Stamp Tax on Urban Property Divisions in Vertical Ownership: CAAD Case 398/2016-T

ARBITRAL DECISION

I – REPORT

Application

A…, SA, taxpayer no.…, resident in …, in …, …-… Lisbon, hereinafter referred to as the Applicant, filed, on 14-07-2016, pursuant to the provisions of paragraph a) of item 1 of article 2º and article 10º of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime for Arbitration in Tax Matters (RJAT), an application for arbitral determination, in which the Respondent is the AT - Tax and Customs Authority, with a view to:

• The declaration of illegality and consequent annulment of the acts of assessment of Stamp Duty relating to item 28.1 of the General Stamp Duty Table (TGIS), for the year 2015 relating to the urban property described in the urban land register under article …, Parish of …, Lisbon;

• The declaration of illegality and consequent annulment of the acts of assessment of Stamp Duty relating to item 28.1 of the TGIS, for the year 2015 relating to the urban property described in the urban land register under article …, Parish of …, Lisbon;

• The declaration of illegality and consequent annulment of the acts of assessment of Stamp Duty relating to item 28.1 of the TGIS, for the year 2015 relating to the urban property described in the urban land register under article …, Parish …, Lisbon;

• The condemnation of the Respondent AT - Tax and Customs Authority to reimburse the Applicant the amounts paid as stamp duty, item 28.1 of the TGIS, with reference to the year 2015, plus the applicable default interest and compensatory interest;

The Applicant alleges, in summary:

• The property described under article …, Parish of …, Lisbon, located at …Street, no. … to …, is composed of units with independent use, whose taxable property value (TPV) was determined separately;

• The property is not constituted in a horizontal property regime, but rather in full ownership, with floors or units capable of independent use;

• The property comprises a total of 11 floors, with units capable of independent use, with the left and right floors of the 1st to 8th floor being used for residential purposes, and its total TPV amounts to 3,454,270.00€, with none of the parts or floors with residential use having a taxable property value greater than 1,000,000.00€;

• On each of the identified units intended for residential use, the Tax Authority assessed stamp duty, with reference to the year 2015, in accordance with the General Stamp Duty Table;

• The property described in the urban land register under article …, Parish of …, Lisbon is composed of a basement, ground floor and six floors divided by letters A to D, which constitute units capable of independent use, whose taxable property value (TPV) was determined separately;

• The property is not constituted in a horizontal property regime, but rather in full ownership, with floors or units capable of independent use;

• The property comprises a total of 7 floors, with units capable of independent use, with the floors from the 2nd to 6th floor, under letters A to D, being used for residential purposes, and its total TPV amounts to 1,640,230.00€, with none of the parts or floors with residential use having a taxable property value greater than 1,000,000.00€;

• On each of the identified units intended for residential use, the Tax Authority assessed stamp duty, with reference to the year 2015, in accordance with the General Stamp Duty Table, attached to the Stamp Duty Code;

• The property described in the urban land register under article …, Parish of …, Lisbon is composed of 9 floors with two facades, with Left, Right and Front units, which constitute units with independent use, whose taxable property value (TPV) was determined separately;

• Although constituted as described, this property is not constituted in a horizontal property regime, but rather in full ownership, with floors and units capable of independent use;

• The property, in vertical ownership, comprises a total of 9 floors, with units capable of independent use, with the left, front and right floors of the 1st to 7th floor being used for residential purposes, and its total TPV amounts to 2,279,440.00€, with none of the parts or floors with residential use having a taxable property value greater than 1,000,000.00€;

• On each of the identified units intended for residential use, the Tax Authority assessed stamp duty, with reference to the year 2015, in accordance with the General Stamp Duty Table;

• The AT believes that, for a property in vertical ownership, the rule contained in item 28 of the TGIS determines that the criterion for assessing its incidence is the global TPV of the property, regardless of whether it is composed of units intended for residential use with independent use. On the contrary,

• The Applicant believes that the sum of the TPV of each floor and unit should not be taken into account to determine the incidence of stamp duty. Therefore, in the Applicant's view, the AT's position is illegal;

• The subjection to stamp duty contained in item 28.1 of the TGIS is determined by the conjunction of two facts: residential use and the TPV recorded in the register equal to or greater than 1,000,000.00€;

• Therefore, in the case of properties with the characteristics already described, subjection to stamp duty is determined, not by the TPV of the properties, but by the TPV assigned to each of those floors or units capable of independent use.

• From the wording of item 28 of the TGIS it follows that it is not important to the legislator the formal legal precision of the concrete situation of the property, but rather its normal use, the purpose for which the property is intended. Furthermore,

• Regarding the question of the value relevant for determining the stamp duty tax, the AT's position does not appear acceptable, nor in accordance with the principle of fiscal legality;

• As stated in the arbitral decision handed down in case 50/2013-T, "considering that the registration in the land register of properties in vertical ownership, constituted by different parts, floors or units with independent use, in accordance with the CIMI, follows the same registration rules as properties constituted in horizontal ownership, with the respective IMI, as well as the new IS, being assessed individually in relation to each of the parts, it is beyond doubt that the legal criterion for defining the incidence of the new tax must be the same".

• Therefore, there would only be incidence of new stamp duty if one of the parts, floors or units with independent use had a TPV greater than 1,000,000.00€;

• The AT cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator established a different rule under the CIMI, and this is the code applicable to matters not regulated regarding item no. 28 of the TGIS;

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

Response of the Respondent

In its Response, the Respondent alleges, briefly, the following:

• What is at issue here are assessments resulting from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary assessment;

• The concept of property is defined in article 2º, item 1, of the CIMI, being established in its item 4 that, in the horizontal property regime, each autonomous fraction is deemed to constitute a property;

• It follows from the analysis of the normative provision that a "property in full ownership with floors or units capable of independent use" is, unequivocally, different from property in a horizontal property regime, constituted by autonomous fractions, that is, several properties;

• Article 12º of the CIMI establishes the concept of land register, with its item 3 relating, exclusively, to the form of registering land register data;

• Regarding the assessment of IMI, in the case of properties in full ownership, the value that serves as the basis for its calculation will, indisputably, be the one entered in the land register as "total taxable property value";

• In compliance with the provisions of article 119º, item 1 of the CIMI, the collection document is sent to the taxpayer with a breakdown of the parts capable of independent use, the respective taxable property value and the amount of tax attributable to each municipality where the properties are located;

• Accordingly, as the assessment is correct and the tax calculated is due, no default interest or compensatory interest is due, in particular because there is no error attributable to the services, which merely acted, as they should, in strict compliance with the legal rule;

• The now Applicant, disagreeing with the interpretation that the AT makes of the aforementioned item 28.1 of the General Table attached to the CIS, considers the assessments illegal, for violation of that legal rule.

• It argues that, because of the fact that there are properties in full ownership with floors or units capable of independent use, such incidence should be determined by the TPV attributed to each floor or unit.

• However, the thesis defended by the Applicant lacks legal support.

• Indeed, although the assessment of IS, in the situations provided for in item 28.1 of the TGIS, proceeds in accordance with the CIMI rules, the truth is that the legislator reserves the aspects that require appropriate adaptations, namely those in which, as in the case of properties in full ownership, even though with floors or units capable of independent use (although IMI is assessed in relation to each part capable of independent use) for IS purposes the property as a whole is relevant because the units capable of independent use are not deemed to be property, but only autonomous fractions in a horizontal property regime, in accordance with item 4 of article 2º of the CIMI.

• What, expressly, results from the wording of the law is that the legislator intended to tax with item 28.1 in question the properties as a single legal-tax reality, as referred to below.

• Subjection to stamp duty of item 28.1 of the TGIS results from the conjunction of two facts: residential use and the taxable property value of the urban property recorded in the register being equal to or greater than €1,000,000.00.

• In fact, it appears from the land registers (attached to the PI) that the properties in question are in a full ownership regime, composed of several parts capable of independent use.

• This being the land register information, in accordance with article 23º, item 7 of the CIS, the assessments of stamp duty for the year 2015 were made by the Tax Administration, taking into account the nature of the urban properties, on the date of the tax event, applying, with the necessary adaptations, the rules contained in the CIMI.

• In accordance with the CIMI rules, specifically article 113º, item 1, assessment is made annually, based on the taxable property values of the properties and in relation to the taxpayers listed in the registers on 31 December of the year to which it relates.

• Since the properties are in a full ownership regime (not having autonomous fractions, to which tax law attributes the qualification of property, because from the notion of property in item 4 of article 2º of the CIMI it follows that only autonomous fractions of property in a horizontal property regime are deemed to be properties), it is the global TPV of the property that must, therefore, be relevant.

The Respondent, in support of its thesis, invokes the arbitral decision handed down in Case no. 668/2015–T, citing therefrom the following passages:

"It is now important to understand whether the AT acted with error in the facts or law for the application, to the case, of item 28.1 of the TGIS.

For the assessment of the matter in question, it is important, first and foremost, to analyse items no. 28 and 28.1 of the TGIS:

'28. Ownership, usufruct or surface right of urban properties whose taxable property value recorded in the register, in accordance with the Code of the Municipal Property Tax (CIMI), is equal to or greater than (euro) 1,000,000 - on the taxable property value used for IMI purposes:

28.1 For property with residential use or for land for construction whose intended construction, authorized and foreseen, is for residential purposes, in accordance with the provisions of the IMI Code - 1%'.

The Applicant argues that properties in urban full ownership considered as a whole, when composed of parts capable of independent use, do not fall within this normative provision.

It is necessary to interpret, for this purpose, the concept of "property" contained in that item 28.1 of the TGIS. To understand its content, the concepts of property contained in the CIMI (articles 2.° to 6.°) should be examined - under the provisions of article 67.°, item 2 of the CIS, according to which, to matters not regulated in the CIS relating to item 28 of the TGIS, the provisions of the CIMI apply subsidiarily.

And such interpretation must always be carried out in accordance with the provisions of articles 11.° of the General Tax Law (LGT) and 9.° of the Civil Code, to which it refers, which will be done.

Article 2.° of the CIMI defines the concept of property, and establishes, specifically, in its item 4, that for the purposes of this tax, each autonomous fraction, in the horizontal property regime, is deemed to constitute a property. This article says nothing about properties in full ownership or parts of properties (floors or units capable of independent use).

From a literal interpretation of article 2.° of the CIMI, there will be no doubt that parts of properties that are not in horizontal ownership do not, for IMI purposes, integrate the concept of property.

As for the determination of the taxable property value of each property, article 7.° of the CIMI applies. According to item 1 of the same, the taxable property value of properties is determined in accordance with this Code. Therefore, and according to item 2 paragraph b) of that article 7.°, the taxable property value of urban properties with parts that can be classified in more than one of the classifications assigned to urban properties in accordance with article 6.° item 1 of the CIMI (namely, residential, commercial, industrial or service, land for construction and others) is determined as follows: 'if the different parts are economically independent, each part is evaluated by applying the corresponding rules, and the value of the property is the sum of the values of its parts'.

Consequently, also in the determination of the taxable property value of properties, there seems to be no specific reference that determines that economically independent parts are considered as constituting, in themselves, properties. On the contrary, the literal interpretation of the rule allows the opposite conclusion: the value of the property is the sum of the values of its parts.

It is reiterated: the CIMI does not equate, for determination of taxable property value, parts of properties capable of independent use with properties. On the contrary, it clearly separates the concepts of "property" and "part of property". Now, returning to article 2. ° of the CIMI, "parts of property" are not deemed to be properties (precisely the opposite of what is specifically stated regarding autonomous fractions, which are indeed equated with properties). In the specific case, the urban property is composed of (independent) residential parts and (independent) commercial parts. Therefore, the value of the property is, in accordance with the rules indicated, the sum of the values of its parts.

There is, therefore, no equality of treatment in the CIMI between properties in horizontal ownership and properties in full ownership with parts that can be classified in more than one of the classifications assigned to urban properties. As regards the former, the respective autonomous fractions are, unequivocally, properties for IMI purposes, as regards the latter, their independent parts do not fall within that concept. The parts compose, in their entirety, the property.

Consequently, if parts of properties, for IMI purposes, are not properties, neither will they be for IS purposes. Therefore, the tax event is the ownership of the property, in its entirety, as follows from the concept contained in article 2.° of the CIMI.

Neither, in the understanding of the Arbitral Tribunal, do the arguments around articles 12.° item 3 and 119.° of the CIMI, relating, respectively, to the concept of land register and to tax assessment, prevail.

In fact, it is not by mere autonomous registration determined by article 12.° item 3 that the floors or units capable of independent use acquire the quality of property that is not conferred on them by article 2.° of the same CIMI.

Land registers are records containing, in particular, the characterization of properties (article 12.° item 1 CIMI). This description is an integral part, in the case of properties in full ownership, of the floors or parts of property capable of independent use, which the law determines (item 3 of the same article) are separately considered in the same land register entry.

As for properties in a horizontal property regime, the law goes further: article 92.° of the CIMI establishes that each building in a horizontal property regime also corresponds to a single entry, but each of the autonomous fractions that compose it is described in detail and individualized by its corresponding letter.

And even if it were considered that, regarding the question of land register registration, the treatment between properties in a full ownership regime and properties in a horizontal property regime is substantially similar, this would not, it is considered, overcome the fact that parts of properties are not specifically mentioned in article 2.° of the CIMI, as is the case with autonomous fractions.

Additionally, for each "property" registered in the land register an individual land certificate is delivered to its owner (article 93.° item 1 of the CIMI). Now, there is no separate land certificate for each floor or unit capable of independent use of a property in full ownership, for the clear reason that it does not fall within the concept of property defined for this tax.

As for the assessment of IMI (article 119.°), the collection document necessarily contains a breakdown of the properties and their parts capable of independent use. This is because, under the provisions of article 7.° item 2 paragraph b) of the CIMI, each part capable of independent use has its taxable property value calculated separately, as indicated above.

Consequently, the Applicant's request for a declaration of nullity of the assessments in question does not proceed on the grounds of absence of a legal prerequisite of the tax event: as demonstrated, the tax event exists (the ownership of an urban property with a taxable property value greater than €1,000,000.00).

Neither does the request for annulment of the assessments in question based on error in the prerequisites, of fact or law, proceed, as the prerequisites for the assessment and collection of the tax clearly exist in the case in question.

And continuing the Respondent:

• In this way it is concluded that the now applicant, for IMI and also for stamp duty purposes, by force of the wording of the aforementioned item, is not the owner of autonomous fractions, but rather of a single property, with the AT considering that this is the understanding that best aligns with the principle of legality inherent in article 8º of the LGT, to which all its activities are dedicated.

• Therefore, we must necessarily conclude that the notifications made for payment of the tax in question did not violate any legal principle, and should, therefore, be maintained.

Subsequent Procedure

By order of 15 December 2016, after obtaining the consent of the Parties, the Tribunal determined that the meeting provided for in article 18º of the RJAT was dispensable.

The Parties presented written pleadings.

In its pleadings, the Applicant invoked case law, both from tax arbitral tribunals and from the Supreme Administrative Court and the Central Administrative Court of the South, which support the Applicant's thesis regarding the interpretation of the rule of incidence of item 28.1 of the TGIS with respect to properties in total vertical ownership, composed of parts capable of independent use.

In particular, the Applicant cites the ruling of the Supreme Administrative Court of 9-9-2015, handed down in case no. 47/15, reproducing the following excerpts:

As this Supreme Administrative Court has been saying, "The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which item 2 of article 67.º of the Stamp Duty Code (likewise 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 it is in function of this that the objective scope of the new taxation is delimited –, had a short life, as it was abandoned when the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December) came into force, which gave new wording to that item 28 of the General Table, and which now delimits its objective scope through the use of concepts that are legally defined in article 6.º of the IMI Code.

From the wording of the law nothing unequivocal follows, moreover, for it itself, when using a concept that it did not define and which was also not defined in the diploma 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 from the statement of reasons of the bill that is the origin of Law no. 55-A/2012 (Bill no. 96/XII – 2.ª, Parliamentary Gazette, 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 Treasury's grasp than labour income, in particular income from capital, securities gains and property, reasons which provide no relevant contribution to clarifying the concept of "properties (urban) with residential use", as they take it for granted, without any concern to clarify it. Such clarification would, however, have occurred – as reported in the Arbitral Decision handed down on 12 December 2013, in case no. 144/2013-T, available in the CAAD database –, when the presentation and discussion of that bill took place in the Parliamentary Assembly, in the words of the Secretary of State for Tax Affairs, who expressly stated, as can be seen from the Parliamentary Gazette (DAR I Series no. 9/XII – 2, of 11 October, p. 32) that: 'The Government proposes the creation of a special rate on high-value residential urban properties. It is the first time in Portugal that a special tax is created on high-value properties intended for residential use. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to properties with a value equal to or greater than 1 million euros' (emphasis ours), from which it can be seen that the reality to be taxed in view is, after all, and despite the imprecision of the law's terminology, 'residential (urban) properties', in common language 'houses', and not other realities'.

Consulting the CIMI it can be seen that its article 6º only 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 formal legal precision of the concrete situation of the property but rather its normal use, the purpose for which the property is intended. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, as there is no reference or distinction 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.º, item 2 of the Stamp Duty Code, 'to matters not regulated in this code relating to item 28 of the General Table the IMI Code applies subsidiarily'.

That is, considering that the registration in the land register of properties in vertical ownership, for IMI Code purposes, follows the same registration rules as properties constituted in horizontal ownership, with the respective IMI, as well as the new IS, being assessed individually in relation to each of the parts, it does not seem, to the present 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, regarding IMI, the issuance of individualized assessment notices 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, regarding the rule of incidence of Item no. 28 of the TGIS.

Therefore, IS, under Item no. 28 of the TGIS, could only apply to a particular fraction if this, possibly, had a TPV greater than €1,000,000.00.

And, moreover, it was that very understanding that was adopted by the ATA.

In effect, this (ATA) also issued individualized assessment notices, referring to each of the fractions capable of autonomous use, demonstrating that, in its view, the aforementioned fractions, despite not being legally constituted in horizontal ownership, would be, for all purposes, independent from each other.

However, the ATA forgot that it could not, by virtue of the framework previously laid out, proceed to the summation of the individual TPVs of the previously mentioned fractions, aiming at a value that would already fall within the base of incidence of Item 28 of the TGIS.

This when the legislator itself established a different rule under the IMI Code which, as previously mentioned, is the Code applicable to matters not regulated in the IS Code, with respect to Item 28 of the TGIS.

In summary, the criterion established by the ATA, of considering the value of the summation of the individual TPVs assigned to the parts, floors or units with independent use, taking advantage of the fact that the property is not constituted in a horizontal property regime, does not find, in the eyes of the present tribunal, legal support, being, in particular, contrary to the criterion applicable under IMI and, by referral (in accordance with the terms mentioned above), under IS.

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

In parallel, note that article 12.º, item 3 of the IMI Code does not make any distinction regarding the regime of properties that are in horizontal or vertical ownership.

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

In this regard, see what was said on this subject in the Arbitral Decision handed down under Case no. 132/2013-T, of 16 December, whose understanding the present tribunal accepts.

"Indeed, 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 ownership and in full ownership would be an "innovation" without associated legal support, especially since, as has been stated here, nothing indicates, neither in item 28, nor in the provisions of the CIMI, a justification for this particular differentiation.

Note, for example, what article 12.º, item 3, of the CIMI says: each floor or part of property capable of independent use is considered separately in the land register entry, which also lists the respective taxable property value.

The uniform criterion that is imperative is thus the one that determines that the incidence of the rule in question only takes place when one of the parts, floors or units with independent use of a property in horizontal or full ownership with residential use has a TPV greater than €1,000,000.00.

Setting as the reference value for the incidence of the new tax the global TPV of the property in question, as the now respondent intended, does not find a basis in the applicable legislation, which is the CIMI, given the referral made by the cited article 67.º, item 2 of the IS Code.

(…)

Moreover, allowing this differentiation of treatment could produce results incomprehensible from a legal point of view and contrary to the objectives that the legislator said it had for adding item 28 to the Table. 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 use, with the global value of the autonomous units equal to or greater than €1,000,000.00 and the TPV of each one less than €1,000,000.00, is subject to an annual tax of 1% of that value (as happened in the situation under analysis); whereas another citizen who owns a property with the exact same characteristics as the previous one but which has been constituted in horizontal ownership, with the global value of the autonomous fractions also equal to or greater than €1,000,000.00 and the TPV of each one less than €1,000,000.00, will not be subject to taxation under the aforementioned item 28.

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for taxation purposes, their respective TPVs? 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 fractions has a TPV of less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the global TPV exceeded that value; whereas another citizen with identical 20 fractions distributed among 5, 10 or 20 properties would not be subject to any taxation under the aforementioned item 28.

If this line of reasoning makes sense – thus justifying, therefore, the non-aggregation of the TPVs of the fractions 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 found that the TPVs of the floors (autonomous units) of the property with residential use vary between (…), so that any one of them is less than €1,000,000.00.

From this it is concluded, as a result of what has been referred to, that on them cannot apply the IS referred to in item 28 of the TGIS, and therefore the acts of assessment contested by the requester are illegal'.

One last point worth highlighting (notwithstanding the previous framework being sufficient to recognize the illegality of the assessment acts practiced by the ATA), rests on the understanding recommended, both by the legislator and by the government itself, when adding Item 28 to the TGIS.

In this regard, let us now focus on the arbitral decision handed down under case no. 48/2013-T, of 9 October, which analyzes, extensively, the objectives underlying the addition of that item.

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

This law of the Parliamentary Assembly originated from bill no. 96/XII (2.ª), which, in its statement of reasons, refers to the introduction of fiscal measures inserted in a wider set of measures to combat the budget deficit.

In the statement of reasons of that bill, it is said that, 'these measures are fundamental to strengthen the principle of social equity in austerity, ensuring an effective sharing of the necessary sacrifices to comply with the adjustment program. The Government is strongly committed to ensuring that this sharing of sacrifices is made by all and not only by those who live on their labour income. In accordance with this goal, this law broadens the taxation of capital and property, equitably covering a broad set of sectors of Portuguese society'.

In that statement of reasons it is further said that, in addition to the increase in the taxation of capital income and securities gains, a rate is created under the stamp duty tax inciding on urban properties with residential use whose taxable property value is equal to or greater than one million euros.

That is, in such a statement of reasons, it is also not clarified what is meant by urban properties with residential use.

In his intervention in the Parliamentary Assembly, in the presentation and discussion of that bill, the Secretary of State for Tax Affairs made the following statement:

'The Government has chosen social equity as the priority principle of its fiscal policy. This is even more important in times of rigor as a way to ensure fair distribution of the fiscal burden.

In the demanding period that the country is going through, during which it is obliged to comply with the economic and financial assistance program, it becomes even more pressing to assert the principle of equity. It cannot always be the same – employees and pensioners –, bearing the tax burden.

For the tax system to be more just, it is decisive to promote the broadening of the tax base by requiring increased effort from taxpayers with higher incomes and thus protecting Portuguese families with lower incomes.

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

Finally, for the tax system to be more equitable, it is crucial that everyone is called to contribute according to their ability to pay, giving the tax administration enhanced powers to control and inspect situations of fraud and tax evasion.

In this sense, the Government presents today a set of measures that effectively strengthen a fair and equitable distribution of the adjustment effort among a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of a special tax on urban properties worth more than 1 million euros; the increase in taxation of capital income and securities gains and the strengthening of rules to combat fraud and tax evasion.

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

Next, it is necessary to gather the conclusions that allow, without doubt, to decide on the subject in discussion (that is, whether, for purposes of applying Item 28 of the TGIS, in cases where a property with several autonomous fractions, capable of independent use, is not constituted in horizontal ownership, the relevant TPV is calculated by means of the summation of individual TPVs, or, alternatively, is individually considered).

In this sense, it should first be noted that the present matter is, from the outset by force of article 67.º, item 2 of the IS Code, subject to the rules of the IMI Code, "to 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 the present tribunal, the mechanism for determining the relevant TPV for purposes of that item is the one set out in the IMI Code.

Now, article 12.º, item 3 of the IMI Code establishes that "each floor or part of property capable of independent use is considered separately in the land register entry, which also lists the respective taxable property value".

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

Indeed, for the legislator, what matters is the material truth underlying its existence as an urban property and its use.

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

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

Thus, there would only be incidence of IS (under Item 28 of the TGIS) if one of the parts, floors or units with independent use had a TPV greater than €1,000,000.00.

The 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 under IMI (and, as previously mentioned, this is the code applicable to matters not regulated regarding Item 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, so the ATA's action translates into arbitrary and illegal discrimination.

In fact, the ATA cannot distinguish 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.º of the Constitution of the Portuguese Republic, and also the principles of fiscal justice, equality and proportionality.

In the case in question, the property/properties in question were, on the relevant date of the facts, constituted in full ownership and had […] fractions with independent use, as results from the documents […].

Given that none of these fractions has a taxable property value equal to or greater than €1,000,000.00, as results from the documents attached to the record, it is concluded that the legal prerequisite of incidence does not exist'.

In its written pleadings, the Respondent reiterated the defense already set out in the response.

II – SANITATION

The sole arbitral tribunal was regularly constituted on 04-10-2016, with the arbitrator being designated by the Deontological Council of CAAD, with the respective legal and regulatory formalities complied with (articles 11º, item 1, paragraphs a) and b) of the RJAT and 6º and 7º of the CAAD Deontological Code).

The parties have legal capacity and authority, are legitimate and are regularly represented, in accordance with articles 4.º and 10.º of the RJAT and article 1.º of Ordinance no. 112-A/2011, of 22 March.

The joinder of claims is permissible under article 3º, item 1 of the RJAT.

No nullities were identified in the proceedings.

III – ISSUES TO BE DECIDED

The only issue raised is that of the incidence of the tax of item 28.1 of the General Stamp Duty Table on units of urban property in full ownership, with residential use and capable of independent use and as such considered in the tax land register.

IV – FACTS PROVEN

The following are the facts proven considered relevant for the decision:

• The Applicant was, on the date of the alleged tax events, the owner of:

(1) The urban property described in the tax land register under article …, Parish …, municipality of Lisbon;

(2) The urban property described in the tax land register under article …, Parish of …, municipality of Lisbon;

(3) The urban property described in the tax land register under article …, Parish …, municipality of Lisbon;

• The property described in (1) is described in the tax land register as a property in full ownership composed of:

• A sub-basement used for parking;

• A basement used for parking;

• A ground floor used for commerce;

• Sixteen units used for residential purposes.

• The taxable property value of the property is 3,454,270.00 euros;

• The value considered by the AT - Tax and Customs Authority as being subject to tax is 2,538,500.00 euros;

• The AT - Tax and Customs Authority assessed stamp duty on the taxable property values of the floors or parts capable of independent use with residential use, at the rate of 1%, under the provisions of item 28.1 of the General Stamp Duty Table (TGIS) for the year 2015;

• None of the units of the property has a taxable property value equal to or greater than one million euros;

• The property described in (2) is described in the tax land register as a property in full ownership composed of 21 units with independent use;

• Of the 21 units with independent use that compose the property, four are used for commerce and the remainder for residential purposes;

• The taxable property value of the property is 1,640,230.00 euros;

• The value considered subject to tax is 1,116,220.00 euros;

• The AT - Tax and Customs Authority assessed stamp duty on the taxable property values of the floors or parts capable of independent use with residential use, at the rate of 1%, under the provisions of item 28.1 of the General Stamp Duty Table (TGIS) for the year 2015;

• None of the parts has a taxable property value equal to or greater than one million euros;

• The property described in (3) is described in the tax land register as a property in full ownership composed of 25 units with independent use;

• Of the 25 units with independent use that compose the property, five are used for commerce and the remainder for residential purposes;

• The taxable property value of the property is 2,279,440.00 euros;

• The value considered subject to tax by the Respondent is 1,971,280.00 euros;

• The AT - Tax and Customs Authority assessed stamp duty on the taxable property values of the floors or parts capable of independent use with residential use, at the rate of 1%, under the provisions of item 28.1 of the General Stamp Duty Table (TGIS) for the year 2015;

• None of the units of the property has a taxable property value equal to or greater than one million euros;

• The total value of tax assessed to each co-owner in all the assessments contested is 56,260.00 euros;

V - REASONING

The fundamental issue that needs to be assessed and decided is whether the tax of item 28.1 of the General Stamp Duty Table applies to units of urban property in full ownership, with residential use capable of independent use and as such considered in the tax land register.

On this same issue the Supreme Administrative Court has ruled several times, with firm jurisprudence being established that, in the case of a property constituted in vertical ownership, the objective incidence of Stamp Duty should be determined, not by the taxable property value resulting from the summation of the taxable property value of all units or floors capable of independent use (individualized in the land register entry), but by the taxable property value attributed to each of those floors or units intended for residential use.

The reasoning for this doctrine can be found in one of the first rulings handed down by the Supreme Court on this matter, on 09-09-2015, in case no. 47/15. In this ruling, which we take as the basis of our decision in the present case, that Court states:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which item 2 of article 67.º of the Stamp Duty Code (likewise 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 it is in function of this that the objective scope of the new taxation is delimited –, had a short life, as it was abandoned when the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December) came into force, which gave new wording to that item 28 of the General Table, and which now delimits its objective scope through the use of concepts that are legally defined in article 6.º of the IMI Code.

From the wording of the law nothing unequivocal follows, moreover, for it itself, when using a concept that it did not define and which was also not defined in the diploma 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."

The Court continues:

"(…) The present matter is, from the outset by force of article 67.º, item 2 of the IS Code, subject to the rules of the IMI Code, - 'to 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 the present tribunal, the mechanism for determining the relevant TPV for purposes of that item is the one set out in the IMI Code.

Now, article 12.º, item 3 of the IMI Code establishes that 'each floor or part of property capable of independent use is considered separately in the land register entry, which also lists the respective taxable property value'.

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

Indeed, for the legislator, what matters is the material truth underlying its existence as an urban property and its use.

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

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

Thus, there would only be incidence of IS (under Item 28 of the TGIS) if one of the parts, floors or units with independent use had a TPV greater than €1,000,000.00.

The 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 under IMI (and, as previously mentioned, this is the code applicable to matters not regulated regarding Item 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, so the ATA's action translates into arbitrary and illegal discrimination.

In fact, the ATA cannot distinguish 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.º of the Constitution of the Portuguese Republic, and also the principles of fiscal justice, equality and proportionality.

In the case in question, the property/properties in question were, on the relevant date of the facts, constituted in full ownership and had […] fractions with independent use, as results from the documents […].

Given that none of these fractions has a taxable property value equal to or greater than €1,000,000.00, as results from the documents attached to the record, it is concluded that the legal prerequisite of incidence does not exist."

We consider that the jurisprudence of the Supreme Administrative Court explained in the cited ruling rests on correct grounds, and therefore we understand that we should apply it to the present case, without any reservation.

Under the Municipal Property Tax (IMI), the legislator clearly established, in article 12.º, item 2 of the CIMI, that parts of property with independent use are evaluated separately, with this value being taken as the basis for the tax assessment.

Under Stamp Duty, article 13.º, item 1 of its respective code provides that "the value of properties is the taxable property value recorded in the register in accordance with the CIMI".

Therefore, it seems clear that the legislator intended for the taxable property value of the parts with independent use to be considered for purposes of delimiting the objective incidence of the tax.

The AT - Tax and Customs Authority seems to conform its action with this understanding, by issuing Stamp Duty assessment acts individualized in relation to each part with independent use.

Moreover, in accordance with article 9.º, item 1 of the Civil Code, interpretation must not be limited to the letter of the law, but must reconstruct, from the texts, the legislative intent, taking into account especially the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied. Now, the subjective element of interpretation, to be drawn from the historical elements that are abundantly known in this matter, and which are partially reproduced in the aforementioned STA ruling, clearly indicates the legislator's intention to subject to taxation high-value residential units ("houses for residence"). Residential units are the parts capable of independent use and not the property in its entirety.

Without this interpretation, the rule of item 28.1 of the General Stamp Duty Table would be completely arbitrary, inequitable and devoid of rationality.

In accordance with all the interpretive elements mentioned, it should be considered that, when dealing with a property in full ownership formed by parts capable of independent use, there is only incidence of stamp duty (under Item 28 of the TGIS) if one of the parts, floors or units with independent use has a taxable property value equal to or greater than 1,000,000.00 euros.

For all the foregoing, it is necessary to conclude that the stamp duty assessments contested are illegal, for violation of tax law, by inciding on independent parts of properties in full ownership but taking as a basis the taxable property value of the sum of such parts and when none of those parts has a taxable property value equal to or greater than 1,000,000 euros.

VI - DECISION

For the reasons set out, it is decided:

1. To declare invalid, for violation of law, and to annul the acts of assessment of Stamp Duty of item 28.1 of the TGIS, for the year 2015 and relating to the residential units of the urban property described in the tax land register under article …, Parish of …, municipality of Lisbon.

2. To declare invalid, for violation of law, and to annul the acts of assessment of Stamp Duty of item 28.1 of the TGIS, for the year 2015 and relating to the residential units of the urban property described in the tax land register under article …, Parish of …, municipality of Lisbon.

3. To declare invalid, for violation of law, and to annul the acts of assessment of Stamp Duty of item 28.1 of the TGIS, for the year 2015 and relating to the residential units of the urban property described in the tax land register under article …, Parish …, Lisbon;

4. To condemn the Respondent AT - Tax and Customs Authority to reimburse the Applicant the amounts of tax paid relating to the annulled assessments plus the respective compensatory interest, due in accordance with article 43º, item 1 of the LGT.

Value of economic benefit of the case: The value of economic benefit of the case is set at 56,260.00 euros.

Costs: In accordance with article 22.º, item 4, of the RJAT, the amount of costs is set at 2,142.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the expense of the Respondent.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Administrative Arbitration Center, 8 June 2017

The Arbitrator

(Nina Teresa Sousa Santos Aguiar)