Stamp Tax Verba 28 TGIS on Vertical Property: Autonomous Challengeability of Installments (CAAD 395/2015-T)

ARBITRAL DECISION

1. REPORT

1.1. A..., as head of the marital community of the undivided estate opened by the death of B..., taxpayer no. ...., with residence at Rua..., ..., ..., in Lisbon (hereinafter referred to as "Applicant"), filed on 23/06/2015, a request for arbitral award to challenge and declare the illegality of the Stamp Duty assessment acts of the year 2014, concerning the application of Item no. 28.1 of the General Table of Stamp Duty (General Table), in the total amount of € 3,556.40 (three thousand, five hundred and fifty-six euros and forty cents) to a property of which she is the owner.

1.2. His Excellency the President of the Ethics Council of the Administrative Arbitration Centre (CAAD) designated, on 27/07/2015, as sole arbitrator the signatory of this decision.

1.3. On 23/09/2015 the arbitral tribunal was constituted.

1.4. In compliance with the provisions of no. 1 of article 17 of the Legal Framework for Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified on 23/09/2015 to, if it so wished, submit a response and request the production of additional evidence.

1.5. On 28/10/2015 the AT submitted its response, defending itself by exception and by objection.

1.6. On 28/10/2015 the arbitral tribunal invited the Applicant to pronounce itself regarding the exception of non-challengeability of the subject matter of the request for arbitral award.

1.7. The Applicant did not pronounce itself regarding the exception raised by the AT, nor did it manage to attach to the case file, as requested by the AT, all documents supporting the claims formulated ultimately in the petition.

1.8. Being exclusively a matter of law, the arbitral tribunal on 28/12/2015 decided to dispense with holding the meeting to which no. 1 of article 18 of the RJAT refers, on the basis of the principle of the arbitral tribunal's autonomy in conducting the proceedings, inviting both parties to, if they so wished, submit optional written arguments and scheduled the date for delivery of the final decision.

1.9. The Applicant did not submit optional written arguments.

1.10. The AT did not submit optional written arguments.

1. PRELIMINARY RULING

The arbitral tribunal was regularly constituted.

The parties have legal standing and legal capacity and are legitimate, with no defects in representation occurring.

The proceedings are not affected by defects that would impair their validity.

Consequently, the conditions are met for the final decision to be delivered.

1. POSITIONS OF THE PARTIES

There are two positions in confrontation: that of the Applicant, set out in the request for arbitral award, and that of the AT in its response.

To substantiate its request, the Applicant alleges, in summary:

a) "The arbitral award concerns the challenge of the assessments contained in the Assessment Documents with nos. 2015 ..., 2015 ..., 2015 ..., 2015..., 2015..., 2015 ..., 2015 ..., 2015 ..., 2015..., 2015 ..., 2015 ..., 2015..., 2015..., 2015 ..., 2015 ..., 2015 ..., 2015 ... and 2015 ..., relating to Stamp Duty, Item 28.1 GTST";

b) According to "(…) expressly contained in the assessments above mentioned, each one of these refers to each one of the floors described as «1 E-12», «1 D-12», «2 E-12», «2 D-12», «3 E-12», «3 D-12», «4 E-12», «4 D-12», «1 E-13», «1 D-13», «2 E-13», «2 D-13», «3 E-13», «3 D-13», «4 E-13» and «4 D-13» of the urban property (…)" in question;

c) "It so happens that the property in question is not constituted in horizontal property (…)";

d) "Not being subject to the horizontal property regime and, therefore, composed of autonomous units, the assessment cannot fall upon each of these, under penalty of error as to the factual premises (…)";

e) "Given that, not only does the tax in question intend to fall upon a reality that does not exist, without invoking any basis for doing so.";

f) "As, if such were the case, the legal requirement concerning the taxable property value contained in article 4 and Law no. 55-A/2012 and item 28 of the General Stamp Duty Table would not be met, since none of the units subject to assessment reaches the taxable property value of € 1,000,000.00, as provided for in the cited legal provisions.";

g) "To which is added the fact that the law itself expressly establishes, in the final part of item 28 of the GTST, that the Stamp Duty to fall upon urban properties of value equal to or greater than € 1,000,000.00 - «on the taxable property value used for the purposes of Municipal Property Tax.» (…)" [emphasis by Applicant];

h) "Thus, the adoption of the criterion defended by the AT manifestly violates the principles of legality and fiscal equality, as well as the prevalence of material truth over juridical-formal reality.";

i) "Given that none of the floors intended for housing has taxable property value equal to or greater than € 1,000,000.00, as results from the documents attached to the case file, it is concluded that the legal premise for the incidence of Stamp Duty provided for in Item 28 of the GTST is not met.";

j) "In the case of the units in question in the present proceedings, none presents taxable property value that exceeds the value fixed in the rule of incidence.";

k) On the other hand, "(…) the legislator, upon introducing this legislative innovation, considered as the determining element of contributory capacity properties with residential use of high value (luxury), more precisely, of value equal to or greater than € 1,000,000.00, upon which it proceeded to levy a special rate of stamp duty, intending to introduce a principle of taxation upon wealth manifested in the ownership, usufruct or surface right of urban properties of luxury with residential use. For this reason, the criterion was the application of the new rate to urban properties with residential use whose taxable property value is equal to or greater than € 1,000,000.00." [emphasis by Applicant];

l) "Now, being thus, considering that the registration in the matrix of immovable property in vertical ownership, constituted in different parts, floors or divisions with independent use, in accordance with the MPTIC, follows the same registration rules as immovable property constituted in horizontal ownership, with their respective Municipal Property Tax, as well as the new Stamp Duty, being levied individually in relation to each one of the parts, it raises no doubt that the legal criterion for defining the incidence of the new tax must be the same.";

m) "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 unambiguous, for defining the rule of incidence of the new tax.";

n) "Thus, there would only be place for the incidence of the new stamp duty if any of the parts, floors or divisions with independent use presented a taxable property value exceeding € 1,000,000.00, which is not the case.";

o) "The AT cannot, therefore, consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in the context of the Municipal Property Tax Code, and this is the code applicable to matters not regulated concerning item 28 of the GTST.";

p) "The criterion intended by the AT, of considering the value of the sum of the taxable property values assigned to the parts, floors or divisions with independent use, arguing that the property is not constituted in the horizontal property regime, finds no legal support and is contrary to the criterion that results as applicable in the context of the Municipal Property Tax Code and, by analogy, in the context of Stamp Duty.";

q) "The substantiation of the measure designated as «special rate on high-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 housing, levying the new special rate upon «houses of value equal to or greater than 1 million euros»." [emphasis by Applicant];

r) "Clearly the legislator understood that this value, when imputed to a residence (house, autonomous unit or floor with independent use) reflects a contributory capacity above average and, as such, capable of determining a special contribution to ensure just apportionment of fiscal burden.";

s) "The tax legislator cannot treat equal situations differently. Now, if the property were constituted in the horizontal property regime, none of its residential units would suffer the incidence of the new tax.";

t) "The provision of article 12, no. 3 of the MPTIC (similar to what was provided in article 232, rule 1, of the Property Tax Code and Tax on Agricultural Industry) is relevant for purposes of registration in the property matrix the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent.";

u) "Now, this does not appear coherent with the AT's decision to tax the residential parts of a property in vertical ownership, based on the global taxable property value of the property and not on what is actually attributed to each part.";

v) "Therefore, material truth is what must impose itself as the determining criterion of contributory capacity and not the mere juridical-formal reality of the property.";

w) "As a consequence, the discrimination operated by the AT translates into arbitrary and illegal discrimination.";

x) "Nothing in the law imposes the obligation of constitution of horizontal property (…).";

y) "The AT cannot distinguish between the two situations (horizontal and vertical ownership) where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in article 103, no. 2 of the Portuguese Constitution, and further the principles of fiscal justice, equality and proportionality.";

z) "The assessments in question are therefore affected by nullity which is expressly invoked for all purposes.";

aa) "Even if this understanding were not adopted, which is not conceded, the tax acts in question should be annulled due to omission of legal formalities, error as to the factual premises and lack of substantiation.".

In another manner, the AT, defending itself by exception and by objection, sustains, in summary, the following:

By exception:

a) The assessment act for Item no. 28 of the General Table is single and the fact that it can be paid in various instalments does not imply that multiple assessments have occurred;

b) In fact, the nature of the instalments of a Stamp Duty assessment is the division of the global assessment, effected annually, and each instalment per se cannot be challenged autonomously, in so far as the subject matter of judicial challenge or of the arbitration proceedings is the tax assessment act;

c) In this measure, the annulment of the tax assessment act necessarily encompasses all instalments, bringing about the cessation of the obligation to pay them or imposing on the AT the obligation to refund the amounts possibly paid by the taxpayer;

d) In light of the foregoing, having regard to the manifest non-challengeability of the autonomous instalments of the assessment acts contained in the payment notices that constitute the present request for arbitral award, the AT should be absolved of the action.

By objection:

a) "The property is constituted in full ownership and comprises divisions susceptible of independent use, intended for housing, whose taxable property value was determined separately, in accordance with article 7, no. 2, paragraph b), of the Municipal Property Tax Code (MPTIC).";

b) "The taxable property value relevant for purposes of the incidence of the tax is, therefore, the total taxable property value of the urban property and not the taxable property value of each of the parts that comprise it, even when susceptible of independent use.";

c) "The urban property in question in the present proceedings is not in the horizontal property regime, in which case each of the autonomous units would be considered as an urban property, including for purposes of subjection to the stamp duty of item 28.1 of the General Table, but in the vertical property regime.";

d) "It provides, however, as appears from its respective property matrix, of floors or independent divisions, evaluated in accordance with article 12, no. 3, of the MPTIC, which states that each floor or property susceptible of independent use is considered separately in the matrix registration, which likewise discriminates the respective taxable property value upon which Municipal Property Tax is levied.";

e) "Such legal provision is, in this manner, relevant for purposes of registration in the property matrix, the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent.";

f) "The unity of the urban property in vertical ownership composed of several floors or divisions is not, however, affected by the fact that all or part of those floors or divisions are susceptible of economic independent use.";

g) "Such property does not cease, by virtue of being just one, not being, therefore, its distinct parts juridically equated to autonomous units in the horizontal property regime.";

h) "In the present case, the taxable property value upon which the incidence of the stamp duty of item 28.1 of the General Table depends had to be, as it was, the global taxable property value of the property and not that of each of its independent parts.";

i) "The fact that the Municipal Property Tax was calculated based on the taxable property value of each part of the property with economic independent use does not similarly affect the application of item 28, no. 1, of the General Table.";

j) "In truth, horizontal ownership and vertical ownership are differentiated legal institutes.";

k) "The constitution of horizontal property implies, indeed, a mere juridical alteration of the property, with no new evaluation (…)";

l) "The legislator can, however, subject to a distinct legal tax framework, therefore discriminatory, properties in horizontal and vertical ownership regimes, in particular, benefiting the juridically more developed institute of horizontal ownership, without such discrimination being necessarily considered arbitrary.";

m) "The fact that the author of the request for arbitral award legitimately disagrees with such discrimination does not imply the violation of any constitutional principle.";

n) "Thus, taxation in the context of stamp duty must obey the criterion of adequacy, applying itself indistinctly to all holders of immovable property with residential use of value exceeding € 1,000,000.00, falling upon the wealth evidenced in the value of the immovable properties.";

o) "The challenged tax acts, in terms of substance, did not violate any legal or constitutional provision, and should be maintained in the legal order.".

1. SUBJECT MATTER OF THE REQUEST

In the present proceedings the questions to be decided are:

a) To rule on the exception of non-challengeability of the subject matter of the request;

b) To determine whether, for purposes of the application of Item no. 28.1 of the General Table, in the case of properties not constituted in horizontal ownership, the Stamp Duty falls upon the sum of the taxable property value attributed to the different parts or floors, or rather, upon the taxable value of each part of the property with economic independent use.

1. FACTUAL MATTERS

5.1. FACTS CONSIDERED PROVEN

In light of the documents introduced in the proceedings, the following are taken as proven:

5.1.1. The Applicant is the owner of an urban property located in the parish of..., municipality of Lisbon, registered in the urban property matrix under matrix article no...., composed of a ground floor and 4 floors.

5.1.2. The urban property is constituted in full ownership and comprises divisions susceptible of independent use, namely: 1 E-12, 1 D-12, 2 E-12, 2 D-12, 3 E-12, 3 D-12, 4 E-12, 4 D-12, 1 E-13, 1 D-13, 2 E-13, 2 D-13, 3 E-13, 3 D-13, 4 E-13 and 4 D-13.

5.1.3. At the date of the assessments, the taxable property value in question varied between € 48,240.00 and € 65,840.00, totaling the amount of € 1,114,850.00.

5.1.4. The Applicant was notified of the Stamp Duty assessment acts of the year 2014, contained in the payment collection documents for payment of the first instalment of the tax assessed for each floor or division with independent use and which form part of the aforementioned urban property, at the rate of 1%, with the payment deadline of 30/04/2015, in the manner set out below:

5.2. FACTS NOT CONSIDERED PROVEN

5.2.1. The Applicant did not proceed to attach and identify the Stamp Duty assessment acts of the year 2014, contained in the payment collection documents for payment of the second and third instalments of the tax assessed for each floor or division with independent use and which form part of the aforementioned urban property.

THE LAW

5.3. ON THE NON-CHALLENGEABILITY OF THE SUBJECT MATTER OF THE REQUEST

The AT bases its claim, regarding the exception of non-challengeability of the autonomous instalments of the assessment acts contained in the payment notices that constitute the subject matter of the present request for arbitral award, on the fact that it was not a tax assessment act that was challenged, but rather the payment of the first instalments of Stamp Duty.

The subject matter of the proceedings corresponds, thus, in the view of the AT, not to the annulment of a tax assessment act, but rather of a mere payment notice.

Let us examine this.

Paragraph a) of no. 1 of article 2 of the RJAT establishes that the arbitral tribunals are competent to hear claims for declaration of illegality of tax assessment acts, self-assessments, withholdings at source and prepayments.

As to the binding of the AT to the jurisdiction of the arbitral tribunals, no. 1 of article 4 of the RJAT provides that this depends on an order of the members of Government responsible for the areas of finance and justice.

In this measure, the competence of the arbitral body is thus delimited by the order binding the Tax Administration to the jurisdiction of the Administrative Arbitration Centre. [1]

According to article 2 of the aforementioned Order, the General Directorate of Taxes and the General Directorate of Customs and Special Consumption Taxes (currently, AT) bind themselves to the jurisdiction of the arbitral tribunals functioning in the CAAD whose object is hearing claims relating to taxes whose administration is entrusted to them, in accordance with no. 1 of article 2 of the RJAT, in which are expressly included claims for declaration of illegality of tax assessment acts, self-assessments, withholdings at source and prepayments.

It is concluded, therefore, that the tax arbitration proceedings have as their direct or indirect object the tax assessment act, as the act determining the amount of the tax to be paid (tax assessment), by application of a rate to the taxable matter.

Now, the consideration of the exception raised depends, therefore, on the question of whether the Applicant challenges the tax assessment act for Stamp Duty or whether, on the contrary, it merely challenges each of the Stamp Duty instalments per se.

In cases where the tax must be paid in instalments, the assessment is notified to the taxpayer jointly with the notification for payment of each of the instalments, being able to be challenged only in its entirety and not instalment by instalment. [2]

In this respect, José Casalta Nabais argues that "Assessment in the broad sense, that is, as the totality of all operations intended to determine the amount of the tax, comprises: 1) Subjective assessment intended to determine or identify the taxpayer or passive subject of the tax legal relationship, 2) Objective assessment through which the taxable matter or taxable basis of the tax is determined and, as well, the rate to be applied is determined, in the case of plurality of rates, 3) Assessment in the strict sense translated in the determination of the tax assessment through the application of the rate to the taxable matter or taxable basis, and 4) the (eventual) deductions from the tax assessment." [3]

For each tax event there will be, in principle, a single assessment, by which the tax assessment to be paid will be determined.

On the other hand, no. 7 of article 23 of the Stamp Duty Code also provides that "in the case of tax due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually (…)" applying, with the necessary adjustments, the rules contained in the MPTIC".

In the same sense, no. 5 of article 44 of the Stamp Duty Code establishes that "when there is an assessment of the tax referred to in item no. 28 of the General Table, the tax is paid according to the periods, terms and conditions defined in article 120 of the MPTIC".

That is, in light of the provision in no. 2 of article 113 of the Municipal Property Tax Code, "the assessment (…) is effected in the months of February and March of the following year", with the tax to be paid in three instalments, in the months of April, July and November, respectively, according to its amount. [4]

In sum, and from the combination of the legal provisions set out above, it is possible to conclude that Stamp Duty is assessed annually, the payment in instalments being nothing more than a technique for collection of the tax and not a partial payment thereof. [5]

Accordingly, the assessment is but one and only it constitutes an injurious act, susceptible of being challenged.

Given this,

From the analysis of the request for arbitral award it results that the Applicant requests the constitution of the arbitral tribunal with a view to the "(…) challenge of the assessments contained in the Assessment Documents with nos. 2015 ..., 2015 ..., 2015 ..., 2015 ..., 2015..., 2015 ..., 2015 ..., 2015 ..., 2015..., 2015 ..., 2015 ..., 2015..., 2015 ..., 2015 ..., 2015 ..., 2015 ..., 2015 ... and 2015 ..., relating to Stamp Duty, item 28.1GTST (…)" petitioning, ultimately, the declaration of "(…) nullity of the tax acts which constitute its object (…)" or, subsidiarily, the "(…) annulment of the tax acts which constitute its object (…)".

That is, a claim for declaration of illegality of the tax assessment acts for Stamp Duty is requested, to which correspond the respective payment instalments.

It results, therefore, from the foregoing that the subject matter of the request for arbitral award corresponds only to the first Stamp Duty instalment.

So much so is this the case that the Applicant itself, in the delimitation of the object of the arbitral action, confines the institution of the respective proceedings to the annulment of the Stamp Duty assessment acts above identified, indicating as the value of the economic utility of the claim, not the global value of the assessment, but the amount of € 3,556.40 corresponding only to the first instalment.

Note that, indeed, the Applicant did not even proceed to the identification and attachment of the other payment notices (corresponding to the second and third instalments) of Stamp Duty, clearly associating the object of the request for arbitral award to the first Stamp Duty instalment.

In light of the foregoing, we are led to conclude by the merit of the exception in question.

1. DECISION

In these terms and with the substantiation described above, the arbitral tribunal decides:

· To judge well-founded the dilatory exception of absolute lack of jurisdiction of the arbitral tribunal (taking into account the non-challengeability of the autonomous collection acts which constitute the object of the request) and, in consequence, to absolve the AT of the action;

· To condemn the Applicant to pay the costs of the present proceedings.

1. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 3,556.40 (three thousand, five hundred and fifty-six euros and forty cents), in accordance with article 97-A of the Tax Procedural Code (TPPC), applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

1. COSTS

Costs to be borne by the Applicant, in the amount of € 612.00 (six hundred and twelve euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, in accordance with no. 2 of article 22 of the RJAT.

Let notice be given.

Lisbon, 20 January 2016

The arbitrator,

(Hélder Filipe Faustino)

Text produced by computer, in accordance with the provision of no. 5 of article 131 of the Code of Civil Procedure, applicable by reference of paragraph e) of no. 1 of article 29 of the RJAT. The drafting of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] See Order no. 112-A/2011, of 22 March.

[2] See arbitral decision handed down in the context of proceedings no. 27/2015-T, available at www.caad.org.pt.

[3] See "Tax Law", 3rd Edition, Almedina, 2005, page 318 by virtue of the arbitral decision handed down in the context of proceedings no. 736/2014-T, available at www.caad.org.pt.

[4] See paragraph c) of no. 1 of article 120 of the Municipal Property Tax Code.

[5] In this sense, see the arbitral decision handed down in the context of proceedings no. 408/2014-T, available at www.caad.org.pt.