area plus area exceeding the footprint area;

Ca = allocation coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = age coefficient.

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

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

On the face of the literal content of item 28.1 of the TGIS (wording applicable ratione temporis to the situation sub iudice), residential urban properties with taxable property value equal to or superior to € 1,000,000.00 are subject to this norm of tax incidence.

In light of the norms of the CIMI cited above, we have that residential are buildings or constructions licensed by the municipalities for that purpose or, in the absence of licensing, that have as their normal destination that use (article 6, no. 2, of the CIMI); thus, residential properties are the said buildings or constructions, and thus these 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 ratio legis perceptible from the restriction of the field of application of the norm to residential properties – a restriction that was maintained as to allocation (housing) in the legislative amendment that came to expand the scope of incidence to land for construction – in the context of the "circumstances in which the law was elaborated and the specific conditions of the time in which it is applied," which article 9, no. 1, of the Civil Code also provides as interpretative elements.

Effectively, the limitation of the application of the tax to residential properties and, subsequently, to land for construction in which housing construction is foreseen or authorized, reveals the intention not to burden the productive sector and companies in general and, in that sense, it was not intended to encompass within the scope of incidence of the tax either properties allocated to services, industry or commerce, that is, properties allocated to economic activity, nor land for construction to which building for those other purposes is foreseen or authorized. This is understandable in a context in which the economy was in recessional 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 rendered in processes nos. 50/2013-T, 132/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/2014-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of the CAAD.

Given that situation and being well-known and public that the revitalization of economic activity and the increase of exports are the doors of exit from the crisis, it is understood that, despite the pressing need to increase tax revenue, legislative measures were not taken that would hinder economic activity, in particular the burden of tax increases that hinder it and affect competitiveness in international terms.

Therefore, it is to be concluded that the interpretative elements available, including the "circumstances in which the law was elaborated and the specific conditions of the time in which it is applied," clearly point to the intention not having been to encompass within the scope of incidence of item 28.1 of the TGIS non-residential properties and, subsequently, also land for construction to which building is authorized or foreseen for purposes other than housing.

To close this exegesis of item 28.1 of the TGIS, it is important to emphasize that the cited articles 38 to 46 of the CIMI have no relation to the classification of urban properties, since in those norms only the factors to be considered in their respective evaluation are indicated (in this sense, see the decision rendered in process no. 53/2013-T of the CAAD).

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

And, where the law did not distinguish, the interpreter cannot do so.

Having analyzed, therefore, the definition of property inherent in no. 1 of article 2 of the CIMI, we do not discern any reason not to include therein the divisions with independent use of properties constituted under full ownership, since these constitute a fraction of territory that is an integral part of the patrimony of a natural or legal person and that has economic value.

It should be noted that to each of those divisions or fractions is assigned a taxable property value.

Being established that the classification of divisions with independent use of properties constituted under full ownership as "properties," under the terms and for the purposes of the CIMI, it seems to us evident that each of these divisions constitutes, when that is their intended purpose, residential properties.

In the case at issue, all the divisions or storeys of the urban property in question are capable of independent use, some of which are allocated to housing.

Indeed, were it not the case that the divisions or storeys at issue in the present proceedings were individually classified as "properties," it would make no sense or logic in the formulation, in this case, of an assessment of Stamp Tax for each of those units.

It is true that the subsidiary application of the CIMI could inculcate the idea that only autonomous fractions, under the condominium ownership regime, are regarded as properties in light of the provision of no. 4 of article 2 of the CIMI.

However, if one looks at the wording of that legal norm, it will immediately be verified that the requirement of constitution of the condominium ownership regime is only necessary for tax purposes in IMI.

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

Furthermore, as has already been said above, the introduction of item 28 in the TGIS had as its objective the taxation of urban properties of high value with residential allocation, taxing the wealth, externalized in the ownership, usufruct or right of superficies, of luxury urban properties, or their autonomous fractions or divisions, with residential allocation.

Now, if the law's objective was to adapt taxation in Stamp Tax to the taxpayers' ability to contribute, it seems to have no relevance the distinction between properties constituted under the condominium or vertical ownership regime.

Manifestly, it is not thereby that the greater or lesser ability to contribute is revealed, all the more so since, as is known, condominium ownership is a relatively recent legal institution, and it is certain that a large part of old properties are not even constituted in this regime, despite functioning as such in practice.

Now, the principle of the prevalence of substance over form requires that the AT should value material truth. And, in the case at issue, 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 condominium ownership.

Or, to put it another way, since the constitution of condominium ownership is a merely legal and not factual operation, no reasons are discerned for differences in taxation on this ground, since what will always be relevant is the individual value of each of the fractions, whether or not the property is constituted under the condominium ownership regime.

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

Thus, in conclusion, with respect to properties in full ownership with storeys or divisions capable of independent use, exclusive consideration must be given to the taxable property value proper to each storey or division with residential allocation, recorded in the matrix, for the purposes of the application of item 28.1 of the TGIS.

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

That is, in such circumstances, there is recorded in the matrix nor is used for the purposes of IMI a "taxable property value" that corresponds to the sum of the taxable property values of the divisions of independent use with residential allocation (…). In effect, what the CIMI establishes, under the cited article 7, no. 2, al. b), and is recorded 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.

In consequence, the "taxable property value of the property – total subject to tax" (…) on which the impugned assessments are based does not have correspondence with the legal category consecrated in item 28 of the TGIS of "taxable property value recorded in the matrix, under the terms of the Municipal Real Estate Tax Code".

Let it be insisted, in effect, that the CIMI only refers, as results from article 7, no. 2, al. b) cited above, to "value of the property" as the sum of all its parts object of autonomous evaluation, thus not legitimizing the configuration of partial values of the property by attending only to certain economically independent parts of the property (those possessing residential allocation), disregarding the parts with other allocations (for commerce, industry or for services). In such context, there is not embodied the value of the property as provided for in article 7, no. 2, al. b) of the CIMI, but rather the value of the set of certain parts of the property, a value which is not the subject of any provision under the terms of the Municipal Real Estate Tax Code (nor is it a taxable property value used for the purposes of IMI).

It is thus to be advanced that it is considered that in the disputed assessments there is the adoption, for the purposes of fixing the incidence of item 28.1 of the TGIS, of a taxable property value that does not find acceptance in the law." (arbitral decision rendered in process no. 518/2014-T).

§2. OF THE CASE SUB JUDICE

As has been proven, none of the storeys or divisions with independent use, described in the property matrix as allocated to housing, of the urban property at issue, possesses a taxable property value equal to or superior to € 1,000,000.00 (cf. proven fact c)).

Furthermore, as has also been proven, in the year 2015, the storeys or divisions with independent use, integrated in the urban property at issue, identified by Ground Floor D, 1st Floor DT, 1st Floor E and 2nd Floor E, were allocated to short-term accommodation activity and, for such purpose, registered in the National Tourism Registry - RNAL, under nos. …/AL, …/AL, …/AL and …/AL (cf. proven fact h)).

Under the terms of no. 1 of article 3 of Decree-Law no. 39/2008, of 7 March – which approves the legal regime for the installation, operation and operation of tourist enterprises – short-term accommodation was defined as follows: "Short-term accommodation establishments are dwellings, apartments and hospitality establishments that, having authorization of use, provide temporary accommodation services, in return for remuneration, but do not meet the requirements to be considered tourist enterprises."

This norm was revoked by no. 1 of article 34 of Decree-Law no. 128/2014, of 29 August – which approves the legal regime for the operation of short-term accommodation establishments – and from no. 1 of article 2 of this legal provision there follows the following notion of short-term accommodation establishment: "Short-term accommodation establishments are those that provide temporary accommodation services to tourists, in return for remuneration, and that meet the requirements set forth in this decree-law." Under the terms of subparagraph b) of no. 1 of article 3 of the same legal provision, one of the modalities into which short-term accommodation establishments must be integrated is the "apartment," considered as such "the short-term accommodation establishment whose accommodation unit is constituted by an autonomous fraction of a building or part of an urban property capable of independent use."

Within this framework, it is necessary to conclude that, in the year 2015, the referenced storeys or divisions with independent use were not, effectively, allocated to housing, but rather to the activity of provision of short-term accommodation services.

In this measure and given the above exposition, once the taxable property value of each of the storeys or divisions with independent use, described in the property matrix as allocated to housing, is less than the value to which item 28.1 of the TGIS refers and some of those storeys or divisions were in 2015, effectively, allocated to services (short-term accommodation establishments), it follows that such storeys or divisions do not fall within the norm of tax incidence contained in that item 28.1, whereby the disputed assessments suffer from the defect of violation of law, by error as to the factual and legal requirements, embodied in the erroneous interpretation and application of item 28.1 of the TGIS, which requires the declaration of illegality and subsequent annulment thereof, with all inherent legal consequences (cf. article 24, no. 1, paragraph b), of the RJAT).

Given the merits of the petitioned declaration of illegality of the disputed Stamp Tax assessments, by a defect that prevents the renewal of the act, the consideration of the remaining issues and defects invoked by the Claimant is rendered moot and unnecessary.

IV. DECISION

Given the above exposition, this Arbitral Tribunal decides:

a) To judge the request for arbitral decision procedurally well-founded and, consequently, by virtue of the defect of violation of law, by error as to the factual and legal requirements, embodied in the erroneous interpretation and application of item 28.1 of the TGIS, to declare illegal and annul the Stamp Tax assessments impugned in the present proceedings, relating to the year 2015 and concerning the urban property registered under article … in the urban property matrix of the Joint Parishes of … and …, municipality of Cascais, district of Lisbon, with the legal consequences;

b) To condemn the Tax and Customs Authority to pay the costs of the present process.

VALUE OF THE CASE

In accordance with the provision of articles 306, no. 2, of the CPC, 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Rules of Costs in Tax Arbitration Processes, the case is assigned the value of € 11,331.90 (eleven thousand three hundred and thirty-one euros and ninety cents).

COSTS

Under the terms of article 22, no. 4, of the RJAT, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), under the Table I attached to the Rules of Costs in Tax Arbitration Processes, payable by the Tax and Customs Authority.

Lisbon, 9 November 2016.

The Arbitrator,

(Ricardo Rodrigues Pereira)