Stamp Tax on Vertical Property Under Verba 28 TGIS: CAAD Arbitration Decision 387/2017-T

ARBITRAL DECISION

I – REPORT

A – IDENTIFICATION OF THE PARTIES

Claimant: A…, Lda., with registered office at Rua …, no. …, …, …-…, Lisbon, bearing the tax identification number NIPC: …, hereinafter designated as Claimant or taxable person.

Respondent: Tax and Customs Authority, hereinafter designated as Respondent or AT.

The Claimant filed a petition for the constitution of an Arbitral Tribunal in tax matters and a request for arbitral ruling, pursuant to the provisions of paragraph a) of no. 1 of article 2 and paragraph a) of no. 1 of article 10, both of Decree-Law no. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters), hereinafter abbreviated as RJAT.

The petition for constitution of the Arbitral Tribunal was accepted by the President of the Administrative Arbitration Centre (CAAD), and in accordance with the provisions of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011 of 20 January, as amended by article 228 of Law no. 66-B/2012 of 31 December, the Tax Authority was notified on 2017-06-29.

The Claimant did not proceed to appoint an arbitrator, therefore, pursuant to the provisions of no. 1 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011 of 20 January, as amended by article 228 of Law no. 66-B/2012 of 31 December, the Deontological Council designated as Arbitrator Rita Guerra Alves, whose appointment was accepted by her in accordance with legal provisions.

On 2017-08-11, the parties were duly notified of this appointment, and neither manifested the intention to refuse the arbitrator's appointment, in accordance with article 11 no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

The Singular Arbitral Tribunal was duly constituted on 2017-09-08 to review and decide on the subject matter of the present dispute, and the Tax and Customs Authority was automatically notified on 2017-09-08 as appears in the respective minutes.

B – REQUEST

The Claimant seeks the declaration of illegality of the tax assessment acts for Stamp Duty purposes: nos: 2016…, 2016…, 2016;…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016…, which fixed total tax to be paid at € 11,553.50 (eleven thousand, five hundred and fifty-three euros and fifty cents).

C – CAUSE OF ACTION

To support its request for arbitral ruling, the Claimant alleges, with a view to the declaration of illegality of the tax assessment acts for Stamp Duty purposes already described in point 1 of this Ruling, in summary, the following:

The examination of the decision of implicit dismissal of the administrative complaint number …2017…, which was filed on 30 November 2016.

The aforesaid administrative complaint concerns the examination of the legality of the assessments which subjected to item 28.1 of the General Table of Stamp Duty (TGIS) the urban property in sole ownership with floors or divisions susceptible of independent use registered in the urban property matrix of the parish of … (Lisbon), under article …, of which she is the owner, and which determined a total amount of stamp duty (IS) of € 11,553.50 (eleven thousand, five hundred and fifty-three euros and fifty cents).

Thus, the Claimant seeks the implicit dismissal of the administrative complaint above better identified, which maintained in the legal order the stamp duty assessment acts then complained of, which, therefore, is also the subject of the present petition.

The now Claimant is the owner of the urban property in sole ownership with floors or divisions susceptible of independent use, located at Rua …, nos…, …, … and …, …-…, Lisbon, registered in the urban property matrix of the parish of … under article … – 1.º D, 1.º E, 1.º T, 2.º D, 2.º E, 3.º D, 3.º E, 4º D, 4º E, 5º D, 5º E, 6º D and 6º E.

The allocation of the respective floors or divisions of the urban property in sole ownership above referred is "residential".

Furthermore, the floors or divisions susceptible of independent use, subject to taxation, have tax values comprised between € 33,080.00 (thirty-three thousand and eighty euros) and € 104,860.00 (one hundred and four thousand, eight hundred and sixty euros).

In all assessment notes, the AT stated "Tax Value of the total property subject to tax: 1,155,350.00 euros".

In this context, from what the Claimant can infer from the stamp duty assessments which are the immediate subject matter of the present action, the AT considered that, in urban properties with residential allocation, in vertical ownership, with floors or divisions susceptible of independent use, the said floors or divisions are not by formal legal definition considered urban properties (but will be "parts of property" according to no. 3 of article 12 of the IMI Code).

For that reason, in the present case, it proceeded to sum the tax values of each floor susceptible of independent use, to determine whether the minimum tax value threshold of € 1,000,000.00 (one million euros) was reached, a value on which, if equal to or exceeding this threshold, it applied the rate of 1% of the stamp duty of item 28.1 of the TGIS.

The Claimant concludes by supporting the illegality and voidability of the stamp duty assessment acts by violation of law.

D – RESPONSE OF THE RESPONDENT

The Respondent, duly notified for this purpose, presented its response in a timely manner, in which, in brief summary, it alleged the following:

The subjection to stamp duty of item 28.1 of the General Table attached to CIS results from the combination of two facts: residential allocation and the tax value of the urban property registered in the matrix being equal to or exceeding € 1,000,000.00.

Urban properties may be, among others, residential or service properties, in accordance with paragraphs a) and b) of no. 1 of article 6 of CIMI.

The property is described in the matrix in the regime of sole ownership, consisting of 4 floors and 18 divisions or floors susceptible of independent use.

For the calculation of the tax value, the coefficient varies depending on its purpose, and being the total tax value of the property referring to divisions intended for residential use exceeding €1,000,000.00 the allocation coefficient applied was 1.00.

Being this the matrix information, in accordance with article 23, no. 7 of CIS, the stamp duty assessment in question was effected by the Tax Administration, taking into account the nature of the urban property, namely its divisions allocated to residential use, as of the date of the tax event, applying, with the necessary adaptations, the rules contained in CIMI.

Thus, having in mind the matrix information contained in the property record, the Claimant does not succeed, with the documents now attached to the proceedings, in proving that it contradicts the nature of divisions with residential character.

Therefore, the contested stamp duty assessments were issued in accordance with the information contained in the property record of the property, and are thus valid and do not suffer from any illegality.

At the date the Claimant held the full ownership of the urban property under analysis, assessed in accordance with CIMI, within the scope of the general assessment of urban properties, described as "property in sole ownership with floors or divisions susceptible of independent use", with tax value exceeding € 1,000,000.00.

In compliance and pursuant to the provisions of article 6, no. 2 of Law no. 55-A/2012 of 29/10, which added item no. 28 to the TGIS, with the amendment made by Law no. 83-C/2013 of 31/12 and whose respective tax base rule refers to urban properties assessed in accordance with CIMI, with tax value equal to or exceeding € 1,000,000.00 and, pursuant to its no. 28.1, residential allocation, the AT proceeded to notify the collection documents for payment of the assessments in question.

What is at issue here are collection notes/assessments which result from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary consideration.

The concept of property is defined in article 2, no. 1 of CIMI, and it is established in its no. 4 that in the regime of horizontal ownership, each autonomous unit is deemed to constitute a property.

It follows from the analysis of the normative provision that a "property in sole ownership with floors or divisions susceptible of independent use" is, unequivocally, different from a property in horizontal ownership regime, consisting of autonomous units, that is, several properties.

As regards IMI assessment, in the case of properties in sole ownership, the tax value that serves as the basis for its calculation will be unquestionably the "global value of the property".

Horizontal and vertical ownership are differentiated legal institutions.

The constitution of horizontal ownership implies, in fact, a mere legal alteration of the property, with no revaluation (circular no. 40,025 of 11.08.200 of DSCA), but the legislator may, nonetheless, subject to a different tax legal framework, and thus discriminate, properties in horizontal and vertical ownership regimes, particularly benefiting the legally more advanced institute of horizontal ownership, without such discrimination necessarily being deemed arbitrary.

What is intended to be concluded is that these norms and assessment procedures, the norms on matrix registration, and furthermore the norms on assessment of parts susceptible of independent use, do not permit asserting that an equation should exist between property in vertical ownership regime and horizontal ownership regime, for the reason that it would be illegal and unconstitutional.

It is thus a consequence that the tax event of the stamp duty of item 28.1 consists in the ownership of urban properties whose tax value registered in the matrix, in accordance with CIMI, is equal to or exceeding € 1,000,000.00, the tax value relevant for purposes of the tax basis being thus the total tax value of the urban property and not the tax value of each of the parts that compose it, even when susceptible of independent use.

Item 28.1 thus applies to the ownership, usufruct or surface right of urban properties with residential allocation, whose tax value registered in the matrix, in accordance with CIMI, is equal to or exceeding € 1,000,000.00.

It is a general and abstract rule, applicable indistinctly in all cases in which the respective factual and legal prerequisites are met.

Also, the different valuation and taxation of a property in sole ownership as opposed to a property constituted in horizontal ownership results from the different legal effects inherent in these two figures.

Indeed, the constitution of horizontal ownership determines the division/splitting of sole ownership and the independence or autonomy of each of the units that compose it, for all legal purposes, in accordance with no. 2 of art. 4 of CIMI and art. 1414 et seq. of CC, whereas a property in sole ownership constitutes, for all purposes, a single legal-tax reality.

The Respondent concludes by supporting the legality of the stamp duty assessment acts, and in terms of substance, understands that they did not violate any legal or constitutional provision and should be maintained in the legal order.

E – ESTABLISHMENT OF FACTS

Prior to entering into the examination of the issues raised, it is necessary to present the factual matter relevant to its understanding and decision, based on the facts alleged and the documentary evidence attached to the proceedings.

On relevant factual matters, this Tribunal finds the following facts to be established:

The Claimant is the owner of the urban property, not constituted in horizontal ownership regime, located in Lisbon, at Rua … no. …, …, …, …, …-… Lisbon, urban property matrix of the parish of … (Lisbon), under article….

The said urban property is a property in sole ownership with floors susceptible of independent use, with 14 floors/divisions, with a total tax value of € 1,493,000.00.

The said property is composed of basement, ground floor, 6 floors.

The assessments effected contain the following statement: Tax Value of property – Total subject to tax € 1,155,350.00.

The tax value of the property is € 1,493,000.00, and the value of the fractions of independent use with residential allocation of the property is € 1,155,350.00.

The assessment notes for the said property concern the following floors and divisions, whose tax value of the said divisions with independent use, which compose the urban property, was determined separately, pursuant to the provisions of art. 7, no. 2, al. b) of the Municipal Property Tax Code (CIMI), resulting in the issuance of the following tax acts, challenged here:

The tax value of the fractions of independent use with residential allocation of the property on the date of the assessments is € 1,155,350.00, and none of the parts or floors with residential allocation and independent use has a tax value exceeding €1,000,000.00.

The AT assessed the Stamp Duty provided for in item no. 28 and 28.1 of the General Table of Stamp Duty (TGIS) at the rate of 0.5% and 1%, considering as "Tax Value – total subject to tax" of the stamp duty assessments, resulting in a collection and tax to be paid in the global amount of €11,553.50.

All the assessment acts referred to above were the subject of administrative complaints, motivated by the decision of implicit dismissal of administrative complaint number …2017…, which was filed on 30 November 2016.

The Claimant attached all proof of payment of the tax assessed in the amount of € 11,553.50 (eleven thousand, five hundred and fifty-three euros and fifty cents).

F – UNPROVEN FACTS

Of the facts of interest for the decision of the case, stated in the challenge, all subject to concrete analysis, those not appearing in the factual description above were not proven.

G – QUESTIONS FOR DECISION

Having regard to the positions of the parties assumed in the arguments presented, the central questions to be resolved are as follows, which it is necessary to review and decide:

Alleged by the Claimant:

• The declaration of illegality of the tax assessment acts for Stamp Duty purposes, nos. 2016…, 2016…, 2016;…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016…, which fixed total tax to be paid at € 11,553.50 (eleven thousand, five hundred and fifty-three euros and fifty cents).
• Compensation for wrongfully provided security.

H – MATTER OF LAW

Having regard to the positions of the parties assumed in the pleadings presented, the central question to be resolved by this Arbitral Tribunal consists in reviewing the legality of the stamp duty assessment acts, which applied to the residential fractions of the Claimant in the urban property described above, for violation of law, by the erroneous interpretation and application of item 28.1 of the TGIS in the amendments introduced by article 4 of Law no. 55-A/2012 of 29 October.

In the case sub judice, it is necessary to determine whether the fractions targeted by the tax fall within the criteria of applicability of Stamp Duty, in accordance with item no. 28 of the TGIS, in the amendments introduced by article 4 of Law no. 55-A/2012 of 29 October.

It is necessary to ascertain, firstly whether the fractions are of residential allocation, and secondly whether the tax value of the fractions registered in the matrix is equal to or exceeding €1,000,000.00. To do so, it is necessary to review the fundamental question, which consists in determining what tax value of a property in vertical ownership (that is, not horizontal) should be considered for purposes of the said item. Whether it is the tax value that corresponds to each of the parts of the property with residential allocation individually, or whether, instead, it is determined by the global tax value of the property, which would correspond to the sum of all the tax values of the residential fractions that compose it.

Having regard to the established factual matter, we will determine the applicable law to the disputed facts, giving priority, in compliance with the provisions of paragraph a) of no. 2 of art 124 of CPPT, to the defects whose merit determines more stable and effective protection of the interests of the Claimant, regarding the defect of law by error on the prerequisites of the right to assessment, regarding the question of the classification of urban properties in vertical or sole ownership regime, within the scope of the applicability of article 28 no. 1 of the TGIS, introduced by Law no. 55-A/2012 of 29 October.

The amendment to the regime regarding subjection to Stamp Duty of properties with residential allocation, by the addition of item 28 of the General Table of Stamp Duty, effected by art. 4 of Law 55-A/2012 of 29/10 and amended by Law no. 83-C/2013 of 31 December, now typifies the following tax acts, through the following wording:

"28 – Ownership, usufruct or surface right of urban properties whose tax value registered in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding (euro) 1,000,000 – on the tax value used for IMI purposes:

28.1 – For residential property or land for construction whose authorized or planned construction is for residential use, in accordance with the provisions of the IMI Code - 1%;

28.2 – For property, when the taxable persons who are not individuals are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ministerial order of the Minister of Finance – 7.5%."

Article 6 of Law no. 55-A/2012 contains the transitional provisions which established the rules relating to the assessment of the tax provided for in that item:

"1 – In 2012, the following rules must be observed with reference to the assessment of stamp duty provided for in item no. 28 of the respective General Table:

• The tax event occurs on 31 October 2012;

• The taxable person of the tax is that mentioned in no. 4 of article 2 of the Stamp Duty Code on the date referred to in the preceding paragraph;

• The tax value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the Municipal Property Tax Code by reference to the year 2011;

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

• The tax must be paid, in a single instalment, by the taxable persons by 20 December 2012;

• The applicable rates are as follows:

i) Properties with residential allocation assessed in accordance with the IMI Code: 0.5%;

ii) Properties with residential allocation not yet assessed in accordance with the IMI Code: 0.8%;

iii) Urban properties when the taxable persons who are not individuals are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ministerial order of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of stamp duty provided for in item no. 28 of the respective General Table must be based on the same tax value used for purposes of assessment of municipal property tax to be effected in that year.

3 – Non-delivery, in full or in part, within the time limit indicated, of the amounts assessed as stamp duty constitutes a tax violation, punished in accordance with law."

On the interpretation of the norms listed above, Ruling 53/2013-T[1] has already pronounced itself, with which we agree and which is partially transcribed:

"The aforementioned item 28.1 and the subitems i) and ii) of paragraph f) of no. 1 of article 6 of Law 55-A/2012 used a concept that is not used in any other tax legislation in these precise terms, which is that of 'property with residential allocation'. Namely in the CIMI, which in several norms of the Tax Code introduced by that Law is indicated as a subsidiary diploma concerning the tax provided for in the said item no. 28 [articles 2, no. 4, 3, no. 3, paragraph u), 5, paragraph u), 23, no. 7, and 46 and 67 of CIS], such a concept defined in those terms is not used."

As to the concept of property, it becomes necessary to resort to the concepts of property as provided for in CIMI, in its articles 2 to 6, which are transcribed:

Article 2

Concept of Property

1 – For the purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or based thereon, with permanent character, provided that it forms part of the patrimony of an individual 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 which constitutes an integral part of a patrimony otherwise or has no patrimonial nature.

2 – Buildings or constructions, even though moveable by nature, are deemed to have permanent character when allocated to non-transitory purposes.

3 – The permanent character is presumed when buildings or constructions are based in the same location for a period exceeding one year.

4 – For the purposes of this tax, each autonomous unit in the regime of horizontal ownership is deemed to constitute a property.

Article 3

Rural Properties

1 – Rural properties are lands situated outside an urban agglomeration that are not to be classified as construction land, in accordance with no. 3 of article 6, provided that:

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

• Not having the allocation indicated in the preceding paragraph, they are not constructed or have only buildings or constructions of an accessory nature, without economic autonomy and of reduced value.

2 – Lands situated within an urban agglomeration are also rural properties, provided that, by force of legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are in fact having this allocation.

3 – Rural properties also include:

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

• Waters and plantations in the situations referred to in no. 1 of article 2.

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 roads, with their perimeter delimited by points distant 50 m from the road axis, in the transversal direction, and 20 m from the last building, in the direction of the roads.

Article 4

Urban Properties

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

Article 5

Mixed Properties

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

2. If neither part can be classified as main, the property is deemed mixed.

Article 6

Types of Urban Properties

1 - Urban properties are divided into:

• Residential;

• Commercial, industrial or for services;

• Construction land;

• Others.

2 – Residential, commercial, industrial or for services 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.

3 – Construction land means lands situated within or outside an urban agglomeration for which a license or authorization has been granted, admitted prior notification or favorable preliminary information issued for subdivision or construction operations, and also those thus declared in the acquisition title, with the exception of lands in which the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal land use plans, are allocated to spaces, public infrastructure or equipment. (Amended by Law no. 64-A/08 of 31-12)

4 – Lands situated within an urban agglomeration that are not construction land nor are covered by the provisions of no. 2 of article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination purposes other than those referred to in no. 2, and also those of the exception of no. 3, fall within the preview of paragraph d) of no. 1.

And on the interpretation of tax norms, for the case sub judice, article 11 of the General Tax Code provides the essential rules on the interpretation of tax laws, which it does as follows:

Article 11

Interpretation

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.

Whenever, in tax norms, terms proper to other branches of law are used, they should be interpreted in the same sense as they have there, unless otherwise directly follows from the law.

If doubt persists regarding the meaning of the tax base norms to apply, account should be taken of the economic substance of the tax facts.

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

On this matter, it is also necessary to resort, by reference from no. 1 of article 11 of the Tax Code, to the general principles of interpretation of laws, as established in article 9 of the Civil Code:

Article 9

Interpretation of Law

• Interpretation must not be limited 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 enacted and the specific conditions of the time in which it is applied.

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

• In fixing the meaning and scope of the law, the interpreter will presume that the legislator adopted the most correct solutions and knew how to express his thought in adequate terms.

Given the legal reasoning already expounded, and having regard to the transcribed and stated articles, the following hypotheses of interpretation of the concept of "property with residential allocation" arise. The Concept of "property with residential allocation" as referring to residential properties, and the Concept of "property with residential allocation" as a concept distinct from "residential properties".

It follows from the provisions of articles 2 to 6 of CIMI transcribed above that the legislator did not use in the classification of properties the concept of "property with residential allocation", nor is this concept found, with this terminology, in any other statute.

The lack of exact terminological correspondence of the concept of "property with residential allocation" with any other used in other statutes may give rise to various interpretative hypotheses.

The text of the law, being the starting point for the interpretation of the expression "properties with residential allocation", is on the basis of it that the "legislative thought" must be reconstructed, as required by no. 1 of article 9 of the Civil Code, applicable by force of the provisions of article 11, no. 1 of the Tax Code, already transcribed.

On the interpretation of the concept of "property with residential allocation", it is important to cite Ruling 53/2013-T[2], which has already pronounced itself on this matter. In that Ruling, two interpretative hypotheses are equally sustained regarding the concept of "property with residential allocation", respectively in the same sense as the present decision, as to the concept of "property with residential allocation" as referring to residential properties, and as to the Concept of "property with residential allocation" as a concept distinct from "residential properties".

Ruling 53/2013-T is transcribed, on the concept of "property with residential allocation" as referring to residential properties:

"The concept closest to the literal tenor of this expression used is manifestly that of 'residential properties', defined in no. 2 of article 6 of CIMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of a license, which have as their normal destination residential purposes.

If the expression 'property with residential allocation' is understood to coincide with that of 'residential properties', it is manifest that the assessments will suffer from error on the factual and legal prerequisites, since all properties for which Stamp Duty was assessed under the said item no. 28.1 are construction lands, without any building or construction required to fulfill that concept of 'residential properties'.

For that reason, if the interpretation is adopted that 'property with residential allocation' means 'residential property', the assessments whose declaration of illegality is sought will be illegal, as there is no building or construction on any of the lands.

However, the non-coincidence of the terms of the expression used in item no. 28.1 of the TGIS with that extracted from no. 2 of article 6 of CIMI points toward not having intended to use the same concept."

On the interpretation of the second hypothesis: Concept of "property with residential allocation" as a concept distinct from "residential properties", Ruling 53/2013-T is cited again, in which it states:

"The word 'allocation', in this context of use of a property, has the meaning of 'action of designating something for a particular use'.

'When, as is usually the case, the norms (legislative formulas) allow more than one meaning, then the positive function of the text translates into giving stronger support to or more strongly suggesting one of the possible meanings. For among the possible meanings, some will correspond to the most natural and direct meaning of the expressions used, while others will only fit within the verbal framework of the norm in a forced, artificial manner. Now, in the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, under the assumption (not always correct) that the legislator knew how to express his thought correctly'.

The relevance of the text of the law is especially emphasized in the matter of interpretation of norms of the tax base of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruous set of tributes of completely distinct natures (on income, on expenditure, on patrimony, on acts, etc.), which leaves no appreciable margin for application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item no. 28.1, hastily included at the margin of the General State Budget, by a fiscal legislator with no perceptible overall fiscal orientation, who is successively implementing norms of fiscal burden as the vicissitudes of budget execution, the impositions of international institutional creditors (represented by the 'troika') and the supervision of the Constitutional Court unfold.

In fact, although in the "Explanatory Memorandum" of Proposed Law no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the praiseworthy concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices for compliance with the adjustment program" and its commitment "to ensure that the distribution of those sacrifices will be made by all and not only by those who live from the income of their work", it is manifest, on the one hand, that those reasons of equity, certainly existing, did not begin to count in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and, on the other hand, that the scope of item no. 28.1, in taxing additionally properties with residential allocation and not also those that do not have it, lets it be seen that the concerns of social equity and the proclaimed intention of distribution of sacrifices by all reaches much more some than properly all.

In this context, not existing sure interpretative elements that permit detecting 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 the face of no. 3 of article 9 of the Civil Code), the tenor 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 his thought in adequate terms.

Given those meanings of the words 'allocation' and 'allocate', which are 'to give purpose' or 'to apply', the formula used in that item no. 28.1 of the TGIS manifestly encompasses the properties that are already applied to residential purposes, so it is important to inquire whether it will also encompass properties that, although not yet applied to residential purposes, are intended for these and those whose purpose is unknown. (…)

For that reason, it will be necessary to clarify when it can be understood that a property is allocated to a residential purpose, in particular whether it is when that purpose is fixed for it in a licensing act or similar, or only when the effective assignment of that purpose is materialized.

Immediately, the comparison of item no. 28.1 of the TGIS with no. 2 of article 6 of CIMI, which defines the concept of residential properties, manifestly points toward the need for an effective allocation.

In fact, a building or construction licensed for residential use or, even without a license, but which has residential use as its normal destination, is, in the face of no. 2 of that article 6, a residential property.

For that reason, in the assumption that the legislator of Law no. 55-A/2012 knew how to express his thought in adequate terms (as required by article 9, no. 3 of the Civil Code, which is presumed), if he intended to refer to those properties already licensed for residential use or which have residential use as their normal destination, he would certainly have used the concept of "residential properties", which would express perfectly and clearly his thought, in the face of the definition given by that no. 2 of article 6 of CIMI.

Consequently, it must be presumed that the use of a different expression is intended to refer to a different reality, so that, in good hermeneutics, "property with residential allocation" cannot be a property merely licensed for residential use or intended for that purpose (that is, it will not be sufficient that it be a "residential property"), having to be a property that already has effective allocation to that purpose.

That this is the sense of the expression "allocation", in the same context of property classification that CIMI makes, is confirmed by article 3, in which, regarding rural properties, reference is made to those "which are allocated or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income", which shows that the allocation is concrete, effective. In fact, as seen from the end of this text, a property may have as its destination a particular use and be or not be allocated to it, which shows that the allocation is, at the level of the link of a property to a particular use, something more intense than mere destination and which may or may not occur, downstream of this and not upstream. [6]

The correctness of this interpretation in the sense that only properties that are effectively allocated to residential use fall within the scope of item no. 28.1 of the TGIS is also confirmed by the ratio legis perceivable from the restriction of the field of application of the norm to properties with residential allocation, in the context of the "circumstances in which the law was enacted and the specific conditions of the time in which it is applied", which article 9, no. 1 of the Civil Code also establishes as interpretative elements. [7]

Immediately, the limitation of Stamp Duty taxation to "properties with residential allocation" lets it be perceived that it was not intended to encompass within the scope of application of the tax properties with allocation to services, industry or commerce, that is, properties allocated to economic activity, which is understandable in a context in which, as is notorious, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historical maximum levels, with an avalanche of business closures resulting from economic unsustainability. (emphasis added)

Having this situation in mind and being well known and public that the revival of economic activity and the increase of exports are the exit routes from the crisis, it is understandable that legislative measures were not taken that would hamper economic activity, namely the burden of fiscal charges that hamper it and affect competitiveness in international terms.

For that reason, it is to be concluded that the available interpretative elements, including the "circumstances in which the law was enacted and the specific conditions of the time in which it is applied", clearly point toward it not having been intended to encompass within the scope of application of item no. 28.1 the situations of properties that are not yet allocated to residential use, namely construction lands held by companies. [8]"

Given the foregoing, it is verified that the fractions intended for residential use fall within the norm of application of item 28.1, as they are urban properties and properties with residential allocation, the concept of which results from article 2 of CIMI.

It remains, however, to now decide for purposes of application of item no. 28 of the TGIS, what tax value to consider in properties in vertical regime (that is, not horizontal) whether individually determined by the tax value that corresponds to each of the parts of the property with residential allocation, or whether determined by the global tax value of the property, which would correspond to the sum of all the tax values of the residential fractions that compose it.

On this matter, the Arbitral Tribunal of CAAD has already decided through decision nos. 50/2013-T, 132/2013-T, 48/2013-T, 50/2013-T, 144/2013-T, 132/2013-T, 95/2013-T, 248/2013-T, 240/2013-T, 183/2013-T, 185/2013-T, 280/2013-T, 26/2014-T, 182/2013-T, 30/2014-T, 35/2014-T, 88/2014-T, 72/2014-T, 428/2014-T, 639/2014-T, 724/2014-T, 754/2015-T, 755/2015-T, 766/2015-T, 10/2016-T, 20/2016-T, 43/2016-T, 45/2016-T, 134/2016-T, 120/2016-T, 298/2016-T, 203/2016-T, 214/2016-T, 214/2016-T, 327/2016-T, 584/2016-T, 603/2016-T, 636/2016-T, 660/2016-T, 712/2016-T, 82/2017-T, 93/2017-T, 123/2017-T, 147/2017-T, 147/2017-T, 164/2017-T.

For purposes of the case sub judice, it is important to consider decision 50/2013-T regarding the treatment to be afforded for purposes of item 28.1 of the TGIS to properties in vertical ownership and cumulatively which tax value (individual or global) to consider:

"From this we can conclude that, in the perspective of the legislator, what matters is not the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose to which the property is intended. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership was not relevant, since no reference or distinction is made between them. What is relevant is the material truth underlying its existence as an urban property and its use."

It is also important to note from the said decision:

"Using the criterion that the law itself introduced in article 67, no. 2 of the Stamp Duty Code, 'to matters not regulated in this code concerning item 28 of the General Table is subsidiarily applied'.

Now, being such, considering that the registration in the matrix of properties in vertical ownership, constituted by different parts, floors or divisions with independent use, in accordance with CIMI, obeys the same registration rules as properties constituted in horizontal ownership, and their IMI, as well as the new IS, are assessed individually in relation to each of the parts, there is no doubt that the legal criterion to define the applicability of the new tax must be the same. (…)

Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for defining the rule of applicability of the new tax.

Thus, there would only be applicability of the new stamp duty tax if some of the parts, floors or divisions with independent use presented a tax value exceeding €1,000,000.00.

The AT cannot, therefore, consider as the reference value for the applicability of the new tax the total value of the property, when the legislator himself established a different rule in terms of CIMI, and this is the code applicable to matters not regulated concerning item 28 of the TGIS.

The criterion sought by the AT, of considering the value of the sum of the tax values attributed to the parts, floors or divisions with independent use, with the argument that the property is not constituted in horizontal ownership, finds no legal support and is contrary to the criterion that is applicable in terms of CIMI and, by reference, in terms of IS.

To which is added the fact that the law itself expressly establishes, in the latter part of item 28 of the TGIS, that IS to apply to urban properties of value equal to or exceeding €1,000,000.00 – "on the tax value used for IMI purposes."

Thus, the adoption of the criterion defended by the AT violates the principles of legality and fiscal equality, as well as the prevalence of material truth over legal-formal reality.

The fiscal legislator in article 12, no. 3 of CIMI states that "each floor or part of property susceptible of independent use is considered separately in matrix registration to which it likewise discriminates the respective tax value," does not make any distinction regarding the regime of properties that are in horizontal or vertical ownership, if the property were in horizontal ownership, none of its residential units would suffer applicability of the new tax, so the AT cannot treat equal situations differently.

In the same sense, the Arbitral Tribunal decided, in accordance with Ruling no. 132/2013-T:

"Furthermore, it is that admitting the differentiation of treatment could produce results incomprehensible from a legal point of view and violative of the objectives that the legislator said it had for adding item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now respondent: a citizen who is the owner of a property constituted in sole ownership intended for residential use, the global value of the autonomous units being equal to or exceeding €1,000,000.00 and the tax value of each inferior to €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics as the former but which has been constituted in horizontal ownership, being equally the global value of the autonomous units equal to or exceeding €1,000,000.00 and the tax value of each inferior to €1,000,000.00, will not be subject to taxation in accordance with the mentioned item no. 28...

On the other hand, one could ask: if such units have the same owner, why does it not make sense to aggregate, for taxation purposes, their respective tax values? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 units has a tax value inferior to €1,000,000.00, would be subject to taxation if – should such aggregation be admitted – the global tax value exceeded that amount; whereas another citizen with identical 20 units distributed among 5, 10 or 20 properties would not be subject to any taxation in accordance with the said item no. 28...

If this line of reasoning makes sense – justifying, therefore, the non-aggregation of the tax values of the units of properties in horizontal ownership – no plausible reason is seen for why the same should not be applied to the autonomous units of properties in sole ownership.

Observing now the case under analysis, it is found that the tax values of the floors (autonomous units) of the property with residential allocation vary between €104,140.00 and €113,780.00, so each of them is less than €1,000,000.00. From this it is concluded, as a result of what was stated, that the stamp duty tax referred to in item no. 28 of the TGIS cannot apply to them, and therefore the assessment acts challenged by the applicant are illegal."

Given the foregoing, and following the understanding already decided and transcribed above, for purposes of application of item 28 of the TGIS to properties in vertical ownership, the same rules of CIMI that apply to properties in horizontal ownership are applied, and in the same sense the tax value for purposes of application of item 28.1 is the individual tax value of each independent residential unit. And in the present case none of the units exceeds the applicability criterion of €1,000,000.00.

Now, the material truth is that which imposes itself as the determining criterion of tax capacity and not the mere legal-formal reality of the property, since the constitution of horizontal ownership implies a mere legal alteration of the property not even imposing a new assessment. Therefore, it does not seem coherent the decision of the AT to tax the residential parts of a property in vertical ownership, based on the global tax value of the property and not on what is effectively attributed to each part.

The current legal regime does not impose an obligation to constitute horizontal ownership, so the AT's action translates into arbitrary discrimination without legal foundation. The AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of fiscal legality provided for in article 103, no. of CRP, and furthermore the principles of justice, equality and fiscal proportionality.

As none of the fractions intended for residential use has tax value equal to or exceeding €1,000,000.00, as results from the documents attached to the proceedings, it is concluded that the legal prerequisite of applicability of IS provided for in Item 28 of the TGIS is not met.

In this sense, we follow the jurisprudence of CAAD and of STA in proceedings 50/2013-T, 132/2013-T, 48/2013-T, 50/2013-T, 144/2013-T, 132/2013-T, 95/2013-T, 248/2013-T, 240/2013-T, 183/2013-T, 185/2013-T, 280/2013-T, 26/2014-T, 182/2013-T, 30/2014-T, 35/2014-T, 88/2014-T, 72/2014-T, 428/2014-T, 639/2014-T, 724/2014-T, 754/2015-T, 755/2015-T, 766/2015-T, 10/2016-T, 20/2016-T, 43/2016-T, 45/2016-T, 134/2016-T, 120/2016-T, 298/2016-T, 203/2016-T, 214/2016-T, 214/2016-T, 327/2016-T, 584/2016-T, 603/2016-T, 636/2016-T, 660/2016-T, 712/2016-T, 82/2017-T, 93/2017-T, 123/2017-T, 147/2017-T, 147/2017-T, 164/2017-T and the jurisprudence of the Supreme Administrative Court in the same sense, respectively in rulings: no. 047/15 of 09/09/2015, Proceeding no. 1354/15 of 02/03/2016, Proceeding no. 1534/15 of 27/04/2016, Proceeding no. 166/16 of 04/05/2016, Proceeding no. 172/16 of 04/05/2016, Proceeding no. 1504/15 of 04/05/2016, Proceeding no. 1352/15 of 24/05/2016, Proceeding no. 1344/15 of 24/05/2016, and Proceeding no. 498/16 of 29/06/2016.

Thus, the present Tribunal concludes by declaring the assessments sub judice illegal, for suffering from the defect of violation of item no. 28.1, by error on the legal prerequisites, which justifies the declaration of their illegality and annulment (article 135 of CPA).

Given the foregoing, the IS assessment, in the part encompassed by the annulment decreed, results from errors of fact and law attributable exclusively to the fiscal administration, insofar as the Claimant fulfilled its duty of declaration.

I – REQUEST FOR COMPENSATION FOR WRONGFULLY PROVIDED SECURITY

The Claimant further petitions for compensation for wrongfully provided security, in accordance with art. 53 of the Tax Code and article 169 of CPPT, with the intention of suspending the fiscal enforcement proceedings relating to the collection of the tax debts referred to in the present arbitral ruling.

In accordance with the provisions of no. 1 of article 53 of the General Tax Code, the debtor who, to suspend enforcement, offers bank security or equivalent shall be compensated in whole or in part for the prejudices resulting from its provision, should he have maintained it for a period exceeding three years, in proportion to the success in administrative appeal, challenge to enforcement or opposition to enforcement which have as their object the secured debt.

In accordance with no. 2 of the cited article, all prejudices incurred with the provision of securities provided to suspend enforcement are compensated without dependence on the aforesaid period in the event of complete success in an action in which there is found to have been error attributable to the services in the assessment of the tax.

For its part, article 171 of CPPT establishes that "compensation in case of bank security or equivalent wrongfully provided shall be requested in the proceeding in which the legality of the enforceable debt is contested" and that "compensation must be requested in the complaint, challenge or appeal or if its basis is subsequent within 30 days after its occurrence."

The proceeding of judicial challenge, in which a decision is made on the legality of the tax act, constitutes, therefore, an adequate procedural means to formulate the request for compensation for wrongfully provided security.

In accordance with repeated arbitral jurisprudence, "The petition for constitution of the arbitral tribunal has as a corollary that it be in the arbitral proceeding that the 'legality of the enforceable debt' will be discussed, so that, as results from the express tenor of that no. 1 of the cited article 171 of CPPT, it is also the arbitral proceeding that is adequate to review the petition for compensation for wrongfully provided security."

Given the foregoing, the IS assessment, in the part encompassed by the annulment to be decreed, results from errors of fact and law attributable exclusively to the Fiscal Administration, insofar as the Claimant fulfilled its duty of declaration and those errors were committed by it and the Claimant could not be unaware of different understandings.

However, in the present case the Claimant is not entitled to compensation for wrongfully provided security, in accordance with articles 53 of the Tax Code and article 169 of CPPT, since the Claimant in the course of the present action made proof of the provision of the requested security.

Given the foregoing, the present Tribunal grants the petition of the Claimant.

The Arbitral Tribunal, in accordance with arts. 608, no. 2, 663, no. 2 and 679 of the Code of Civil Procedure by application of article 29 of RJAMT, is not obliged to review all arguments alleged by the Claimant nor in the response effected by the Respondent, when the decision becomes prejudiced by the solution already given, which is the case in the proceedings, which is why the remaining questions submitted for a ruling are thus prejudiced.

H – RULING

Therefore, having regard to all the foregoing, the present Arbitral Tribunal decides:

To hold the petition for declaration of illegality of the tax assessment acts for Stamp Duty purposes, nos. 2016…, 2016…, 2016;…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016… and 2016…, which fixed total tax to be paid at € 11,553.50 (eleven thousand, five hundred and fifty-three euros and fifty cents), to be meritorious, for the defect of violation of law regarding the norm contained in item 28 no. 1, by error on the legal prerequisites, which justifies the declaration of its illegality and annulment.

To hold the petition for compensation for wrongfully provided security to be without merit.

To order the Respondent to refund to the Claimant the amount wrongfully assessed, in the amount of € 11,553.50.

The value of the proceeding is fixed at 11,553.50 €, equivalent to the value of the assessment, having regard to the economic value of the proceeding, ascertained by the value of the stamp duty assessments challenged, and accordingly the costs are fixed at 918.00€ (nine hundred and eighteen euros), at the charge of the Respondent in accordance with article 12, no. 2 of the Tax Arbitration Regime, article 4 of RCPAT and Table I attached thereto. – no. 10 of art. 35, and nos. 1, 4 and 5 of art. 43 of the Tax Code, articles 5, no. 1, al. a) of RCPT, 97-A, no. 1, al. a) of CPPT and 559 of CPC).

Notify.

Lisbon, 16 October 2017

The Arbitrator

Rita Guerra Alves

[1] On this matter, the rulings of the Arbitral Tribunal of CAAD have already decided, nos. 42/2013-T, 48/2013-T, 49/2013-T

[2] On the interpretation of the concept of "property with residential allocation" for purposes of item 28.1 of the TGIS, see the decisions issued by the Arbitral Tribunal of CAAD in proceedings nos. 42/2013; 48/2013; 49/2013; 53/2013; 75/2013; 158/2013; 251/2013; 310/2013.

[3] Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, I volume, page 102.

[4] BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 182.

[5] Proposed Law no. 99/XII/2nd is available at http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=37245

[6] Other norms of CIMI show that the term "allocation" is used to reference existing situations and not merely future ones, even if foreseeable, like "destination". This is the case of article 9 of CIMI, which, after establishing that "the tax is due from" "the 4th year following, inclusive, that in which construction land came to appear in the inventory of a company whose object is the construction of buildings for sale" or "the 3rd year following, inclusive, that in which a property came to appear in the inventory of a company whose object is its sale" [paragraphs d) and e) of no. 1], determines that "for purposes of the provisions of paragraphs d) and e) of no. 1, taxable persons must communicate to the tax office of the area of the situation of the properties, within 60 days from the occurrence of the fact determining its application, the allocation of the properties to those purposes". The "allocation of the properties to those purposes", in the context of this article 9, reduces to the concrete attribution to the properties of the purpose "for sale", materialized by their inventorying, not being sufficient that they have been constructed or acquired with a view to their sale.

[7] Not in mind, in this approach, are the special cases provided for in item no. 28.2, of ownership of properties by legal persons resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ministerial order of the Minister of Finance to which, as in other norms, strong tax penalization is attributed, as these are situations normally associated with tax evasion.

[8] Outside the special cases provided for in item no. 28.2.