Stamp Tax on Vertical Property (Verba 28.1 TGIS) – CAAD Arbitral Decision 383/2016-T

ARBITRAL DECISION

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to constitute the Arbitral Tribunal, constituted on 4 October 2016, with respect to the process above identified, decided as follows:

1. REPORT

1.1

A…, taxpayer no.…, with domicile at Rua…, no.…, …, in Lisbon (hereinafter referred to as "Claimant"), presented a request for arbitral pronouncement and constitution of a single Arbitral Tribunal, on 11 July 2016, under the provisions of Article 4 and no. 2 of Article 10 of Decree-Law no. 10/2011, of 20 January [Legal Framework for Tax Arbitration (RJAT)], in which the Tax and Customs Authority is Respondent (hereinafter referred to as "Respondent").

1.2

The Claimant petitions that "(…) the request for arbitral pronouncement shall be judged well-founded, with the consequent annulment of the challenged tax assessments", "and likewise consider annulled the subsequent notices for assessment of subsequent instalments of Stamp Tax" "and that the AT be condemned to reimburse the amounts paid relating to Stamp Tax plus interest in accordance with legal terms".

1.3

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of the CAAD and automatically notified to the Respondent on 13 July 2016.

1.4

Given that the Claimant did not proceed with the appointment of an arbitrator, under the provisions of Article 6, no. 2, paragraph a) of the RJAT, the undersigned was designated as arbitrator on 9 September 2016 by the President of the Deontological Council of the CAAD, with the appointment being accepted within the legally prescribed timeframe and terms.

1.5

On the same date, both parties were duly notified of this designation and expressed no intention to refuse the arbitrator's designation, in accordance with the provisions of Article 11, no. 1, paragraphs a) and b) of the RJAT, in conjunction with Articles 6 and 7 of the Deontological Code.

1.6

Thus, in accordance with the provisions of paragraph c), no. 1, Article 11 of the RJAT, the Arbitral Tribunal was constituted on 4 October 2016, with an arbitral order having been issued on the same date, in order to notify the Respondent to, in accordance with the provisions of Article 17, no. 1 of the RJAT:

1.6.1

Present its Answer within a maximum period of 30 days and, should it wish to, request the production of additional evidence;

1.6.2

Submit to the Arbitral Tribunal, within the timeframe of the Answer, a copy of the administrative file.

1.7

On 28 October 2016, the Respondent submitted a copy of the administrative file and on 31 October 2016 presented its Answer, having defended itself by objection and concluded that "the present request for arbitral pronouncement shall be judged unfounded, as unproven, with the tax assessment acts in dispute remaining in the legal order, with the Respondent entity being absolved of the request accordingly".

1.8

Additionally, "given that the matter in dispute is (…) exclusively one of law", a request for waiver of the "arbitral hearing provided for in Article 18 of the RJAT, as well as of the presentation of pleadings" and "for the same reasons (…) the testimonial evidence presented (…) is shown to be futile and should therefore be rejected" was also presented by the Respondent in its Answer.

1.9

Thus, both parties were notified of the arbitral order dated 2 November 2016, with the Claimant being notified to pronounce itself within a period of 5 days on the possibility of waiving:

1.9.1

The holding of the hearing referred to in Article 18 of the RJAT and,

1.9.2

The presentation of pleadings.

1.10

The Claimant presented a request on 4 November 2016 to declare that "(…) it offers everything that has already been produced in the initial petition corroborating its position, waiving the presentation of written pleadings (…)" and waiving "(…) the hearing referred to in Article 18 of the RJAT".

1.11

Additionally, the Claimant in the request identified in the preceding point attached "(…) assessment notice relating to the third instalment to be paid by the end of November", annexing for this purpose a copy of seven documents.

1.12

In these terms, it was decided by the Arbitral Tribunal in an arbitral order dated 21 November 2016, in accordance with the procedural principles set forth in Article 16 of the RJAT, of the autonomy of the Arbitral Tribunal in the conduct of the proceedings and in the determination of the rules to be observed [paragraph c)], of cooperation and good faith in proceedings [paragraph f)] and of the free conduct of proceedings set forth in Articles 19 and 29, no. 2 of the RJAT, and having also taken into account the principle of limitation of futile acts provided for in Article 130 of the Code of Civil Procedure (CPC) [applicable by virtue of the provisions of Article 29, no. 1, paragraph e) of the RJAT]:

1.12.1

To waive the holding of the hearing referred to in Article 18 of the RJAT;

1.12.2

To waive the presentation of pleadings;

1.12.3

"To admit the joining of copies relating to the seven collection notices identified without need to observe the principle of due process, since these documents (issued by the Respondent) in no way alter the request initially formulated by the Claimant for annulment of the assessments of Stamp Tax relating to the year 2015 in the total amount of EUR 15,397.44";

1.12.4

To designate 30 November 2016 for the purpose of issuing the arbitral decision.

1.13

In the same order, it was further stated that "(…) the Claimant made, on 5 July 2016, payment of the subsequent arbitral fee in accordance with the provisions of no. 3 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings".

2. CAUSE OF ACTION

2.1

The Claimant begins by stating that "(…) it is the owner of the urban property located at Av…, no.…, in Lisbon (…)", being "(…) the said property (…) an urban property in full ownership with floors or divisions capable of independent use" and having a total patrimonial value of "(…) € 1,812,650.00".

2.2

It proceeds to state that it was notified of the "(…) total amount of € 5,132.48 (…) relating to the first instalment of Stamp Tax through the (…) notices:

a) 2016…, of 05 April 2016, in the amount of € 747.44 (…), relating to the 1st floor, assessed on 27/04/2016 (…);

b) 2016…, of 05 April 2016, in the amount of € 747.44 (…), relating to the 2nd floor, assessed on 27/04/2016 (…);

c) 2016…, of 05 April 2016, in the amount of € 747.44 (…), relating to the 3rd floor, assessed on 27/04/2016 (…);

d) 2016…, of 05 April 2016, in the amount of € 747.44 (…), relating to the 4th floor, assessed on 27/04/2016 (…);

e) 2016…, of 05 April 2016, in the amount of € 747.44 (…), relating to the 5th floor, assessed on 27/04/2016 (…);

f) 2016…, of 05 April 2016, in the amount of € 747.44 (…), relating to the 6th floor, assessed on 27/04/2016 (…);

g) 2016…, of 05 April 2016, in the amount of € 647.84 (…), relating to the 7th floor, assessed on 27/04/2016 (…)".

2.3

Additionally, the Claimant further states that it was notified of the "(…) total amount of € 5,128.41 (…) relating to the second instalment of Stamp Tax through the following notices:

a) 2016…, in the amount of € 747.43 (…), relating to the 1st floor (…);

b) 2016…, in the amount of € 747.43 (…), relating to the 2nd floor (…);

c) 2016…, in the amount of € 747.43 (…), relating to the 3rd floor (…);

d) 2016…, in the amount of € 747.43 (…), relating to the 4th floor (…);

e) 2016…, in the amount of € 747.43 (…), relating to the 5th floor (…);

f) 2016…, in the amount of € 747.43 (…), relating to the 6th floor (…);

g) 2016…, in the amount of € 647.83 (…), relating to the 7th floor (…)".

2.4

Now, the Claimant cannot "(…) agree with the acts of assessment of Stamp Tax (…) which are questioned here" since "(…) we are dealing with a property consisting of divisions capable of independent use and none of these has an individual Taxable Patrimonial Value equal to or superior to one million euros", "thus evidencing a manifest disproportionality in the assessment, as the property which by itself has a Taxable Patrimonial Value superior to one million will have the same treatment as a property with a set of divisions capable of independent use".

2.5

And because the Respondent, in the Claimant's understanding, "(…) could only tax under Stamp Tax in accordance with the same rules that apply to Municipal Property Tax", only can it be concluded that "(…) there is incidence of the new Stamp Tax if any of the divisions with independent use present a Taxable Patrimonial Value superior to € 1,000,000.00 (…), which clearly is not the case".

2.6

Thus, the Claimant understands that "for purposes of taxation with respect to item 28 of the General Table (…), the Tax Authority cannot consider as the reference value the total value of the property", whereby "the collection of Stamp Tax in the terms presented by the Tax Authority violates the spirit of the law, going in the opposite direction to the true will of the legislator", since "what was intended (…) was taxation on assets considered as luxury, which does not at all correspond to the present case".[2]

2.7

On the other hand, the Claimant understands that "from the Bill can be extracted that the legislator intended to tax situations in life that manifested a certain contributive capacity", "there having to be a logical coherence between the determination of equal situations and different situations and their fiscal capacity".

2.8

That is, for the Claimant, "contributive capacity is the essential element in which we can only consider that true equality of fiscal treatment of taxpayers exists if there is identical taxation for equal contributive capacities, which clearly does not happen in this case".

2.9

Additionally, "beyond the clear violation of fiscal equality here (…)" the Claimant understands that "we also have the violation of legal certainty, taking into account the moment of creation and application of this law (…)"

2.10

Thus, the Claimant reiterates that "on the basis of the violation of the principle of equality and contributive capacity (…)", the "request for annulment of the tax act of stamp tax assessment" should be proceeded with.[3][4]

2.11

In these terms, the Claimant understands that "it should thus be concluded (…) that since (…) none of the floors intended for residential use has a patrimonial value equal to or superior to € 1,000,000.00 (…), the legal presupposition of incidence of Stamp Tax provided for in item 28 of the General Table is not verified", whereby "(…) the acts of assessment should thus be annulled".

2.12

Additionally, the Claimant also understands that "it has (…) the right to compensatory interest (…) calculated (…) from the date on which payment occurred until full reimbursement (…)".

2.13

Finally, the Claimant requests that "the amount of € 15,397.44 be considered as the value of the case, bearing in mind that this is the total value of the tax (…) that is intended to be challenged (…)".

2.14

In these terms, the Claimant concludes the request in the terms described in point 1.2, above.

3. RESPONDENT'S ANSWER

3.1

The Respondent defends itself in its Answer by objection, sustaining the unfoundedness of the request for arbitral pronouncement, as it understands that "what (…) is at issue are assessments resulting from the direct application of the legal rule, which translates into objective elements without any subjective or discretionary appraisal".

3.2

Thus, the Respondent "(…) understands that the Claimant has no grounds (…)" because:

3.2.1

"At the date (…) it held full ownership of the urban property under analysis, valued in accordance with the IMI Code, in the context of the general evaluation of urban properties described as a property in full ownership with floors or divisions capable of independent use, each having a Taxable Patrimonial Value (TPV) superior to € 1,000,000.00";

3.2.2

"With reference to the year 2015, in compliance with item no. 28.1 of the TGIS (…) whose incidence rule refers to urban properties valued in accordance with the IMI Code with TPV equal to or superior to € 1,000,000.00 and residential use, the AT proceeded to notify the collection documents with a view to payment of the assessments at issue";

3.2.3

"It follows from the analysis of the regulatory precept that a property in full ownership with floors or divisions capable of independent use is unequivocally different from an immovable in the condominium ownership regime, consisting of autonomous units, that is, several properties";

3.2.5

"As for the assessment of Municipal Property Tax, in the case of properties in full ownership, the value that serves as the basis for its calculation will unquestionably be the one registered in the property certificate as total patrimonial value" (emphasis by the Respondent).

3.3

In this regard, the Respondent adds that "in keeping with this, the assessment being correct and the tax apportioned being due, no accrued or compensatory interest is due, particularly because there is no error attributable to the services, which simply acted as they should, in strict compliance with the legal rule" (underscore by the Respondent).

3.4

On the other hand, the Respondent understands that "the thesis defended (…) lacks legal support" as to the fact that it alleges that the Stamp Tax assessments that are the object of the request are illegal because they violate the "(…) principle of legality, equality and fiscal contributive capacity" because "what expressly results from the letter of the law is that the legislator intended to tax (…) the properties as a single legal-fiscal reality (…)", being that "subjection to stamp tax of item 28.1 of the TGIS results from the conjunction of two facts: residential use and the patrimonial value of the urban property registered in the matrix being equal to or superior to € 1,000,000.00" (underscore by the Respondent).

3.5

Now, according to the Respondent, "(…) it is noted in the property certificate that the property in question is held in the regime of full ownership, composed of various parts capable of independent use" and "being this the matricial information (…), the assessments of stamp tax relating to the year 2015 were made by the Tax Administration taking into account the nature of the urban properties as of the date of the taxable event, applying, with the necessary adaptations, the rules contained in the IMI Code".

3.6

In these terms, the Respondent understands that "being the properties held in the regime of full ownership (…), it is the global TPV of the property that must (…) be relevant" whereby "(…) the alleged violation of item 28.1 of the TGIS should be judged unfounded, with the assessments in dispute remaining in the legal order for constituting a correct application of law to the facts".

3.7

Additionally, the Respondent understands that "(…) the provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality, with no discrimination existing in the taxation of properties constituted in condominium ownership and properties in full ownership (…), or between properties with residential use and properties with other uses" because "condominium ownership and full ownership are differentiated legal institutes" and "(…) tax law respects them".

3.8

According to the Respondent, "it is still important to note that taxation under Stamp Tax obeys the criterion of adequacy, insofar as it aims at taxation of the wealth embodied in the ownership of immovables of high value, arising in a context of economic crisis that cannot (…) be ignored", being that "(…) the measure implemented seeks to achieve maximum effectiveness regarding the objective to be achieved with the minimum injury to other interests considered relevant".

3.9

Thus, for the Respondent, "the choice of this mechanism for obtaining revenue is legitimate, which would only be censurable if it resulted manifestly indefensible".[5]

3.10

In this manner, the Respondent concludes that the Claimant "(…) for purposes of (…) stamp tax (…) is not the owner of autonomous units, but rather of a single property (…)" whereby it understands it should be concluded that "(…) the notifications made for payment of the tax in question did not violate any legal principle and should (…) be maintained".[6]

3.11

In these terms, the Respondent concludes its Answer, stating that "(…) the assessments under dispute constitute a correct interpretation and application of law to the facts, not suffering from any vice of violation of law, and therefore the Claimant's claim should be judged unfounded".

4. PRELIMINARY RULING (SANEADOR)

4.1

The request for arbitral pronouncement is timely since it was presented within the timeframe provided for in paragraph a) no. 1 of Article 10 of the RJAT.[7]

4.2

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

4.3

The joinder of claims here effected by the Claimant is legal and valid in accordance with the provisions of Article 3, no. 1 of the RJAT, given that the success of the claims depends essentially on the appraisal of the same factual circumstances and the interpretation and application of the same principles or rules of law.

4.4

With regard to the value of the Request for Arbitral Pronouncement indicated by the Claimant (EUR 15,397.44), taking into consideration the provisions of Article 306 and Article 297, both of the CPC, in accordance with which "joining several claims in the same action, the value is the sum corresponding to the sum of the values of all of them" (that is, EUR 15,397.30), the value of the case is fixed at EUR 15,397.30, without which this change produces implications on the amount of final costs of the case (which in accordance with the provisions of Article 4, no. 4 of the Regulation of Costs in Arbitration Proceedings, shall be fixed by the Arbitral Tribunal in the chapter of the Decision).

4.5

The Tribunal is competent to appraise the request for arbitral pronouncement formulated by the Claimant.

4.6

No exceptions were raised requiring knowledge thereof.

4.7

No nullities were verified, thus it is incumbent to now consider the merits of the claim.

5. FACTUAL MATTER

5.1

Of the proven facts

5.2

The following facts are considered as proven by the documents joined to the proceedings:

5.2.1

The Claimant is the owner of the urban property registered in the urban property matrix under the matricial article no. … of the parish of …, located on Avenue…, no. … to …, in Lisbon (as per document no. 1 attached with the petition).

5.2.2

The said urban property is constituted in the regime of full ownership (or vertical), being composed of eight floors or divisions capable of independent use (as per document no. 1 attached with the petition).

5.2.3

The total TPV of the said urban property was, as of 31 December 2015, EUR 1,812,650.00, determined on 19 January 2013, with the total TPV associated with areas of residential use amounting to EUR 1,539,730.00 and the TPV of each of the divisions (or parts capable of independent use) intended for residential use ranging between EUR 194,350.00 (value attributed to the 7th floor) and EUR 224,230.00 (value individually attributed to the 1st, 2nd, 3rd, 4th, 5th and 6th floors) as per document no. 1 attached with the petition.

5.2.4

The Claimant was notified of the collection notices for payment of the 1st, 2nd and 3rd instalment of tax relating to the assessments of Stamp Tax, dated 5 April 2016, relating to the year 2015 (whose payment deadline was respectively "April/2016", "July/2016" and "November/2016"), relating to the immovable identified above in points 5.2.1 and 5.2.2, as per copies of the collection documents (1st and 2nd instalments) attached with the petition (as per documents no. 2 to 9, 11, 13, 15, 17, 19 and 21) and collection documents (3rd instalment) attached with the request presented by the Claimant on 4 November 2016.

5.2.5

For purposes of determining the incidence of Stamp Tax of item 28 on various autonomous parts of the immovable, consideration was given to (i) the total TPV of the immovable and (ii) the residential use of the said autonomous parts, being that for purposes of the assessment of the tax, the Respondent applied the rate of 1% of Stamp Tax on the individual TPV of each of the autonomous units identified in the preceding point.

5.2.6

The following collection notices relating to Stamp Tax for the year 2015 were notified to the Claimant:

5.2.7

The Claimant made, within the respective deadlines for voluntary payment, payment of the tax contained in each of the above identified collection notices in points 5.2.4 and 5.2.6 relating to the first and second instalments of the tax for the year 2015 (as per documents no. 2 to 8, 10, 12, 14, 16, 18, 20 and 22 attached with the petition).

5.3

No other facts capable of affecting the decision on the merits of the claim were proven.

5.4

Of the unproven facts

5.5

No evidence was obtained that the amount relating to the third instalment of Stamp Tax, relating to the assessment of tax in dispute, inciding on the above identified immovable, was paid, and the date of this decision coincides with the deadline for its voluntary payment (30 November).

5.6

No other facts were verified as unproven with relevance to the arbitral decision.

6. LEGAL GROUNDS

6.1

In the case under analysis, in order to assess the legality of the Stamp Tax assessments notified to the Claimant by reference to the year 2015, it will be important to provide an answer to a controversial legal question underlying the Request for Arbitral Pronouncement:

6.1.1

Is subjection to Stamp Tax in accordance with the provisions of item no. 28.1 of the TGIS determined by the TPV that corresponds to each part of the property with residential use or is it, conversely, determined by the global TPV of the property, which would correspond to the sum of all TPVs of the floors (with that type of use) that form part thereof?

6.2

In this regard, the Claimant argues that "(…) for purposes of taxation as to item 28 of the General Table of Stamp Tax, the Tax Authority cannot consider as the reference value the total value of the property", being that it understands that "the collection of Stamp Tax in the terms presented by the Tax Authority violates the spirit of the law, going in the opposite direction to the true will of the legislator", which "(…) intended to tax the situations (…) that manifested a certain contributive capacity".

6.3

Thus, the Claimant sustains that "there must be a logical coherence between the determination of equal situations and different situations and their fiscal capacity", concluding that "beyond the violation (…) of fiscal equality, we also have the violation of legal certainty (…)".

6.4

By contrast, for the Respondent, being the property "(…) held in the regime of full ownership (…) it is the global TPV of the property that must (…) be relevant" understanding that "(…) the provision of item 28.1 of the TGIS does not constitute any violation of the principle of equality, with no discrimination existing in the taxation of properties constituted in condominium ownership and properties in full ownership (…)" because "(…) these are differentiated legal institutes".

6.5

In these terms, for the Respondent, "one cannot conclude from an alleged discrimination or violation of the principle of equality (…)", understanding that "(…) valid and legal are the collection notices for stamp tax (…) challenged in (…) the present case (…)".

6.6

Now, in order to answer the question enunciated above, it will be important to analyze the alterations resulting from Law no. 55-A/2012 of 29 October (that is, the addition to the TGIS of item 28) because that statute "introduced a set of alterations in the statutes codifying three taxes – IRS, IRC and Stamp Tax – as well as in the General Tax Law, among which the rule under analysis, all guided towards the supplementary obtaining of tax revenue and in general to counter budgetary imbalance". [15][16]

6.7

Indeed, that statute "introduced a set of alterations in the statutes codifying three taxes – IRS, IRC and Stamp Tax – as well as in the General Tax Law, among which the rule under analysis, all guided towards the supplementary obtaining of tax revenue and in general to counter budgetary imbalance". [17][18]

6.8

Thus, "invoking the principles of social equity and fiscal justice, taxation of capital income and equity gains was aggravated, measures to strengthen the combat against fraud and tax evasion were introduced through the reinforcement of the regime applicable to manifestations of wealth of taxpayers and to transfers to and from tax havens, to which was added the introduction within Stamp Tax of taxation of legal situations (…) which was understood to be capable of bearing increased fiscal effort, thereby distributing more equitably the burden to achieve the budgetary consolidation required of taxpayers" (underscore ours).[19]

6.9

And if there were doubts as to the alleged unconstitutionality of item 28 of the TGIS for alleged violation of the principles of proportionality, equality and contributive capacity, the Constitutional Court pronounced itself on this matter in the scope of the Judgment of 11 November 2015 (in the scope of case no. 542/14) in the terms of which it decided "(…) not to declare unconstitutional the rule of item 28 and 28.1 of the General Table of Stamp Tax, added by Article 4 of Law no. 55-A/2012 of 29 October, insofar as it imposes annual taxation on the ownership of urban properties with residential use whose taxable patrimonial value is equal to or superior to € 1,000,000.00", "with no violation of constitutionality parameters (…) nor any others (…)" (underscore ours).[20][21]

6.10

Indeed, and with regard to the principle of fiscal equality and contributive capacity, that Court dispels the "fog" of unconstitutionality because:

6.10.1

"As we have seen, the legislative alteration aimed at broadening the taxation of assets, making it fall more intensely on ownership which by its value considerably superior to (…) that of the generality of urban properties with residential use reveals greater indicators of wealth and as such is capable of founding the imposition of increased contribution for public account sanitation to its holders in realization of the aforesaid principle of social equity in austerity" (underscore ours).

6.10.2

On the other hand, that Judgment further clarifies that "the constitutional principle of fiscal equality (…) finds concretization in the generality and uniformity of taxes. Generality means that all citizens are bound to payment of taxes (…)" and that "uniformity means that the distribution of taxes among citizens obeys the same identical criterion for all" (underscore ours).[22]

6.10.3

And such criterion, as Casalta Nabais underscores, cited in that Judgment, is found in the principle of contributive capacity, as it implies "(…) equal tax for those who have equal contributive capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those who have different contributive capacity in proportion to this difference (vertical equality)".[23]

6.11

Now, "as presupposition and criterion of taxation, the principle of contributive capacity (…) removes the tax legislator from arbitrariness, obliging it in the selection and articulation of taxable facts to adhere to revelations of contributive capacity, that is, to erect as the object and taxable matter of each tax a certain economic presupposition that is a manifestation of such capacity and is present in the various hypotheses of the respective tax" (underscore ours).[24][25]

6.12

On the other hand, the same Judgment states that "the principle of contributive capacity does not dispense with the concurrence of other constitutional principles", that is, "the principle of the Social State, the freedom of configuration of the legislator and certain requirements of practicability and cognizability of the taxable fact, equally indispensable to the fulfillment of the purposes of the tax system".[26]

6.13

In sum, "(…) the principle of fiscal equality may be concretized through different aspects" whether "in the generality of the tax law, in its application to all without exception", whether "in the uniformity of the tax law, in treating equally taxpayers who find themselves in equal situations and differently taxpayers who find themselves in different situations, in the measure of the difference, to be assessed by contributive capacity", whether even "in the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that are devoid of rational foundation" (underscore ours).[27]

6.14

Thus, "the incidence of Stamp Tax (…) refers here, regarding essential elements of the assessment of the tax (…) to the regulation contained in the Municipal Property Tax Code (…)", being that "doctrine even attributes to it the condition of an additional Municipal Property Tax rate, intended to discriminate properties of higher patrimonial value and subject them to a more onerous tax regime than the rest (…) explaining the creation of a new fact subject to Stamp Tax, beyond the heterogeneity that characterizes this tax, by the need to increase the State's tax revenue, since Municipal Property Tax revenue reverts to the benefit of municipalities and Stamp Tax is a State revenue" (underscore ours).[28]

6.15

On the other hand, and regarding the principle of proportionality, that Court likewise removes any unconstitutionality because (and we cite):

6.15.1

"The legislator did not solely aim by this means at the objective of rebalancing public accounts (…) intended (…) to broaden the taxable base to the wealth externalized in the ownership of urban properties intended for residential use of high value and (…) as an instrument for obtaining more revenue and (…) for relief of the effort that might come to bear on other sources of revenue or on the reduction of public spending, with a view to meeting the targets of public deficit, it is undoubtedly the case that the amounts of Stamp Tax collected by way of the incidence provided for in item no. 28 whatever their amount are capable and suitable for achieving the purposes of broadened sharing of effort in a period of sacrifices and additional fiscal and financial burdens that the legislator sought to achieve" (underscore ours).

6.15.2

Thus, "as a tax measure directed at affecting more intensely the holders of real property rights of enjoyment over urban properties with residential vocation and of higher value, no reasons are to be seen for concluding that there is disrespect for the dimensions of necessity or just measure contained in the principle of proportionality" (underscore ours).

On the incidence of the tax

6.16

In this regard, it is important to analyze the substance of item no. 28 of the TGIS (added by Article 4 of Law no. 55-A/2012 of 29 October and in force since 30 October 2012), taking into consideration that the said law did not proceed to qualify the concepts contained in the cited item no. 28, namely the concept of "property with residential use".

6.17

Now if the provisions of Article 67, no. 2 of the Stamp Tax Code (also added by the said Law no. 55-A/2012) are observed, it is verified that "to matters not regulated in the present Code relating to item 28 of the TGIS, the Municipal Property Tax Code applies subsidiarily" and from reading the Municipal Property Tax Code, it is easily perceived that the concept of "property with residential use" refers to the concept of "urban property" as defined in accordance with Articles 2 and 4 of that Code.

6.18

Indeed, in accordance with the provisions of Article 2, no. 1 of the Municipal Property Tax Code, "for purposes of the present Code, property is any fraction of territory, comprising waters, plantations, buildings and constructions of any nature incorporated therein or resting thereon with a 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 constructions in the foregoing circumstances endowed with economic autonomy in relation to the land where they are established though located on a fraction of territory that constitutes an integral part of different assets or does not have a patrimonial nature" (underscore ours).

6.19

Further in accordance with no. 2 and no. 3 of the same article, "buildings or constructions, although moveable by nature, are deemed to have character of permanence when devoted to non-transitory purposes", being presumed "the character of permanence when buildings or constructions are located at the same location for a period exceeding one year".

6.20

For purposes of Municipal Property Tax, "each autonomous unit in the condominium ownership regime is deemed to constitute a property" and in accordance with the provisions of Article 4 of the Code of that tax "urban properties are all those that should not be classified as rural (…)" (underscore ours).

6.21

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

6.22

On the other hand while it is true that no. 4 of Article 2 of the Municipal Property Tax Code states that "for purposes of this tax each autonomous unit in the condominium ownership 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 condominium ownership and property in full ownership as regards their identification as "residential urban properties".

6.23

Thus, from this it can be concluded that the autonomous parts of properties in full ownership with residential use should be considered as "residential urban properties".

6.24

As has been argued in various Arbitral Decisions, notably in that delivered in the scope of Case no. 88/2013-T, "in the view of the legislator it does not matter the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose to which it is destined", whereby "it is thus to be concluded that for the legislator it is irrelevant whether the property is constituted in full ownership or in condominium ownership, with only the material truth underlying its existence as an urban property and its use being relevant" (underscore ours).

6.25

Indeed in the interpretation of legal text it makes no sense to distinguish what the law itself does not distinguish for to distinguish in this context between properties constituted in condominium ownership and properties constituted in full ownership would be an "innovation" without associated legal support.

6.26

In truth neither in item no. 28 of the TGIS nor in the provisions of the Municipal Property Tax Code does anything indicate a justification for that differentiation.[29]

6.27

Indeed it can be stated that it is today settled understanding that tax laws are interpreted through the determination of their true meaning, ascertained in accordance with the techniques and interpretive elements generally accepted by doctrine (cf. Article 9 of the Civil Code and Article 11 of the General Tax Law (LGT).[30]

6.28

On the other hand it is necessary also to take into account that the rules of incidence of taxes must be interpreted in their exact terms without recourse to analogy rendering prevalent certainty and security in their application.[31]

6.29

In these terms the uniform criterion that is necessary is that which determines that the incidence of the precept in the rule in question (item 28 of the TGIS) takes place only when any of the parts floors or divisions with independent use of a property in condominium or full ownership with residential use possesses a TPV superior to EUR 1,000,000.00 (underscore ours).

6.30

Thus "if the legal criterion imposes the emission of individualized assessments for the autonomous parts of properties in full ownership in the same manner as it establishes for properties in condominium ownership it clearly established a criterion which must be unique and unequivocal for the definition of the incidence rule of item 28.1 of the TGIS"[32] whereby to fix as the reference value for that objective the global TPV of the property in question (as the Respondent intends) finds no basis in the applicable legislation (underscore ours).[33]

6.31

Finally it will be important further to investigate what is the ratio legis underlying the rule of item 28 of the TGIS and in obedience to the provisions of Article 9 of the Civil Code[34] what are the circumstances in which the rule was drawn up and what are the specific conditions of the time in which it is applied.

6.32

Indeed as of the date of the alteration the legislator intended to introduce a principle of taxation on the wealth externalized in the ownership usufruct or right of superficies of luxury urban properties with residential use having considered as a determining element of contributive capacity the urban properties with residential use of high value (luxury) that is of value equal to or superior to EUR 1,000,000.00 upon which would come to bear a special rate of Stamp Tax.

6.33

In truth we understand that this is what can be concluded from analysis of the discussion of Bill no. 96/XII in the Republic's Assembly[35] with no vision of invoking a distinct interpretive ratio from that presented here.[36]

6.34

Indeed the foundation of the measure designated as "special tax on the highest value residential urban properties" rests on the invocation of the principles of social equity and fiscal justice calling to contribute in a more intense manner the holders of properties of high value intended for residential use thereby making the new special tax fall on "properties of value equal to or superior to 1 million euros" (underscore ours).

6.35

Now if such logic seems to make sense when applied to a "residential property" (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 contributive capacity above average (and in that measure capable of determining a special contribution to guarantee the just distribution of fiscal effort) it would make no sense if applied "unit by unit" so that through the sum of the individual TPVs of the same (because held by the same individual) to ascertain such value equal to or superior to one million euros (underscore ours).

6.36

It is further added that admitting the differentiation of treatment could produce results incomprehensible and discriminatory from the legal point of view as contrary to the objectives (of promotion of social equity and fiscal justice) that the legislator claimed to have in adding the said item no. 28.

6.37

Thus the existence of a property in full or condominium ownership cannot by itself be indicative of contributive capacity it following from the law that one and the other must receive the same fiscal treatment in obedience to the principles of justice fiscal equality and material truth.

6.38

Conversely the existence in each property of independent residential units in the regime of condominium or full ownership may be capable of triggering the incidence of the new tax if the TPV of each part or unit is equal to or superior to the limit defined by law that is EUR 1,000,000.00.

6.39

In this manner it is illegal (and unconstitutional) to consider that the reference value for assessment of the tax is that corresponding to the sum of the TPVs attributed to each part or division precisely because we would be faced with a clear violation of the principle of equality and proportionality in fiscal matters because the tax legislator cannot treat equal situations differently based on whether we are or are not dealing with a property in condominium or full ownership.

6.40

Now if the property under analysis were held in the regime of condominium ownership it was clear that none of the residential divisions that form part thereof would be subject to the incidence of the new tax precisely because none of them would individually exceed the limit of EUR 1,000,000.00 defined by law (see point 5.2.3 above regarding the TPV of each of the floors or divisions capable of independent use).

6.41

It is for this very reason that Article 12 no. 3 of the Municipal Property Tax Code provides that "each floor or part of property capable of independent use is considered separately in the matricial registration which equally discriminates the respective TPV" so as not to generate situations of violation of the principles of social equity and fiscal justice (underscore ours).

6.42

Given that the constitution of condominium ownership implies a mere legal alteration of the property not even imposing a new evaluation it will be the material truth that is imposed as the determining criterion of contributive capacity and not the mere legal-formal reality of the property whereby consequently the discrimination operated by the Respondent translates into an arbitrary and illegal discrimination.[37]

6.43

And taking into account all the social and economic reality often underlying many of the properties in full ownership the very tax legislator in the Municipal Property Tax Code treated the two situations (condominium and full ownership) in an equitable manner applying the same criteria.

6.44

Indeed it should be reiterated that the Respondent cannot distinguish where the very legislator understood 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 the Constitution of the Portuguese Republic - CRP) of justice of equality and of fiscal proportionality included therein.

6.45

Analyzing the situation sub judice it is found that the TPV of the floors (autonomous units) with residential use in the above described immovable varies between the lowest value of EUR 194,350.00 (value attributed to the 7th floor) and the highest value of EUR 224,230.00 (value individually attributed to the 1st 2nd 3rd 4th 5th and 6th floors) as per document no. 1 attached with the petition whereby in any of them individually considered the said TPV is always inferior to EUR 1,000,000.00 (as already referred to above in point 6.40).

6.46

Thus in light of the above the answer to be given to the question raised above (see point 6.1.1) will be that subjection to Stamp Tax for purposes of item 28 of the TGIS is determined by the TPV that corresponds to each part of the property with residential use and not by the global TPV of the property whereby it is to be concluded that the floors with residential use (of the property identified in the case) cannot be subject to the incidence of Stamp Tax referred to in item no. 28 of the TGIS and thus the acts of assessment which are the object of the Request for Arbitral Pronouncement presented by the Claimant are illegal.[38][39]

6.47

Additionally having also taken into account everything stated above we can conclude that the interpretation made by the Respondent is not in accordance with Law and the Constitution inasmuch as it violates the principle of equality (Article 13 of the CRP) embodied in the principle of contributive capacity and does not contribute to equality among citizens (Article 104 no. 3 of the CRP).

On the reimbursement of tax paid with compensatory interest

6.48

With regard to the payment of compensatory interest in accordance with the provisions of no. 5 of Article 24 of the RJAT "payment of interest regardless of its nature is due in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process" from which it results that an arbitral decision is not limited to the appraisal of the legality of the tax act.

6.49

Equally in accordance with the provisions of Article 24 no. 1 paragraph b) of the RJAT it should be understood that the request for compensatory interest is a claim relating to tax acts (e.g. of assessment) which aims to make explicit/concretize the content of the duty of "restoring the situation that would have existed if the tax act object of the arbitral decision had not been made adopting the acts and operations necessary for that purpose".

6.50

As Jorge Lopes de Sousa states "is inserted in the competencies of the arbitral tribunals functioning in the CAAD the fixation of the effects of the arbitral decision which may be defined in a judicial challenge process namely the annulment of the acts whose declaration of illegality is requested the condemnation of the Tax and Customs Authority to payment of compensatory interest (…)" (underscore ours).[40][41]

6.51

Thus in tax arbitration proceedings there may be compensation interest in accordance with the provisions of Articles 43 nos. 1 and 2 and 100 of the LGT when it is determined that there was error attributable to the services of which results payment of the tax debt in an amount superior to that legally due.

6.52

In these terms the right to compensatory interest will always depend on the verification of an error attributable to the services of the Respondent from which resulted a payment of tax debt in an amount superior to that legally due.

6.53

Following the illegality of the assessment acts above already identified (see point 6.46) and in accordance with the provisions of paragraph b) no. 1 of Article 24 of the RJAT (in accordance with what is established there) "the arbitral decision on the merits of the claim of which there may be no recourse or challenge binds the tax administration from the end of the period provided for recourse or challenge it having to restore the situation that would have existed if the tax act object of the arbitral decision had not been made adopting the acts and operations necessary for that purpose" whereby there must be place for reimbursement of the amounts that were paid by the Claimant as a way of achieving the reconstitution of the situation that would have existed if the illegality had not been committed.

6.54

Thus in light of the established in Article 61 of the Code of Tax Procedure and Process (CPPT) with the requirements of the right to compensatory interest filled (that is with the verification of the existence of error attributable to the services from which results payment of the tax debt in an amount superior to that legally due as provided in no. 1 of Article 43 of the LGT) the Claimant has the right to compensatory interest at the legal rate calculated on the amount paid within the scope of the assessments of Stamp Tax relating to the year 2015 (object of the request for arbitral pronouncement) which shall be counted in accordance with the provisions of no. 3 of Article 61 of the CPPT that is from the date of payment of the undue tax until the date of issuance of the respective credit note.

On liability for payment of arbitral costs

6.55

In harmony with the provisions of Article 22 no. 4 of the RJAT "of the arbitral decision delivered by the arbitral tribunal appears the fixation of the amount and distribution among the parties of the costs directly resulting from the arbitral process".

6.56

Thus in accordance with the provisions of Article 527 no. 1 of the CPC (ex vi 29 no. 1 paragraph e) of the RJAT) it should be established that will be condemned in costs the Party that caused them or if there is no judgment of the action whoever from the process drew profit.

6.57

In this regard no. 2 of the said article concretizes the expression "caused them" according to the principle of failure specifying that causes the costs of the proceeding the party that loses to the extent it does.

6.58

In the case under analysis having taken into consideration the above the principle of proportionality imposes that total responsibility for costs be attributed to the Respondent in accordance with the provisions of Article 12 no. 2 of the RJAT and Article 4 no. 4 of the Regulation of Costs in Tax Arbitration Proceedings.

7. DECISION

7.1

Having taken into consideration the analysis effected in the preceding chapter this Arbitral Tribunal decided:

7.1.1

To judge well-founded the request for arbitral pronouncement presented by the Claimant and to condemn the Respondent with regard to the request for declaration of illegality of the Stamp Tax assessments dated 5 April 2016 (relating to the year 2015) annulling in consequence all the respective tax assessment acts with the consequent return of the amounts improperly paid accrued with compensatory interest at the legal rate counted in accordance with legal terms;

7.1.2

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

Value of the case: Having taken into consideration the provisions of Articles 306 no. 2 of the CPC Article 97-A no. 1 of the CPPT and Article 3 no. 2 of the Regulation of Costs in Tax Arbitration Proceedings as well as the above stated in point 4.4 (Chapter 4 of this decision) the value of the case is fixed at EUR 15,397.30.

Costs of the proceeding: In accordance with the provisions of Table I of the Regulation of Costs of Tax Arbitration Proceedings the value of the Costs of the Arbitral Process is fixed at EUR 918.00 chargeable to the Respondent in accordance with Article 22 no. 4 of the RJAT.

Let it be notified.

Lisbon, 30 November 2016

The Arbitrator

Sílvia Oliveira

[1] The composition of this decision is governed by the orthography prior to the 1990 Orthographic Agreement except regarding transcriptions made.

[2] In this regard the Claimant cites Arbitral Decisions no. 50/2013-T and no. 273/2015-T.

[3] In this matter the Claimant again cites Arbitral Decision no. 273/2015-T "which dealt precisely with this same property and with the same request and cause of action (…)".

[4] In this regard the Claimant cites the Judgment of the Superior Administrative Court of 24 May 2016 in the terms of which "with regard to properties in full ownership for purposes of incidence of Stamp Tax [item 28.1 of the TGIS (…)] subjection is determined by the conjunction of two factors residential use and the TPV recorded in the matrix equal to or superior to € 1,000,000." "In the case of a property constituted in full ownership the incidence of IS must be determined not by the TPV resulting from the sum of the TPV of all divisions or floors capable of independent use (…) but by the TPV attributed to each of those floors or divisions intended for residential use".

[5] In this regard the Respondent cites and partially transcribes the Binding Information of the AT with an order of agreement by the legal substitute of the Director-General of the Tax and Customs Authority of 11 February 2013 in the terms of which it defends itself that "for the due and legal purposes namely for purposes of taxation under stamp tax item 28 of the TGIS properties constituted in full ownership are considered by their totality as a single property (…)".

[6] In this sense the Respondent cites Arbitral Decision from case no. 668/2015-T of 5 May 2016.

[7] In this regard it is noted that analysis of the case shows that the request for arbitral pronouncement explicitly has as its object the acts of assessment of Stamp Tax relating to the year 2015 in the amount of EUR 15,397.30 on the basis of the illegality of the application of item 28.1 of the General Table of Stamp Tax with respect to the urban property identified in the case with the Claimant requesting that the Arbitral Tribunal declare the illegality of such assessments.

Thus the moment of the beginning of the counting of the period for the submission of the request for arbitral pronouncement relating to the request for annulment of the Stamp Tax assessments identified was analyzed taking into consideration that the provisions of Article 10 no. 1 paragraph a) of the RJAT (with regard to acts of tax assessment) refers (regarding the beginning of the period counting) to that established in nos. 1 and 2 of Article 102 of the CPPT (that is the period counting begins on the day following the "end of the period for voluntary payment of tax installments legally notified to the taxpayer").

Now in the case under analysis we have assessments of Stamp Tax to be paid in three installments (until the end of April July and November 2016) being that this payment in installments is no more than a technique for collection of the tax and not partial payment per se.

In these terms for purposes of counting the period provided for in Article 10 of the RJAT this should be assessed as a function of the "end of the period for payment of each of the tax installments legally notified" and given that the law does not understand the autonomous challenge of each of the tax installments at issue as of the date of submission of the request for arbitral pronouncement (11 July 2016) the 90-day period (provided for in Article 10 of the RJAT) was still in course to be counted from the day following the end of the period for payment of the 1st instalment (30 April 2016) of tax relating to each of the Stamp Tax assessments at issue whereby it is concluded that the request is timely.

[8] As per doc. no. 1 attached with the request presented by the Claimant on 4 November 2016.

[9] As per doc. no. 7 attached with the request presented by the Claimant on 4 November 2016.

[10] As per doc. no. 2 attached with the request presented by the Claimant on 4 November 2016.

[11] As per doc. no. 6 attached with the request presented by the Claimant on 4 November 2016.

[12] As per doc. no. 3 attached with the request presented by the Claimant on 4 November 2016.

[13] As per doc. no. 5 attached with the request presented by the Claimant on 4 November 2016.

[14] As per doc. no. 4 attached with the request presented by the Claimant on 4 November 2016.

[15] By the alteration introduced by the said statute item 28 of the TGIS came to have the following wording (bold ours):

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

28.1 - Per property with residential use - 1%.

28.2 - Per property when the taxpayers that are not natural persons are resident in a country territory or region subject to a clearly more favorable tax regime recorded in a list approved by ministerial order of the Minister of Finance - 7.5%"

[16] See Judgment of the Constitutional Court no. 590/2015 of 11 November (case no. 542/14) - point 9.

[17] By the alteration introduced by the said statute item 28 of the TGIS came to have the following wording (bold ours):

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

28.1 - Per property with residential use - 1%.

28.2 - Per property when the taxpayers that are not natural persons are resident in a country territory or region subject to a clearly more favorable tax regime recorded in a list approved by ministerial order of the Minister of Finance - 7.5%"

[18] See Judgment of the Constitutional Court no. 590/2015 of 11 November (Case no. 542/14) - point 9.

[19] See preceding footnote.

[20] And already referring to the alterations introduced by Law no. 83-C/2012 of 31 December.

[21] Indeed the Constitutional Court concludes that "(…) item 28 of the TGIS does not suffer from any unconstitutionality with no violation of the constitutional principles shaping tax law specifically the principles of fiscal equality contributive capacity and proportionality (…)".

[22] In this sense Teixeira Ribeiro is cited in "Lessons on Public Finance" 5th Edition page 261.

[23] In "Tax Law" 7th Edition 2012 page 155.

[24] See Casalta Nabais work cited in the preceding footnote page 157.

[25] In this same sense see Constitutional Court Judgment no. 84/2003 cited in Constitutional Court Judgment no. 590/2015 of 11 November.

[26] In this sense see Constitutional Court Judgment no. 84/2003.

[27] In this sense see Constitutional Court Judgment no. 695/2014.

[28] See José Maria Fernando Pires in "Lessons on Wealth Tax" Coimbra 3rd Edition 2015 page 504 and page 506.

[29] In this regard note the provisions of Article 12 no. 3 of the Municipal Property Tax Code when referring to "each floor or part of property capable of independent use is considered separately in the matricial registration which equally discriminates the respective TPV".

[30] In this sense see Administrative Court Judgment Case 07648/14 of 10 July 2014.

[31] Cf. Administrative Court Judgment Case 5320/12 of 2 October 2012 Administrative Court Judgment Case 7073/13 of 12 December 2013 and Administrative Court Judgment 2912/09 of 27 March 2014.

[32] See Arbitral Decision no. 50/2013-T (CAAD) of 29 October 2013.

[33] Which is the Municipal Property Tax Code given the referral made by the cited Article 67 no. 2 of the Stamp Tax Code.

[34] According to which the interpretation of a legal rule must not be limited to the letter of the law but must reconstruct the legislative intent from the texts and other elements of interpretation taking into account the unity of the legal system.

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

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

[37] Since the law does not impose the obligation to constitute the property in the condominium ownership regime.

[38] In this sense see notably Arbitral Decision no. 368/2014-T of 18 December 2014 issued by the undersigned.

[39] In this sense the Judgment of the Superior Administrative Court no. 01354/15 of 2 March 2016 pronounced itself in the terms of which "with regard to properties in full ownership for purposes of incidence of Stamp Tax (…) subjection is determined by the conjunction of two factors residential use and the TPV recorded in the matrix equal to or superior to € 1,000,000. In the case of a property constituted in full ownership the incidence of IS must be determined not by the TPV resulting from the sum of the TPV of all divisions or floors capable of independent use (individualized in the matricial article) but by the TPV attributed to each of those floors or divisions intended for residential use".

In the same sense see also Judgment of the Superior Administrative Court no. 047/15 of 9 September 2015.

[40] See Leite de Campos Diogo Silva Rodrigues Benjamim Sousa Jorge Lopes in "General Tax Law - Annotated and Commented" 4th Ed. 2012 page 116).

[41] On the subject of compensatory interest can be seen from the same author (Sousa Jorge Lopes) Interest in tax relations in "Fundamental Problems of Tax Law" Lisbon 1999 page 155 et seq).