CAAD Arbitration 396/2016-T: Stamp Tax on Vertical Property Under Verba 28.1 TGIS Annulled

ARBITRAL DECISION

1. Report

1.1 "A…, S.A.", hereinafter referred to as "Claimant", Tax Identification Number [NIPC]…, with registered office at …, No. …, in Lisbon, requested the constitution of a singular arbitral tribunal, pursuant to the combined provisions of Article 2, No. 1, Paragraph a) and Article 10, both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT") and Articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, in which the Tax and Customs Authority (AT) is the Respondent.

1.2 The request for arbitral pronouncement, filed on 14 July 2016, has as its object the declaration of illegality and consequent annulment of the stamp tax assessments referred to below, provided for in item 28.1 of the respective General Table of Stamp Tax (TGIS), in the amount of €47,609.11 (forty-seven thousand, six hundred and nine euros and eleven cents), relating to the year 2015.

1.3 It further requests the condemnation of the Respondent to reimburse the amounts paid relating to the aforementioned assessments, together with the respective compensatory interest, pursuant to Articles 43, No. 1 of the General Tax Law (LGT) and Article 61 of the Code of Tax Procedure and Process (CPPT), calculated from the date of the improper tax payment to the date of processing of the respective credit note.

1.4 The Claimant chose not to appoint an arbitrator.

1.5 The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to AT on 4 August 2016.

1.6 The undersigned was appointed by the President of the Deontological Council of CAAD as arbitrator of the singular arbitral tribunal, pursuant to the provisions of Article 6 of RJAT, and acceptance of the assignment was communicated within the applicable period.

1.7 On 19 September 2016, the Parties were notified of such appointment and did not object to it, pursuant to the combined provisions of Article 11, No. 1, Paragraphs a) and b) of RJAT and Articles 6 and 7 of CAAD's Deontological Code.

1.8 Thus, in accordance with the provision of Paragraph c) of No. 1 of Article 11 of RJAT, the singular arbitral tribunal was constituted on 4 October 2016.

1.9 The Respondent was notified, by arbitral order of 4 October 2016, to, pursuant to Article 17, No. 1 of RJAT and within the period of 30 days, present its response and, if it so wished, request the production of additional evidence.

1.10 Furthermore, it was notified to, within the same period, present the administrative process (PA) referred to in Article 111 of CPPT.

1.11 On 8 November 2016, the Respondent filed its Response, defending itself by way of objection, seeking the dismissal of the request for arbitral pronouncement. On the same date, it attached to the record the respective Administrative Process (PA).

1.13 Considering that the Parties did not request the production of any evidence beyond that which the Claimant attached to the request for pronouncement, the Arbitral Tribunal, in light of the principles of autonomy in the conduct of proceedings, celerity, simplification and procedural informality, contained in No. 2 of Articles 19 and 29 of RJAT, by order of 8 November 2016, dispensed with the holding of the meeting provided for in Article 18 of the same law, having also decided that the proceedings would continue with optional written submissions, to be made successively to the Respondent.

1.14 On the same date the Parties were notified of this order, and the Claimant, on 16 November 2016, filed its submissions.

1.15 Which the Respondent did on 22 November 2016, maintaining the position taken in its Response to the request for arbitral pronouncement.

1.16 The date of 12 December 2016 was set for the delivery of the respective final arbitral decision.

2. Sanitation of Procedure

2.1 The Parties have legal capacity and standing, show themselves to be legitimate and are regularly represented (Articles 4 and 10, No. 2 of RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).

2.2 The proceedings do not suffer from any nullities.

2.3 The Arbitral Tribunal is regularly constituted and is materially competent to know and decide the request, cf. Article 2, No. 1, Paragraph a) of RJAT.

2.4 There are no other circumstances that impede knowledge of the merits of the case.

3. Position of the Parties

3.1 Of the Claimant

It supports its request for arbitral pronouncement, in summary, as follows:

• That it is the interpretation of AT that, in cases of properties in vertical ownership, item 28 of TGIS determines that the tax base of stamp tax is the overall patrimonial value (VPT) of the property, regardless of whether it is composed of units of independent use, as long as they are intended for residential purposes.

• That, by virtue of the provision of Article 67, No. 2 of CIS, "the registration in the property register of properties in vertical ownership, composed of different parts, floors or units with independent use, in accordance with CIMI, follows the same registration rules as properties constituted in horizontal ownership, and their respective IMI, as well as the new IS, are assessed individually in relation to each one of the parts, so that the legal criterion for defining the incidence of the new tax must be the same".

• Therefore, in the case of properties with the characteristics already described, the subject to IS is determined, not by the VPT of the properties but by the VPT attributed to each one of the floors or units susceptible to independent use.

• It does not matter to the legislator the legal-formal precision of the concrete situation of the property but its normal use, that is, the purpose to which it is intended.

• Whereby there would only be grounds for incidence of IS if any of the parts, floors or units with independent use presented a VPT exceeding €1,000,000.00.

• That the criteria adopted by AT violate the principles of legality and fiscal equality, as well as that of the prevalence of material truth over legal-formal reality.

3.2 Of the Respondent

Defending itself by way of objection, AT invokes the following arguments:

• "That the urban properties in question were assessed in accordance with CIMI, as part of the general assessment, being described in the property register as properties in full ownership with floors or units susceptible to independent use, each of them having patrimonial value exceeding €1,000,000.00".

• "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 considered as constituting a property".

• "It follows from the analysis of the respective normative provisions that a 'property in full ownership with floors or units susceptible to independent use' is, unquivocally, different from a property in the regime of horizontal ownership, composed of autonomous units, that is, several properties".

• "Article 12 of CIMI establishes the concept of property register, and its No. 3 concerns, exclusively, the manner of recording the property register data".

• "As regards the assessment of IMI, when it is properties in full ownership, the value that serves as the basis for its calculation, shall unquestionably be that inscribed in the property record as 'total patrimonial value'".

• "In compliance with the provision of Article 119, No. 1 of CIMI, the tax collection document is sent to the taxpayer with a breakdown of the parts susceptible to independent use, their respective tax patrimonial value and the amount charged to each municipality of the location of the properties".

• "In fact, although the assessment of IS, in the situations provided for in item No. 28.1 of TGIS, takes place in accordance with the rules of CIMI, the truth is that the legislator highlights the aspects that require the necessary adaptations, namely those in which, as is the case with properties in full ownership, even though with floors or units susceptible to independent use (although IMI is assessed in relation to each part susceptible to independent use), for the purposes of IS the property in its entirety is relevant because the units susceptible to independent use are not considered as property, but only the autonomous units in the regime of horizontal ownership, as provided in No. 4 of Article 2 of CIMI".

• "What, expressly, results from the letter of the law is that the legislator wished to tax with item 28.1 in question the properties as a single legal-tax reality, (…)".

• "In fact, it appears from the property records that the properties in question are in the regime of full ownership, composed of various parts susceptible to independent use".

• "Being this the property register information, in accordance with Article 23, No. 7 of CIS, the stamp tax assessments relating to the year 2015 were made by the Tax Administration, taking into account the nature of the urban properties at the date of the tax event, applying, with the necessary adaptations, the rules contained in CIMI".

• "In accordance with the rules of CIMI, specifically Article 113, No. 1, the assessment is made annually, based on the tax patrimonial values of the properties and in relation to the taxpayers that appear in the registers on 31 December of the year to which it relates".

• "As the properties are in the regime of full ownership (not having autonomous units, to which tax law attributes the qualification of property, because from the notion of property in No. 4 of Article 2 of CIMI it results that only the autonomous units of property in the regime of horizontal ownership are considered as properties), it is the overall VPT of the property that should, therefore, be relevant".

• "AT further understands that the provision of item 28.1 of TGIS does not constitute any violation of the principle of equality, there being no discrimination in the taxation of properties constituted in horizontal ownership and properties in full ownership with floors or units susceptible to independent use, or between properties with residential purpose and properties with other purposes".

• "Horizontal ownership and vertical ownership are differentiated legal institutions".

• "The constitution of horizontal ownership implies merely a legal alteration of the property, with no assessment, but the legislator may, however, subject to a distinct legal-tax framework, and therefore discriminatory, properties in the regime of horizontal and vertical ownership, in particular, benefiting the legally more evolved institution of horizontal ownership, without such discrimination being necessarily considered arbitrary".

• "This discrimination may also be imposed by the need to impose coherence on the tax system".

• "The fact that the Claimant legitimately disagrees with such discrimination does not imply the violation of any principle of tax law".

• "It should be noted that the property register description of each part susceptible to independent use is not autonomous, by register, but forms part of a description in the register of the property in its entirety (…)".

• "What is intended to be concluded is that these norms of assessment procedures, the norms on property register description, and also the norms on assessment of the parts susceptible to independent use, do not permit to state that there should be an assimilation of the property in the regime of full ownership to the regime of vertical ownership, because, as already mentioned, it would be illegal and unconstitutional".

• "These legal-civil regimes are different, and tax law respects them!".

• "Thus, it results from the fact that IS Item 28.1 applies to the ownership of urban properties whose VPT appearing in the register, in accordance with CIMI, is equal to or exceeding €1,000,000.00, that the patrimonial value relevant for the purposes of the incidence of the tax is, clearly, the total patrimonial value of the urban property and not the patrimonial value of each one of the parts that compose it, even when susceptible to independent use".

• "Item 28.1 applies, therefore, to the ownership, usufruct or right of superficies of urban properties with residential purpose, whose tax patrimonial value appearing in the register, in accordance with CIMI, is equal to or exceeding €1,000,000.00".

• "Also the different valuation and taxation of a property in full ownership compared to a property constituted in horizontal ownership, derives from the different legal effects inherent to these two figures".

• "In fact, the constitution in horizontal ownership determines the division/partition of full ownership and the independence or autonomy of each one of the units that compose it, for all legal purposes, in accordance with No. 4 of Article 2 of CIMI and Article 1414 et seq. of the Civil Code, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality".

• "In this way, one cannot conclude that there is alleged discrimination, or violation of the principle of equality when, in fact, we are faced with distinct realities, valued by the legislator in different ways".

It concludes, seeking the total dismissal of the request for arbitral pronouncement and acquittal of the Respondent, since the disputed assessments constitute a correct interpretation and application of law to the facts, not suffering from the vice of violation of law.

4. Subject Matter of the Dispute

The question which constitutes the thema decidendum is reduced to knowing whether, in a property not subject to the regime of horizontal ownership, the subjection to stamp tax, in accordance with item 28.1 of the General Table of Stamp Tax, is determined by the tax patrimonial value (VPT) that corresponds to each one of the parts of the property, economically independent and with residential purpose, as the Claimant contends, or whether, on the contrary, it is determined by the overall VPT of the property, which would correspond to the sum of all VPTs of the floors or units of independent use and with residential purpose that compose it, as AT sustains.

5. Grounds for Decision

5.1 Proven Facts

With relevance for the appreciation and decision of the substantive questions raised, the following facts are established and proven:

5.2.1 The Claimant is the owner of the properties referred to below, composed of floors or units with independent use (full or vertical ownership), some of which intended for residential purposes.

5.2.2 The properties are not constituted in the regime of horizontal ownership, provided for in Article 1414 et seq. of the Civil Code.

5.2.3 The tax patrimonial value (VPT) of the various units of independent use was ascertained separately, in accordance with the provision of Article 7, No. 2, Paragraph b) of the Code of Municipal Tax on Property (CIMI), exceeding, those intended for residential purposes, the overall amount of €1,000,000.00, for each property.

5.2.4 The VPT of each one of the referred units of independent use is lower than that amount (€1,000,000.00).

5.2.5 The stamp tax assessments (item 28.1 of TGIS) to which the proceedings refer relate to the year 2015 and were made on 5 April 2016, for payment in three instalments during the months of April, July and November of that year, containing the respective notes the following identification elements, in accordance with documents attached to the request for arbitral pronouncement.

Urban property located on … Street, No. … and …, in Lisbon, registered in the property register of the parish of …, municipality of Lisbon, registered in the respective register under article …, composed of 11 units with independent use, ten of which intended for residential purposes.

Urban property located on … Avenue, Nos. … to …, turning towards … Avenue, No. … to … F, in Lisbon, registered in the property register of the parish of …, municipality of Lisbon, registered in the respective register under article …, composed of 14 units with independent use, ten of which intended for residential purposes.

Urban property located on … Street, Nos. … and …, in Lisbon, registered in the property register of the parish of …, municipality of Lisbon, registered in the respective register under article …, composed of 11 units with independent use, ten of which intended for residential purposes.

5.2 Unproven Facts

There are no facts relevant for the decision of the case that should be considered unproven.

5.3 Motivation

Regarding the factual matter the Tribunal does not have the duty to rule on all the alleged matter, but rather has the duty to select that which is relevant for the decision, taking into account the cause (or causes) of action that grounds the claim filed by the plaintiff [(cf. Articles 596, No. 1 and 607, Nos. 2 to 4 of CPC, applicable ex vi of Article 29, No. 1, Paragraphs a) and e) of RJAT)] and to establish whether it considers it proven or unproven (cf. Article 123, No. 2 of CPPT).

According to the principle of free appraisal of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceedings and in accordance with its experience of life and knowledge of people (cf. Article 607, No. 5 of CPC). Only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents, cf. Article 371 of the Civil Code) does the principle of free appraisal not prevail in the appraisal of the evidence produced.

Thus, the Tribunal's conviction was based on the set of documents attached to the record as well as on the positions assumed by the Parties.

5.4 Matter of Law (Grounds)

Questions to be decided:

• The illegality of the disputed assessments; and

• The request for payment of compensatory interest.

Regarding the illegality of the disputed assessments

Law No. 55-A/2012, of 29 October, amended Article 1 of the Stamp Tax Code, and added to the General Table of Stamp Tax, Item 28, creating a new reality subject to tax, consisting of the ownership, usufruct or right of superficies of urban properties whose tax patrimonial value appearing in the register, in accordance with the Code of Municipal Tax on Property (CIMI), is equal to or exceeding €1,000,000.00.

As the Supreme Administrative Court has stated[1], "The concept of 'property (urban) with residential purpose' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the IMI Code, to which No. 2 of Article 67 of the Stamp Tax Code (also introduced by that Law) refers subsidiarily. And it is a concept that, probably due to its imprecision – a fact all the more serious given that the new taxation is defined in function of it –, had a short life, as it was abandoned when the State Budget Law for 2014 came into force (Law No. 83-C/2013, of 31 December), which gave new wording to that item No. 28 of the General Table, and which now defines its objective scope of incidence through the use of concepts that are legally defined in Article 6 of the IMI Code.

Nothing unequivocal follows from the letter of the law, moreover, since it itself, by using a concept that it did not define and which also was not defined in the law to which it referred subsidiarily, lent itself, unnecessarily, to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its "spirit", discernible in the explanatory memorandum of the bill that is the origin of Law No. 55-A/2012 (Bill No. 96/XII – 2nd, Diário da Assembleia da República, series A, No. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more follows than the concern to raise new tax revenue from sources of wealth "more spared" in the past from the fiscal drain than work income, in particular capital income, securities gains and property, reasons which contribute no relevant clarification of the concept of "properties (urban) with residential purpose", as they take it as given, with no concern to clarify it. Such clarification should, however, have emerged – as informed in the Arbitral Decision delivered on 12 December 2013, in case No. 144/2013-T, available in the CAAD database –, when presenting and discussing that bill in Parliament, in the words of the State Secretary for Fiscal Affairs, who should have expressly stated, as collected from the Diário da Assembleia da República (DAR I Series No. 9/XII – 2, of 11 October, p. 32) that: "The Government proposes the creation of a special tax on high-value residential urban properties. It is the first time that Portugal creates special taxation on high-value properties intended for residential purposes. This tax rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or exceeding 1 million euros" (emphasis added), from which it can be gathered that the reality intended to be taxed is, after all, and despite the terminological imprecision of the law, "residential (urban) properties", in common language "houses", and not other realities.

As stated in the decision delivered in Case No. 724/2014-T of the Administrative Arbitration Center (CAAD)[2], which we endorse, "Consulting the CIMI it appears that its Article 6 merely indicates the different types of urban properties, among which it mentions residential ones (…)

From this we can conclude that, in the legislator's view, what matters is not the legal-formal precision of the concrete situation of the property but rather its normal use, the purpose to which the property is intended.

We also conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between them. What matters is the material truth underlying its existence as an urban property and its use.

(…) Using the criterion that the law itself introduced in Article 67, No. 2 of the IS Code, "for matters not regulated in this code relating to item 28 of the General Table, the IMI Code applies subsidiarily".

That is, taking into account that the registration in the property register of properties in vertical ownership, for the purposes of the IMI Code, follows the same registration rules as properties constituted in horizontal ownership, and their respective IMI as well as the new IS are assessed individually in relation to each one of the parts, it does not appear, to this tribunal, that there is any doubt that the legal criterion for defining the incidence of the new tax must be the same.

In this context, if the law requires, with respect to IMI, the issuance of individual assessment notes for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it will require, in the same terms, with respect to the rule of incidence of Item No. 28 of TGIS.

Therefore, IS, within Item No. 28 of TGIS, could only apply if a particular unit had a VPT exceeding €1,000,000.00.

And, furthermore, that was indeed the understanding adopted by ATA.

In fact, it [ATA] also issued individual assessment notes, relating to each one of the units susceptible to autonomous use, demonstrating that, in its opinion, the aforementioned units, although not legally constituted in horizontal ownership, would be, for all purposes, independent from each other.

However, ATA overlooked that it could not, by virtue of the framework previously set out, proceed to add up the individual VPTs of the aforementioned units, aiming at a value that would fall within the tax base of Item No. 28 of TGIS.

This when the legislator itself established a different rule within the scope of the IMI Code which, as previously mentioned, is the Code applicable to matters not regulated in the IS Code, with respect to Item No. 28 of TGIS.

In summary, the criterion established by ATA, of considering the value of the sum of the individual VPTs attributed to the parts, floors or units with independent use, taking advantage of the fact that the property is not constituted in the regime of horizontal ownership, does not find, in the eyes of this tribunal, legal support, being, namely, contrary to the criterion applicable in IMI matters and, by referral (in the terms mentioned above), in IS matters.

In this context, this tribunal considers that the criterion defended by ATA violates the principles of legality and fiscal equality, and also that of the prevalence of material truth over legal-formal reality.

In parallel, note that Article 12, No. 3 of the IMI Code makes no distinction regarding the regime of properties that are in horizontal or vertical ownership.

Therefore, and since if the property were in the regime of horizontal ownership, none of its residential units would be subject to incidence of the new tax, ATA cannot treat materially equal situations differently.

In this respect, see what was said regarding this matter in the Arbitral Decision delivered in Case No. 132/2013-T, of 16 December, whose understanding this tribunal adopts.

"In fact, it makes no sense to distinguish in the law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Moreover, distinguishing, in this context, between properties constituted in horizontal and full ownership would be an "innovation" without associated legal support, especially because, as has been stated here, nothing indicates, neither in item No. 28, nor in CIMI, a justification for this particular differentiation.

Note, exemplarily, what Article 12, No. 3, of CIMI says: each floor or part of a property susceptible to independent use is considered separately in the property register entry, which also discriminates the respective tax patrimonial value.

The uniform criterion that is required is, thus, the one that determines that the incidence of the rule in question only takes place when any of the parts, floors or units with independent use of a property in horizontal or full ownership with residential purpose, possesses a VPT exceeding €1,000,000.00.

Setting as the reference value for the incidence of the new tax the overall VPT of the property in question, as the now respondent intended, finds no basis in the applicable legislation, which is CIMI, given the referral made by the cited Article 67, No. 2 of the IS Code.

(…) Furthermore, admitting the differentiation of treatment could produce results incomprehensible from the legal point of view and contrary to the objectives that the legislator said it had in 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 full ownership intended for residential purposes, with the overall value of autonomous units equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, is subject to an annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who owns a property with exactly the same characteristics as the former but that has been constituted in horizontal ownership, with the overall value of autonomous units equally equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, will not be subject to taxation in accordance with the aforementioned 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 VPTs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each one of its 20 units possesses a VPT of less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the overall VPT exceeded that value; 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 referred item No. 28.

If this line of reasoning makes sense – justifying, therefore, the non-aggregation of the VPTs of 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 full ownership.

Observing, now, the case under analysis, it is noted that the VPTs of the floors (autonomous units) of the property with residential purpose vary between (…), so that each one of them is less than €1,000,000.00.

From this it is concluded, as a result of what was stated, that IS referred to in item No. 28 of TGIS cannot apply to them, being therefore illegal the acts of assessment contested by the claimant".

One final point which is worth highlighting (although the prior framework is sufficient to recognize the illegality of the acts of assessment practiced by ATA), is based on the understanding advocated, both by the legislator and by the government itself, when adding Item No. 28 to TGIS.

In this respect, let us focus now on the arbitral decision delivered in case No. 48/2013-T, of 9 October, which analyzes, in an extensive manner, the objectives underlying the addition of said item.

"Law No. 55-A/2012, of 29/10, has no preamble, hence from it it is not possible to extract the legislator's intention.

Such law of the Parliament originated in bill No. 96/XII (2nd), which, in its explanatory memorandum discusses the introduction of fiscal measures inserted in a broader set of measures to combat budget deficit.

In the explanatory memorandum of said bill, it is stated that, "these measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of such sacrifices will be made by all and not only by those who live from work income. In accordance with that goal, this law expands the taxation of capital and property, covering equitably a wide range of sectors of Portuguese society".

In that explanatory memorandum it is also stated that, in addition to the increase in taxation of capital income and securities gains, a special tax is created in the stamp tax regime applying to urban properties with residential purpose whose tax patrimonial value is equal to or exceeding one million euros.

That is, in such explanatory memorandum, it is also not clarified what is meant by urban properties with residential purpose.

In his intervention in Parliament, in the presentation and discussion of said bill, the State Secretary for Fiscal Affairs stated the following:

"The Government has chosen as the priority principle of its fiscal policy social equity.

This is even more important in times of rigor as a way to ensure just distribution of fiscal effort.

In the demanding period the country is going through, during which it is obliged to comply with the program of economic and financial assistance, it becomes even more urgent to affirm the principle of equity. It cannot always be the same – employees and pensioners – who bear fiscal charges.

For the tax system to be more just it is crucial to promote the expansion of the tax base requiring increased effort from taxpayers with higher income and thereby protecting Portuguese families with lower income.

For the tax system to promote more equality it is fundamental that the effort of budget consolidation be distributed to all types of income covering with special emphasis capital income and high-value properties. This matter, it should be recalled, was extensively discussed in the Constitutional Court judgment.

Finally, for the tax system to be more equitable, it is crucial that all be called to contribute according to their tax capacity, giving the tax administration strengthened powers to control and audit situations of fraud and tax evasion.

In this sense the Government presents, today, a set of measures that effectively reinforce just and equitable distribution of the adjustment effort by a wide and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties with value exceeding 1 million euros; the increase in taxation on capital income and securities gains; and the reinforcement of rules to combat fraud and tax evasion.

First, the Government proposes the creation of a special tax on high-value residential urban properties. It is the first time that Portugal creates special taxation on high-value properties intended for residential purposes. This tax rate will be 0.5% to 0.8% in 2012, and 1%, in 2013, and will apply to houses with a value equal to or exceeding 1 million euros. With the creation of this additional tax the fiscal effort required from these owners will be significantly increased in 2012 and 2013"".

Next, it is necessary to gather the conclusions that allow, without margin for doubt, to decide on the matter under discussion (that is, whether, for the purposes of applying Item No. 28 of TGIS, in cases where a property with various autonomous parts, susceptible to independent use, is not constituted in horizontal ownership, the relevant VPT is ascertained by summing the individual VPTs, or, alternatively, is individually considered).

In this sense, it should be noted, in the first place, that this matter is, from the outset by virtue of Article 67, No. 2 of the IS Code, subject to the norms of the IMI Code, "for matters not regulated in this code relating to item 28 of the General Table the CIMI applies subsidiarily".

As such, and as has been mentioned so many times, in the understanding of this tribunal, the mechanism for ascertaining the relevant VPT for the purposes of said item, is that which is established in the IMI Code.

Now, Article 12, No. 3 of the IMI Code establishes that "each floor or part of a property susceptible to independent use is considered separately in the property register entry, which also discriminates the respective tax patrimonial value".

With the legislator devaluing, in the terms previously mentioned, any prior constitution of horizontal or vertical ownership.

In fact, for it [the legislator], what matters is the material truth underlying its existence as an urban property and its use.

It should be noted that ATA itself seems to agree with the criterion set out, which is why the assessments that it issues are very clear in their essential elements, from which results that the value of incidence is that corresponding to the VPT of each one of the floors and the individual assessments.

Therefore, if the legal criterion imposes the issuance of individual assessment notes 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 single and unequivocal, for defining the rule of incidence of the new tax.

Thus, there would only be grounds for incidence of IS (within Item No. 28 of TGIS) if any of the parts, floors or units with independent use presented a VPT exceeding €1,000,000.00.

ATA cannot 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 with respect to IMI (and, as previously mentioned, this is the code applicable to matters not regulated with respect to Item No. 28 of TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, so the action of ATA amounts to an arbitrary and illegal discrimination.

In fact, ATA cannot distinguish where the legislator itself chose not to do so, on pain of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in Article 103 of the Constitution of the Portuguese Republic, and also the principles of fiscal justice, equality and proportionality.

In the case at hand, the property (properties) in question was (were), at the relevant date of the facts, constituted in full ownership and had […] units with independent use, as results from the documents […].

Given that none of these units has patrimonial value equal to or exceeding €1,000,000.00, as results from the documents attached to the record, it is concluded that the legal requirement for incidence is not met".

In the same sense we now transcribe part of the decision delivered in Case No. 512/2014-T, of 20-01-2015, of the Administrative Arbitration Center (CAAD)[3], with which we also agree:

"Faced with the positions in confrontation, it should be noted that AT is correct in referring that a property constituted in horizontal ownership is a distinct legal-tax reality from an urban property in "full" or "vertical" ownership.

This is required by the rules of interpretation, which have the text as its starting point, with the function of negatively eliminating any meaning that has no support in the letter of the law[4].

From the outset, because No. 4 of Article 2 of CIMI, establishes the legal fiction that each one of the autonomous units of a property constituted in horizontal ownership constitutes a property, whereas a part of independent use, of a property not constituted in horizontal ownership, continues to be only that – a part of a property and not a property, as, moreover, AT recognizes in its submissions, by stating that "horizontal ownership and vertical ownership are differentiated legal institutions".

This alone would be enough to conclude that, having the legislator fixed distinct tax qualifications for legally differentiated realities (properties and parts of properties), it will not be legitimate for the applicator of the norm, in the name of the "necessary adaptations" to which Article 23, No. 7 of the Stamp Tax Code (CIS) refers, to create a new norm of incidence of that tax, determining the taxation of parts of properties, as this is a matter subject to the principle of fiscal legality, inherent in Article 103, No. 2, of the Constitution of the Portuguese Republic (CRP), according to which the essential elements of taxes – incidence, rate, tax benefits and taxpayer guarantees – are established by law of Parliament, except for legislative authorization to the Government (Article 165, No. 1, Paragraph i) and No. 2, of the CRP).

Now, item 28 of TGIS, added by Article 4 of Law No. 55-A/2012 of 29 October, determined, in its original wording, applicable to the case at hand, the objective incidence of stamp tax on urban properties with residential purpose (and not, as AT understands, on parts of properties), whose tax patrimonial value, for IMI purposes, is equal to or exceeding €1,000,000.00, by establishing that stamp tax applies to:

"28 — Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value appearing in the register, in accordance with the Code of Municipal Tax on Property (CIMI), is equal to or exceeding €1,000,000 — on the tax patrimonial value used for IMI purposes:

28.1 — For a property with residential purpose — 1 %;

28.2 — For a property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, appearing in the list approved by order of the Minister of Finance — 7.5 %.

Here too the literal element of the norm must be the starting point for its interpretation and, "in the absence of other elements that lead to the choice of the less immediate meaning 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 its legal-technical meaning, in the assumption (not always accurate) that the legislator knew how to express his thought correctly[5]".

In support of the thesis that the relevant VPT for the incidence of the Stamp Tax of item 28.1, of TGIS, is the overall VPT of the property not constituted in horizontal ownership, AT argues that all and each one of its units of independent use were "assessed in accordance with Article 12, No. 3, of C. I. M. I", a provision which, according to the Respondent, corresponds to "the body of Article 232, rule 1st, of the Code of Property Contribution and Tax on Agricultural Industry (…), which provided that each dwelling or part of property be taken automatically (sic) for the purposes of determining the collective income on which the assessment should apply", in which case "the collective income would necessarily have to correspond to the sum of the rent or rental value of each one of the components of the property with economic autonomy".

However, the transposition of the interpretation given within the scope of the Code of Property Contribution and Tax on Agricultural Industry (CCPISIA), approved by Decree-Law No. 45 104, of 1 July 1963 and, for the most part, repealed by Decree-Law No. 442-C/88, of 30 November, to the IMI Code, in which there is no provision identical to Article 232 of the first cited Code, does not appear viable for various reasons, in particular, because the old Property Contribution was configured as a tax on income, real or deemed, as follows from its preamble, in which it is stated that "As to urban properties, the principle of taxing whenever possible real income was immediately applicable, a principle which (…) in this case necessarily had to be restricted to leased properties. (…) As to non-leased properties, (…) there was only to maintain taxation based on estimated income (…)", whereas the Municipal Tax on Property is a tax on patrimony.

In fact, § 1 of Article 232 of CCPISIA, provided that "Each new dwelling or part of new property susceptible of separate lease will be taken autonomously for the purpose of determining the collective income on which the assessment should apply," (emphasis added), but such autonomy only had relevance for the purposes of entry on the registers and respective individual assessment, and no longer for the purposes of property register entry, which was unique for each property not constituted in horizontal ownership, differently from what is currently determined by Article 12, No. 3, of CIMI.

The objective of the autonomy to which § 1 of Article 232 of CCPISIA referred was, as is still that of separate property register entry for each floor or unit susceptible to independent use, the control of the income generated by it, in case of lease; however, that income is now taxed in personal income tax (category F).

As regards the determination of the value of properties not constituted in horizontal ownership, Article 7, No. 2, of CIMI governs, but only for "urban properties with parts that fit into more than one of the classifications of No. 1 of the previous article", in which case, in accordance with its Paragraph b) "(…) each part is assessed by application of the corresponding rules, the value of the property being the sum of the values of its parts".

In accordance with No. 1 of Article 6 of CIMI, urban properties are divided into a) Residential; b) Commercial, industrial or service; c) Land for construction; d) Other.

From the combination of the provisions of No. 2 of Article 7 and No. 1 of Article 6, both of CIMI, it follows that, if an urban property not constituted in horizontal ownership, comprises exclusively parts or units of residential purpose (which is not the case in the proceedings, as the Claimant contends, although the value taken into account in the assessments made by AT was the sum of the VPTs of the units intended for residential purposes), the value of the property does not equal the sum of its parts.

The same as to say that each one of the parts is autonomous and that, regardless of the VPT that has been attributed to it, it is excluded from the incidence of stamp tax provided for in item 28 of TGIS.

Having arrived here, it should be questioned regarding the subjection to stamp tax of item 28, of TGIS, of a part or unit of independent use, with residential purpose, of a property not constituted in horizontal ownership, in which other parts or units of independent use are integrated, classifiable in another of the classifications of No. 1 of Article 6 of CIMI, for example, units intended for commerce, industry or services, as is the case at hand, in which, of the 21 floors/units of independent use, only 16 are intended for residential purposes.

Now, the answer must be negative, notwithstanding the provision of Paragraph b) of No. 2 of Article 7 of CIMI, according to which the value of the property is the sum of the values of its parts or units of independent use, classifiable in more than one of the classifications of No. 1 of Article 6 of the same Code.

It is that here, note, it is not a question of comparing two legally distinct realities, as are the parts or units of independent use of an urban property not constituted in horizontal ownership with the autonomous units of properties subject to that regime, which, for IMI purposes, are themselves properties.

Here, what is in confrontation are realities in all respects identical, that is, parts or units of independent use and residential purpose, integrated in urban properties not constituted in horizontal ownership.

And the answer to the question must be negative, as nothing would justify that the legislator intended to tax parts or units of independent use and residential purpose of an urban property not constituted in horizontal ownership, integrated by other parts or units of independent use intended for other purposes and did not tax parts or units of independent use and residential purpose of an urban property not constituted in horizontal ownership, integrated exclusively by parts or units of independent use, intended for residential purposes. If the legislator intended to treat in unequal manner realities in all respects identical, then it would have to be concluded that there is a flagrant violation of the principle of equality.

Not appearing to be that the legislative intention, one cannot accept that AT formulates a norm of incidence ex novo, different from that created by the legislator, intending to tax parts of properties, although economically and functionally independent and, as such, separately registered in the register, which also discriminates the respective tax patrimonial value (cf. No. 3 of Article 12 of CIMI), as the law is clear in subjecting to stamp tax of item 28.1 of TGIS, urban properties with residential purpose, whose VPT, for IMI purposes, is greater than €1,000,000.00.

Different would be the case of a part or unit of independent use and residential purpose, inserted in an urban property not constituted in horizontal ownership, but with a VPT, for IMI purposes, equal to or exceeding €1,000,000.00, attending to the ratio legis of the norm of incidence.

In fact, as the Claimant mentions in its submissions and has already served as the basis for other arbitral decisions, namely that delivered in case No. 50/2013-T, "The ratio legis underlying the rule of item 28 of TGIS, introduced by Law No. 55-A/2012 of 29 October, in obedience to the provision of Article 9 of the Civil Code, according to which the interpretation of a legal norm should not confine itself to the letter of the law, but should reconstruct from the texts and other elements of interpretation the legislative thought, taking into account the unity of the legal system, the circumstances in which it was drafted and the specific conditions of the time in which it is applied.

The legislator in introducing this legislative innovation considered as a determining element of tax capacity urban properties, with residential purpose, of high value, more precisely, of value equal to or exceeding €1,000,000.00, on which it then imposed a special rate of stamp tax, intending to introduce a principle of taxation on wealth expressed in the ownership, usufruct or right of superficies of luxury urban properties with residential purpose. The criterion was the application of the new tax rate to urban properties with residential purpose, whose VPT is equal to or exceeding €1,000,000.00.

Such logic appears to make sense when applied to "residential property", whether it is a "house", "autonomous unit" or "part of property with independent use" or "autonomous unit", because it is presumed to have above average tax capacity and, in that measure, justifies the need to make an additional tax effort, it would make little sense to then disregard the appraisals "unit by unit" when only through the sum of their VPTs, because held by the same individual, the million-euro mark is exceeded.

This is concluded from the analysis of the discussion of Bill No. 96/XII in Parliament, available for consultation in the Diário da Assembleia da República, I series, No. 9/XII/2, of 11 October 2012.".

We therefore have that, in addition to the grammatical element of the interpretation of the norm of incidence contained in item 28.1 of TGIS, also its rational or teleological element, the ratio legis or purpose intended by the legislator in drafting that norm, points to the direction that taxation applies to urban properties of high VPT and not to parts of urban properties, even if of independent use, with VPT of value lower than that legally determined".

There is extensive arbitral jurisprudence on this matter[6].

Called for the first time to rule on an identical question, the Supreme Administrative Court decided in the same sense, cf. judgment of 09-09-2015, delivered in Case No. 047/15, thus summarized:

"I - Regarding properties in vertical ownership, for the purposes of the incidence of Stamp Tax (Item 28.1 of TGIS, in the wording of Law No. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential purpose and the VPT appearing in the register equal to or exceeding €1,000,000.

II - In the case of a property constituted in vertical ownership, the incidence of IS should be determined, not by the VPT resulting from the sum of the VPT of all the units or floors susceptible to independent use (individualized in the property register article), but by the VPT attributed to each one of those floors or units intended for residential purposes".

In the same sense can be seen the abundant and consistent jurisprudence of the Supreme Administrative Court[7].

Given the above, considering that none of the floors or units susceptible to independent use in question here and on which the assessments subject to this request for arbitral pronouncement fell, individually reach the value of €1,000,000.00, it is considered that the alleged defect of violation of law due to error in the legal assumptions is verified, which determines the declaration of illegality and consequent annulment of the assessments made.

Thus, knowledge of the questions relating to the violation of the principles of fiscal legality and equality as well as the prevalence of material truth over legal-formal reality is prejudiced, since item 28.1 of TGIS does not allow the interpretation that the Respondent made of it, in the case, when issuing the assessments subject to this request for arbitral pronouncement.

Regarding the request for payment of compensatory interest

The Claimant further requests that it be paid compensatory interest, for fault of the services, in accordance with No. 1 of Article 43 of the General Tax Law (LGT), having proved that it paid the assessed amount, relating to the first instalment.

This provision, applicable subsidiarily to the tax arbitration proceedings, by virtue of the provision of Article 29, No. 1, Paragraph a), of RJAT, states "Compensatory interest is due when it is determined, in administrative recourse or judicial challenge, that there was fault of the services from which results payment of the tax debt in an amount greater than that legally due."

The existence of fault of the services is considered verified, according to uniform jurisprudence of the STA[8], whenever they proceed with administrative recourse or judicial challenge of the assessment act (in the same sense, the decision in arbitral case No. 218/2013-T).

Having demonstrated the erroneous application of the norm of objective incidence contained in item 28.1 of TGIS, which justifies the annulment of the disputed assessments, the Claimant's right to compensatory interest is recognized at the legal supplementary rate, in accordance with Articles 43, Nos. 1 and 4, and 35, No. 10, of LGT, Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April, from the date of actual payment of each one of the instalments in which the assessed amount was divided, until the date of processing of the respective credit note, in accordance with the provision of No. 5 of Article 61 of CPPT.

6. Decision

In view of the foregoing, it is decided:

a) To uphold the request for declaration of illegality of the Stamp Tax assessments for the year 2015, relating to item 28.1 of TGIS, made on 5 April 2016, in the amount of €47,609.13, due to error in the legal assumptions and, consequently, to annul the disputed assessments; and

b) To uphold the request for condemnation of the Tax and Customs Authority to reimburse the amounts improperly paid by the Claimant, together with interest, at the legal rate, from the date of the payments to the date of the issuance of the respective credit notes.

7. Value of the Case

In accordance with the provision of Articles 306, No. 2, of CPC, 97-A, No. 1, Paragraph a) of CPPT and 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the value of the case is set at €47,609.13.

8. Costs

In accordance with Article 22, No. 4 of RJAT, the amount of costs is set at €2,142.00, in accordance with Table I, annexed to RCPAT, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 28 November 2016.

The Arbitrator,

(Rui Ferreira Rodrigues)

Text drawn up by computer, in accordance with the provision of Article 131, No. 5, of CPC, applicable by referral of Article 29, No. 1, Paragraph e), of RJAT.

[1] STA Judgment of 09-04-2014 - Case 01870/13 (available at http://www.dgsi.pt/)

[2] Available at https://caad.org.pt/tributario/decisoes/

[3] Available at https://caad.org.pt/tributario/decisoes/

[4] MACHADO, J. Baptista, "Introduction to Law and Legitimizing Discourse", Almedina, Coimbra, 1995, pages 182 to 185.

[5] Ibid., p. 16

[6] CAAD cases, namely among others, with Nos. 298/2016, of 10-09-2016; 214/2016, of 01-10-2016; 211/2016, of 05-09-2016; 132/2013, of 19-04-2016; 105/2016, of 01-07-2016; 104/2016, of 07-07-2016; 101/2016, of 21-09-2016; 20/2016, of 01-06-2016; 12/2016, of 27-06-2016; 10/2016, of 11-05-2016; 311/2015, of 30-10-2015; 236/2015, of 15-10-2015; 110/2015, of 27-08-2015; 104/2015, of 23-10-2015; 102/2015, of 23-06-2015; 713/2014, of 05-06-2015; 705/2014, of 30-03-2015; 512/2014, of 30-01-2015; 385/2014, of 15-05-2015; 183/2013, of 19-03-2014; 181/2013, of 10-02-2014; 132/2013, of 16-12-2013; and 50/2013, of 29-10-2013

[7] Among others, the STA Judgments of 29-09-2016 (Case 0560-16); 29-06-2016 (Case 498-16); 29-06-2016 (Case 0408-15); 24-05-2016 (Case 01352-15); 24-05-2016 (Case 01344-15); 04-05-2016 (Case 0172-16); 04-05-2016 (Case 0166-16); 04-05-2016 (Case 01504-15); 27-04-2016 (Case 01534-15); and 09-09-2015 (Case 047-15)

[8] STA Judgments of 22-05-2002, Case No. 457/02; of 31.10.2001, Case No. 26167; of 2.12.2009, Case No. 0892/09