Summary
Full Decision
ARBITRAL DECISION
Claimants: A… and B…
Respondent: Tax and Customs Authority
I – REPORT
1. On 11 July 2016, the taxpayers A… and B…, both domiciled in …, no…, of the civil parish union of …, … and …, …-… Castelo Branco, with tax identification numbers … and …, respectively, (hereinafter referred to as the "Claimants"), acting in coalition, filed a request with the Administrative Arbitration Centre (CAAD) for the constitution of an arbitral tribunal with a view to obtaining an arbitral decision, in accordance with the provisions of articles 2, no. 1, letter a), 3, no. 1 and 10 of Decree-Law no. 10/2011 of 20 January (hereinafter referred to as RJAT), following the tax assessment acts of Stamp Tax (IS) for the year 2015, dated 5 April 2016, for each of the floors with independent use that comprise the urban property registered under article…, in the property register of the parish of …, in the municipality of Lisbon, in the total amount of €10,020.54 (ten thousand, twenty euros and fifty-four cents).
2. In the request for arbitral decision, the Claimant opted not to designate an arbitrator.
3. In accordance with no. 1 of article 6 and letter b) of no. 1 of article 11 of RJAT, with the wording introduced by article 228 of Law no. 66-B/2012 of 31 December, the Deontological Council designated the undersigned as sole arbitrator, who accepted the appointment within the legally stipulated period.
4. The arbitral tribunal was constituted on 7 October 2016.
5. On 9 November 2016, the Respondent, duly notified for this purpose, presented its response.
6. The meeting provided for in article 18 of RJAT, as well as the submissions, at the request of the Respondent, were dispensed with, which the Tribunal upheld for reasons of procedural economy and expedience and the prohibition of performing useless acts, with neither party manifesting any opposition.
7. The position of the Claimants, expressed in the request for arbitral decision, is, in summary, as follows:
7.1. The assessment acts that are the subject of the present arbitral decision are vitiated by error regarding the legal premises, error regarding the factual premises and breach of law.
7.2. In the case of a property such as that in the present proceedings, which comprises floors or units with independent use, the subjection to stamp tax is determined not by the TPV of the property, as understood by the Respondent, but by the TPV of those floors or units.
7.3. Moreover, having regard to the rules of CIMI applicable to matters not regulated in the Stamp Tax Code concerning item 28 of the General Table (see article 67, no. 2 of the Stamp Tax Code), each floor or unit of a property susceptible to independent use is considered separately in the property register (see article 12, no. 3 of CIMI).
7.4. As such, being the TPV of any one of the fifteen apartments listed in the register of the property to which these proceedings relate, in accordance with CIMI, less than €1,000,000.00, stamp tax item no. 28.1 of TGIS does not apply to them. Consequently, the assessment acts are illegal due to violation of the incidence rule of item no. 28.1 of TGIS.
7.5. Indeed – the Claimants state – the Respondent cannot sustain the view that the incidence basis of item no. 28.1 of TGIS is the failure to constitute a property such as that in the present case in a horizontal ownership regime, comprised of fifteen independent dwellings, nor can the legal form of property ownership be determinative of that incidence.
7.6. The Respondent's understanding in this way would lead to a situation in which two taxpayers holding two identical properties would be treated unequally, each of whose TPV is equal to or greater than €1,000,000.00, but whose autonomous units or independent residential divisions have an individual TPV less than €1,000,000.00.
7.7. For this reason, the Claimants understand that stamp tax item no. 28.1 of TGIS does not apply to the TPVs of the apartments in the present case listed in their respective register, just as it would never apply to equal TPVs of autonomous units of an identical property constituted in a horizontal ownership regime.
7.8. Additionally, in accordance with the constitutional principle of equality, a structuring principle of the Rule of Law, enshrined in article 13 of the CRP, the Respondent, under penalty of its action being entirely arbitrary and illegal, cannot treat equal situations differently, since if the property were in a horizontal ownership regime, none of its residential units would be subject to stamp tax item 28.1 of TGIS. All as, in an identical situation, the Arbitral Tribunal established in case no. 50/2013-T.
7.9. Finally, also taking into account the constitutional principle of justice, enshrined in article 266, no. 2 of the CRP, it must be taken into account that many properties in vertical ownership, such as that of the Claimants, are old, with low rents, which certainly led the tax legislator itself in CIMI to treat the two situations of horizontal and vertical ownership equitably, applying the same criteria (see arbitral award rendered in cases 50/2013-T and 132/2013-T).
7.10. For all the foregoing, the stamp tax assessments, relating to the year 2015, in the total amount of €10,020.54, corresponding to the property in question, should be annulled, with all legal consequences.
8. The position of the Respondent expressed in the response, is, in abbreviated summary, as follows:
8.1. What is at issue are assessments that result from the direct application of item 28.1 of TGIS, which provides that Stamp Tax applies to the ownership, usufruct or right of superficies of urban properties whose patrimonial value recorded in the register, in accordance with CIMI, is equal to or greater than €1,000,000.00.
8.2. Therefore, there is no error attributable to the services, which simply acted, as they should, in strict compliance with the legal rule.
8.3. In fact, for purposes of Stamp Tax, the entire property is relevant since divisions susceptible to independent use are not considered property, but only autonomous units in a horizontal ownership regime, in accordance with no. 4 of article 2 of CIMI.
8.4. As such, the TPV upon which the incidence of Stamp Tax item 28.1 of the General Table depends had to be, as it was, the total patrimonial value of the property and not that of each of its independent parts.
8.5. The Respondent further submits that the provision of item 28.1 of TGIS does not constitute any violation of the principle of equality, with no discrimination existing in the taxation of properties constituted in horizontal ownership and properties in full ownership with floors or divisions susceptible to independent use, or between properties with residential use and properties with other uses.
8.6. Constitution in horizontal ownership results in the division of total ownership and the independence or autonomy of each unit that comprises it, for all legal purposes, in accordance with no. 4 of article 2 of CIMI and articles 1414 and following of the CC, whereas a property in full ownership constitutes, in all respects, a single legal-tax reality.
8.7. Therefore, item 28.1 applies to the ownership, usufruct or right of superficies of urban properties with residential use, whose patrimonial value for tax purposes recorded in the register, in accordance with CIMI, is equal to or greater than €1,000,000.00, being thus a general and abstract rule, applicable indiscriminately to all cases in which the respective factual and legal premises are met.
8.8. Indeed, one cannot conclude there is alleged discrimination or violation of the principle of equality when, in fact, we are dealing with distinct realities, valued by the legislator differently.
8.9. Moreover, what the Respondent defends was the subject of Binding Information from the Tax Authority, with the agreement of the Deputy Legal Director of the Tax and Customs Authority, dated 11.02.2013. That is, for purposes of taxation under stamp tax, item 28.1 of TGIS, properties in full ownership are considered as a whole as a single property. Therefore, this is the understanding that best aligns with the principle of legality inherent in article 8 of LGT, to which all its activity is devoted.
8.10. Thus, as was well decided in the Arbitral Decision in case no. 668/2015-T, the Tax Authority understands that the stamp tax assessment notices, item 28 of TGIS, challenged in the present proceedings, remain entirely valid and legal, concluding with the legality thereof.
8.11. In this sequence, the Respondent concludes for the complete lack of merit of the request for arbitral decision filed, being evident the legal conformity of the act that is the object of the present proceedings.
II – QUESTION TO BE DECIDED
10. In light of the foregoing, the main question to be decided is as follows:
− Are the tax acts, consisting of the Stamp Tax assessments of Item 28.1 of the General Table, Annexed to the Stamp Tax Code, relating to the year 2015, dated 05 April 2016, for each of the floors with independent use that comprise the urban property registered under article …, in the property register of the parishes of …, in the municipality of Lisbon, in the total amount of €10,020.54 (ten thousand and twenty euros and fifty-four cents), issued by the Tax and Customs Authority, affected by error regarding the factual and legal premises and further vitiated by breach of law.
III – SCREENING
11. The Tribunal is regularly constituted and is materially competent, in accordance with articles 2, no. 1, letter a), 5, no. 2, and 6, no. 1, of RJAT.
The request for arbitral decision is timely, in accordance with no. 1 of article 10 of RJAT.
The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10, no. 2, of RJAT and article 1 of Order no. 112-A/2011 of 22 March.
Having regard to the assessment of the same circumstances of fact and the interpretation and application of the same principles and rules of law, the coalition of claimants is admissible, in accordance with article 3, no. 1 of RJAT.
The proceedings do not suffer from defects that would render them invalid.
All considered, a decision must be rendered.
IV – FACTUAL FINDINGS
12. Taking into account the administrative tax proceedings and the documentary evidence attached to the case file, it is now necessary to present the factual matter relevant to the understanding of the decision, which is established as follows:
The Claimants A… and B… are the legitimate owners of the urban property registered under article …, in the property register of the parish of …, in the municipality of Lisbon, constituted in full ownership with floors or divisions susceptible to independent use, in the proportion of 1/2 and 1/6, respectively (see document attached to the present proceedings as doc. no. 2 annexed to the Arbitral Petition).
The Tax Authority assigned to the property in question, for purposes of application of Item 28.1 of TGIS, the "patrimonial value of the property – total subject to tax" of €1,503,080.00 (one million, five hundred and three thousand and eighty euros) – (see stamp tax assessment acts for 2015 attached to the present proceedings as docs. nos. 1A and 1B, annexed to the Arbitral Petition).
In conformity with the patrimonial value for tax purposes assigned to the property in question, the Tax Authority proceeded with the respective Stamp Tax assessments based on Item 28.1 of the General Table of Stamp Tax, dated 05 April 2016, notified to the Claimants, in the amount of €7,515.40 (seven thousand, five hundred and fifteen euros and forty cents) and €2,505.14 (two thousand, five hundred and five euros and fourteen cents), having determined the following installment payments for each floor or division susceptible to independent use:
| Property Registration | TPV | Amount Due from A… | Amount Due from B… |
|---|---|---|---|
| …-U-…-1ºD | €94,430.00 | €472.15 | €157.38 |
| …-U-…-2ºD | €94,430.00 | €472.15 | €157.38 |
| …-U-…-3ºD | €95,380.00 | €476.90 | €158.97 |
| …-U-…-4ºD | €95,380.00 | €476.90 | €158.97 |
| …-U-…-5ºD | €96,320.00 | €481.60 | €160.53 |
| …-U-…-6ºD | €96,320.00 | €481.60 | €160.53 |
| …-U-…-7ºD | €78,640.00 | €393.20 | €131.07 |
| …-U-…-8º | €33,540.00 | €167.70 | €55.90 |
| …-U-…-1ºE | €119,290.00 | €596.45 | €198.82 |
| …-U-…-2ºE | €119,290.00 | €596.45 | €198.82 |
| …-U-…-3ºE | €120,480.00 | €602.40 | €200.80 |
| …-U-…-4ºE | €120,480.00 | €602.40 | €200.80 |
| …-U-…-5ºE | €121,680.00 | €608.40 | €202.80 |
| …-U-…-6ºE | €121,680.00 | €608.40 | €202.80 |
| …-U-…-7ºE | €95,740.00 | €478.70 | €159.57 |
(see Stamp Tax assessments attached to the present proceedings as doc. no. 1A and 1B annexed to the Arbitral Petition).
The assessments referenced in the previous item were paid in full by the Claimants in the month of April 2016 (see documents attached to the present proceedings as docs. no. 1A and 1B annexed to the Arbitral Petition).
13. The facts stated in the previous number constitute uncontested factual matter and are documentarily proven in the case file.
14. There are no facts established as not proven, because all facts relevant to the assessment of the request were established as proven.
V – LEGAL GROUNDS
15. We shall now determine the applicable law to the underlying facts, in accordance with the question already stated (see above no. 10).
16. Thus, the question that arises is whether the understanding according to which Item 28.1 of TGIS should be interpreted (or not) as providing, within its scope, that properties in full ownership with parts or divisions susceptible to independent use, with residential use, which are characterized by the fact that none of those parts or divisions has been assigned a TPV equal to or greater than €1,000,000.00, are subject to Stamp Tax of Item 28 of TGIS is legal.
17. The subjection to Stamp Tax of properties with residential use resulted from the addition of Item 28 of TGIS, made by article 4 of Law 55-A/2012 of 29 October, which typified the following tax facts, in accordance with the current wording:
"28 – Ownership, usufruct or right of superficies of urban properties whose patrimonial value for tax purposes recorded in the register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000.00 – on the patrimonial value for purposes of IMI (Added by article 4 of Law no. 55-A/2012 of 29 October):
28.1 – For residential property or for land for construction whose building, authorized or envisaged, is for housing, in accordance with the provisions of the Municipal Property Tax Code (Amended by Law no. 83-C/2013 of 31 December) – 1%
28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance (Added by article 3 of Law no. 55-A/2012 of 29 October) – 7.5%."
This law entered into force on the day following its publication, that is, on 30 October 2012.
18. However, Law 55-A/2012 says nothing regarding the qualification of the concepts in question, namely, regarding the concept of "property with residential use" contained in Item 28.1.
19. In this sense, it is necessary to determine its true meaning, in accordance with the techniques and interpretive elements generally accepted by doctrine, in accordance with article 9 of the Civil Code and article 11 of the General Tax Law.
20. In this respect, one should consider the concept of property that results from the provisions of article 2 of the Municipal Property Tax Code – "any portion of territory, encompassing waters, plantations, buildings and constructions of any kind incorporated or based therein, with a character of permanence, provided that it forms part of the estate of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, even though situated in a portion of territory that constitutes an integral part of an estate other than patrimonial or does not have patrimonial character." –, by reference of article 67, no. 2 of the Stamp Tax Code, added by the aforementioned Law, which provides that "to matters not regulated in the present code concerning Item 28 of the General Table, the CIMI shall apply subsidiarily." Thus complying with the determination of TPV to the terms of the provisions of article 38 and following of the same code.
21. In the Municipal Property Tax Code, reference must also be made to article 6, which indicates the different types of urban properties, among which it mentions residential ones in letter a) of its no. 1, clarifying in its no. 2 that "residential, commercial, industrial or service buildings or constructions are those licensed for such purpose or, in the absence of a license, that have the normal destination of each of these purposes."
22. In a first analysis, we can already conclude that the legislator was concerned with the normal use of the property, the purpose for which it is intended, and not with the rigor of the concept itself.
23. We can further add that "(…) for the legislator, the situation of the property in vertical or horizontal ownership did not matter, since no reference or distinction is made between one and the other. What matters is the material truth underlying its existence as an urban property and its use." Understanding expressed, and to which we adhere, in the Arbitral Decision rendered in case no. 50/2013-T.
24. Thus, the legislator, in the rule of incidence of Item 28.1 of TGIS, did not deem it relevant to distinguish between properties in horizontal ownership and properties in vertical ownership. Therefore, we advance already, the argument advanced by the Respondent reported in article 39 of its Response does not hold, when it states that "Since properties are in a regime of full ownership (not having autonomous units, to which tax law attributes the qualification of property, because from the concept of property in no. 4 of article 2 of CIMI it results that only autonomous units of property in a horizontal ownership regime are considered properties), it is the total TPV of the property that must, therefore, be relevant."
25. It is also important to consider article 12, no. 3, of the Municipal Property Tax Code, which provides that "each floor or part of a property susceptible to independent use is considered separately in the property register, which also discloses the respective patrimonial value for tax purposes."
26. And also the provision in article 119, no. 1 of the Municipal Property Tax Code, which determines that "The services of the General Directorate of Tax Revenue send to each taxpayer, by the end of the month prior to the payment month, the competent collection document, with a description of the properties, their parts susceptible to independent use, their respective patrimonial value for tax purposes and the amount of tax charged to each municipality of the location of the properties."
27. Now, considering that the registration in the property register of properties in vertical ownership, comprised of different parts, floors or divisions with independent use, in accordance with the Municipal Property Tax Code, using the criterion already mentioned in article 67, no. 2 of the Stamp Tax Code – "to matters not regulated in the present code concerning Item 28 of the General Table, the CIMI shall apply subsidiarily." – complies with the same registration rules for properties constituted in horizontal ownership, and their respective Municipal Property Tax, as well as Stamp Tax of Item 28.1, are assessed individually in relation to each of the parts, it is clear that 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, the same must be observed for the definition of the rule of incidence of Stamp Tax of Item 28.1.
28. Considering the foregoing, stamp tax is only applicable if any of the parts, floors or divisions with independent use presents a TPV greater than €1,000,000.00, which in the present case does not occur, as shown in the property record of the property in question (see point A and B of no. 12 above).
29. Therefore, the Tax Authority can never consider the total value of the property as the reference value for the incidence of stamp tax, when the legislator itself established a different rule under the Municipal Property Tax Code. As mentioned, under that code, there is no difference between a building in horizontal ownership and a building in vertical or full ownership comprised of parts or divisions susceptible to independent use – this being the code applicable to matters not regulated regarding Item 28 of TGIS (see article 67, no. 2 of Law 55-A/2012 of 29/10).
30. This equal treatment that the legislator did not understand to include in the rule of incidence contained in Item 28.1 of TGIS, it also did in article 119 of the Municipal Property Tax Code, when it established that the tax should be assessed individually on each part or division susceptible to independent use, taking into account the TPV of each of those parts or divisions susceptible to independent use, individually considered. From which it follows that the TPV that should be considered in the application of Item 28.1 of TGIS is that which results from the wording and rationale of articles 2, 6 no. 1 letter a), 12 and 119, all of the Municipal Property Tax Code.
31. Let it be clear that this position aligns with the overwhelming majority of known CAAD jurisprudence (see among many, cases 544/2015-T, 552/2015-T, 554/2015-T, 560/2015-T, 562/2015-T, 573/2015-T, 576/2015-T, 581/2015-T, 589/2015-T, 597/2015-T, 606/2015-T, 632/2015-T, 643/2015-T, 644/2015-T, 651/2015-T, 659/2015-T, 681/2015-T, 718/2015-T, 755/2015-T, 768/2015-T, 777/2015-T, 10-2016-T, 20/2016-T.), and furthermore, in the same sense, cases nos. 30/2014-T and 329/2015-T, which found the requests entirely meritorious and annulled the stamp tax assessment acts charged to the Claimants for 2012 and 2013.
32. Having regard to what we have just stated, we cannot follow, with all due respect, the position of the Respondent, inasmuch as it is not acceptable that the criterion sought, of considering the value of the sum of the TPVs assigned to the parts, floors or divisions with independent use, with the argument that the property is not constituted in a horizontal ownership regime, has no legal basis and is contrary to the criterion applicable under the Municipal Property Tax Code and, by reference, under Stamp Tax.
33. In the case at hand, the property in question is in full ownership and contains 15 floors and/or divisions with independent use, devoted to housing, as was proven by documents nos. 1A and 1B attached to the Request for Arbitral Decision and none of those floors have a patrimonial value equal to or greater than €1,000,000.00, as results from the documents attached to the case, and therefore it is concluded that the legal premise of incidence of Stamp Tax provided in Item 28.1 of TGIS has not been verified.
34. Finally, in addition to the annulment of the assessments and consequent reimbursement of the amounts unduly paid, the Claimants also petition for payment of the corresponding compensatory interest.
35. In accordance with article 24, no. 5 of RJAT "payment of interest is due, regardless of its nature, in accordance with the terms provided in the general tax law and in the Tax Procedure and Process Code." This rule allows for the recognition of the right to compensatory interest in arbitral proceedings. Thus, the request is heard.
36. In accordance with article 43, no. 1 of LGT, compensatory interest is due when it is determined, in gracious reclamation or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due.
The right to compensatory interest referred to in the aforementioned rule of LGT presumes that tax has been paid in an amount greater than due and that such derives from error, of fact or of law, attributable to the services of the Tax Authority (see Judgment of the Supreme Administrative Court, case no. 01215/12, of 10.04.2013).
37. In the present case, both conditions are met, thus establishing the obligation of compensatory interest in favor of the Claimants, which is hereby declared.
VI – DECISION
Therefore, in this Arbitral Tribunal, it is decided:
a) For the merit of the request of the Claimants, considering the Stamp Tax assessment acts in question to be illegal, for error regarding the factual and legal premises and breach of article 1, no. 1 of the Stamp Tax Code and Item 28.1 of TGIS, with the aforementioned acts to be annulled, given the fact that none of the parts or divisions susceptible to independent use, subject to the assessment acts that are the object of the arbitral decision, have a patrimonial value for tax purposes greater than €1,000,000.00, as was demonstrated in the present proceedings;
b) Condemn the Respondent to refund the amount unduly assessed and paid in the amount of €10,020.54 (ten thousand and twenty euros and fifty-four cents);
c) Further condemn the Respondent, since we are dealing with a defect regarding the tax legal relationship, as the existence of this defect implied damage to a subjective legal situation, embodied in the imposition on the Claimants of the performance of a patrimonial obligation contrary to law, to payment of compensatory interest, in accordance with the terms and conditions provided by law (see articles 43 and 100 of LGT and article 61 of CPPT).
The value of the case is set at €10,020.54, in accordance with article 97-A, no. 1, a), of the Tax Procedure and Process Code, applicable by virtue of letters a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Costs Regulation in Tax Arbitration Proceedings.
The amount of costs is set at €918.00, in accordance with Table I of the Costs Regulation for Tax Arbitration Proceedings, to be paid by the Tax and Customs Authority, since the request was entirely meritorious, in accordance with articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.
Notify.
Lisbon, 31 March 2017.
The Arbitrator
(Jorge Carita)
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