Stamp Tax on Vertical Property: VPT Threshold per Unit vs. Total – CAAD 402/2016-T

ARBITRAL DECISION

I. REPORT

1. A…, S.A., collective entity no. …, with registered office at …, no. …, …-… Lisbon (hereinafter referred to as the "Claimant"), in accordance with articles 95 of the General Tax Law, 99, paragraph a) of the Tax Procedure and Process Code, 2, no. 1, paragraph a) and 10 of the Legal Framework for Tax Arbitration, approved by Decree-Law no. 10/2011, of 20 January and amended by Law no. 66B/2012, of 31 December, has requested the Constitution of an Arbitral Tribunal and submitted a Request for Arbitral Decision with a view to declaring unlawful and consequent annulment of the acts of assessment of Stamp Duty, item 28.1 of the TGIS, relating to the year 2015, concerning the urban properties described in the urban property register under articles … and … of the Union of Parishes of … and ….

2. The Respondent is the TAX AND CUSTOMS AUTHORITY (hereinafter referred to as the "Respondent").

3. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and automatically notified to the Tax and Customs Authority on 04-08-2016.

4. Given that the Claimant did not proceed to appoint an arbitrator, pursuant to the provisions of article 6, no. 2, paragraph a) of the RJAT, the signatory was designated as arbitrator by the President of the CAAD Deontological Council, the appointment having been accepted within the time and terms legally foreseen.

5. On 19-09-2016 the Parties were duly notified of this appointment, having manifested no intention to refuse the appointment of the arbitrator, in accordance with the provisions of article 11, no. 1, paragraphs a) and b) of the RJAT, combined with articles 6 and 7 of the Code of Ethics.

6. In accordance with the provision of paragraph c), no. 1, of article 11 of the RJAT, the Collective Arbitral Tribunal was constituted on 04-10-2016.

7. In the Arbitral Request submitted by it, the Claimant invoked, in summary, the following:

a) The Claimant understands that for a property in vertical ownership and for the purpose of applying the rule contained in item 28.1 of the TGIS, the sum of the Taxable Patrimonial Values (TPV) of each floor and unit should not be taken into account;

b) From the Claimant's perspective, the Respondent's understanding, according to which the criterion for determining the incidence of item 28 of the TGIS is the global TPV of the floors and units, is contrary to law;

c) Accordingly, there would only be a place for the incidence of item 28.1 of the TGIS if any of the parts, floors or units with independent use presented a TPV exceeding €1,000,000.00, which is not the case in the present matter;

d) In these terms, the Claimant requests the declaration of unlawfulness of the acts of assessment of stamp duty in question, and the consequent annulment, with all legal consequences, as they violate the rule contained in item no. 28.1 of the TGIS;

e) The Claimant further requests the condemnation of the Respondent to reimburse the amounts paid by the Claimant as stamp duty, item 28.1 of the TGIS, with reference to the year 2015, plus default interest and compensatory interest.

1. The Respondent submitted a response, in which it presented a defence by objection, alleging, in the sense of the lack of merit of the request for arbitral decision, in summary, the following:

a) At the time the Claimant owned the full property of the urban properties under analysis, valued in accordance with the CIMI, within the scope of the general assessment of urban properties, described as "property in full ownership with floors or units susceptible to independent use", each having a taxable patrimonial value (TPV) exceeding €1,000,000.00;

b) With reference to the year 2015, in compliance with item no. 28.1 of the TGIS, in the wording given by Law no. 83-C/2013, of 31/12, whose rule of incidence refers to urban properties, valued in accordance with the CIMI with TPV equal to or exceeding €1,000,000.00, and residential use, the TA proceeded to notify the collection documents with a view to payment of the assessments in question;

c) Article 44, no. 5 of the Stamp Duty Code (CIS), added by Law no. 55-A/2012, of 29/10, provides that, where assessment is to take place, the duty referred to in item 28 of the TGIS is paid, within the time periods, terms and conditions defined in article 120 of the CIMI, this means that (when the amount exceeds €500.00) it is paid in three instalments, in the months of April, July and November, according to paragraph c) of no. 1 of the aforementioned article;

d) What is at issue in the case sub judice are assessments which result from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary appreciation;

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

f) It follows from the analysis of the normative provision that a "property in full ownership with floors or units susceptible to independent use" is, unequivocally, different from an immovable property in the horizontal ownership regime, constituted by autonomous units, that is, several properties;

g) Article 12 of the CIMI establishes the concept of property register, and its no. 3 relates, exclusively, to the manner of recording the registration data;

h) As for the assessment of IMI, where these are properties in full ownership, the value which serves as the basis for its calculation will indisputably be that recorded in the property ledger as "total taxable value";

i) In compliance with the provision of article 119, no. 1 of the CIMI, the collection document is sent to the taxpayer with a breakdown of the parts susceptible to independent use, their respective taxable patrimonial value and the collection attributable to each municipality of the location of the properties;

j) Accordingly, since the assessment is correct and the duty calculated is due, no default interest or compensatory interest is owed, not least because there is no error attributable to the services, which merely acted, as they should, in strict compliance with the legal rule;

k) The terms of which the request for arbitral decision should be judged to lack merit, for not being proven, the tax assessment acts challenged being maintained in the legal order, thus absolving the Respondent from the request.

1. By order of 14-11-2016, taking into account that no exceptions were invoked and that there is only a controversy on a matter of law, this Tribunal dispensed with the holding of the meeting provided for in article 18 of the RJAT, in application of the principles of autonomy in the conduct of proceedings, speed, simplification and procedural informality. 04-03-2017 was set as the deadline for rendering the arbitral decision.

2. Having the Claimant expressly manifested its opposition to the dispensation of the production of final pleadings, the Tribunal decided, through Order of 16-11-2016, that proceedings continue with written pleadings, to be submitted by the Parties within the simultaneous period of 20 days, as provided for in article 91, no. 5, of the CPPT, applicable by virtue of the provision of article 29, no. 1, paragraph c) of the RJAT.

3. The Claimant submitted final pleadings, in which it invoked various case law of CAAD and extensively cited the Decision of the Supreme Administrative Court of 09 September 2015, rendered in the context of case 047/15, reiterating and reinforcing the arguments contained in the Request for Arbitral Decision.

4. The Respondent submitted final pleadings, in which it maintained entirely the content of its Response.

II. ADMISSIBILITY

1. The present request for constitution of an arbitral tribunal is made with cumulation of requests for declaration of unlawfulness of the tax acts identified above.

2. In accordance with article 3, no. 1, of the RJAT, cumulation of requests is admissible when "(…) the merit of the requests depends essentially on the appreciation of the same circumstances of fact and on the interpretation and application of the same principles or rules of law".

3. In the case sub judice the legal requirements for cumulation of requests are met.

4. Indeed, what is disputed in the present case is the lawfulness of the Stamp Duty assessments, relating to 2015, on the property of two urban properties in full ownership with floors or units susceptible to independent use, and which were issued under the provisions of item 28.1 of the General Stamp Duty Table (TGIS).

5. Considering, therefore, that the Stamp Duty assessments in question relate to the same tax period and are supported on the same factual and legal basis, the requirements for cumulation of requests established in the aforementioned article 3, no. 1 of the RJAT are thus met.

6. No exceptions were invoked.

7. The parties possess judicial personality and capacity, are legitimate as to the request for arbitral decision and are duly represented, in accordance with the provisions of articles 4 and 10 of the RJAT and of article 1 of Ordinance no. 112-A/2011, of 22 March.

8. No nullities are found, so it is necessary to proceed to the merits.

III. MERITS

III.1. MATTERS OF FACT

§1. Established Facts

1. The following facts are established:

a) The Claimant is the owner of the urban properties described in the urban property register under articles … and … of the Union of Parishes of … and …;

b) The urban property registered in the urban property register under article …, constituted in the regime of full ownership, is located at …, …, in …, is composed of twelve floors, which constitute units with independent use, whose taxable patrimonial value (TPV) was determined separately, as detailed in the following table:

[Table with 12 floors showing individual TPV values totaling 3,584,779.98€, with individual units not exceeding 82,629.12€]

c) The property, in vertical ownership, comprises a total of 12 floors, with units of independent use, being intended for residential use from the 1st to the 12th floor, identified by the right side A and B, and left side A and B, and its total TPV amounts to the value of €3,584,779.98, being that none of the parts or floors with residential use has a taxable patrimonial value exceeding €1,000,000.00;

d) On each of the identified units intended for residential use, the Tax and Customs Authority assessed stamp duty, with reference to the year 2015, in accordance with the General Stamp Duty Table, annexed to the Stamp Duty Code, approved by Law no. 150/99, of 11 September, in the wording given by article 4 of Law no. 55-A/2012, of 29 October, at the rate of 1%;

e) The aforementioned assessment acts determined a value of duty payable in the amount of €35,276.34, which corresponds to the sum of the stamp duty collections, item 28.1 of the TGIS, for the year 2015, relating to each of the residential units described;

f) The urban property registered in the urban property register under article …, constituted in the regime of full ownership, is located at …, no. …, in … and is composed of eleven floors constituted by units with letters A to D, with independent use, whose taxable patrimonial value (TPV) was determined separately, as detailed in the following table:

[Table with 11 floors showing individual TPV values totaling 1,889,100.00€, with individual units not exceeding 49,140.00€]

g) The property, in vertical ownership, comprises a total of 11 floors, with units of independent use, being intended for residential use between the ground floor and the 10th floor, letters A to D, and its total TPV amounts to the value of €1,889,100.00, being that none of the parts or floors with residential use has a taxable patrimonial value exceeding €1,000,000.00;

h) On each of the identified units intended for residential use, the Tax and Customs Authority assessed stamp duty, with reference to the year 2015, in accordance with the General Stamp Duty Table, annexed to the Stamp Duty Code, approved by Law no. 150/99, of 11 September, in the wording given by article 4 of Law no. 55-A/2012, of 29 October, at the rate of 1%;

i) The aforementioned assessment acts determined a value of duty payable in the amount of €18,063.80, which corresponds to the sum of the stamp duty collections, item 28.1 of the TGIS, for the year 2015, relating to each of the residential units described;

j) On 22-04-2016, the Claimant proceeded to make voluntary payment of the first instalment of the duty assessed relative to each of the floors or units with independent use described above, relating to the two urban properties also described above.

§2. Unestablished Facts

With relevance to the decision, there are no essential facts not established.

§3. Justification as to matters of fact

With regard to the factual matters established, the Tribunal's conviction was based on the free appreciation of the positions assumed by the Parties on matters of fact and on the content of the documents attached to the case, not disputed by the Parties.

III.2. MATTERS OF LAW

§1. Issues to be decided

Once the relevant factuality is established, it is verified that the present case concerns exclusively a matter of law.

It is incumbent on the Tribunal to assess the lawfulness of the acts of assessment of stamp duty in question.

The central question to be decided by the Tribunal is the one concerning whether the taxable patrimonial value (TPV) to be considered for the purpose of applying Item 28 of the TGIS, where property is in question not constituted in the regime of horizontal ownership, is the TPV attributed to each floor or unit with independent use and residential use, or whether it is the global TPV, corresponding to the sum of the TPV of each floor or unit susceptible to independent use and residential use.

§2. Application of law to the case sub judice

Article 4 of Law no. 55-A/2012, of 29 October, which came into force on 30 October following, added an item to the TGIS then in force, with the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the register, in accordance with the Municipal Real Estate Tax Code (CIMI), is equal to or exceeding €1,000,000 - on the taxable patrimonial value used for the purpose of IMI:

• 28.1 - Per property with residential use - 1%;

• 28.2 - Per property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by ordinance of the Minister of Finance - 7.5%."

Subsequently, article 194 of Law no. 83-C/2013, of 31 December, introduced a new wording to item 28 of the TGIS, which came to include land for construction, in the following terms:

"28.1 - Per residential property or per land for construction whose construction, authorized or envisaged, is for residential purposes, in accordance with the provisions of the Real Estate Tax Code - 1%".

This amendment, however, has no implications in the present matter.

The Stamp Duty Code (CIS) and its respective General Table, in the wording introduced by Law no. 55-A/2012, of 29 October, does not clarify what is meant by the expression "property with residential use".

Article 67, no. 2 of the CIS, added by Law no. 55-A/2012, of 29 October, provides that "[t]o matters not regulated in the present Code concerning item no. 28 of the General Table, the provisions of the CIMI shall apply, subsidiarily".

The legislator, in no. 1 of article 2 of the CIMI, adopts the following concept of property:

"For the purposes of this Code, property is any portion of territory, embracing waters, plantations, buildings and constructions of any nature incorporated in or built upon it, with a character of permanence, provided that it forms part of the patrimony of a natural or collective person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a portion of territory which constitutes an integral part of a patrimony other than its own or does not have patrimonial nature".

As observed by SILVÉRIO MATEUS and CURVELO DE FREITAS, "no. 1 of this article [of article 2] provides for the existence of three requirements necessary in order to be faced with the concept of property, namely, the physical structure, patrimonial character and economic value" (Os Impostos sobre o Património Imobiliário. O Imposto do Selo, Lisbon, Engifisco, 2005, p. 101, note no. 1.1).

In this way, from the concept of property, relevant for the purposes of CIMI and CIS, there are not excluded floors or units of independent use of immovable property registered in the urban property ledger in full ownership.

No. 4 of article 2 of the CIMI further provides that "for the purposes of this duty [IMI], each autonomous unit, in the regime of horizontal ownership, is deemed to constitute a property". In this provision the legislator clarifies, in an unequivocal manner, that the autonomous units of immovables registered in horizontal ownership are considered properties, for the purposes of IMI. But this does not legitimate the interpreter to make an interpretation a contrario, in the sense of excluding from the concept of property the units of independent use of immovables registered in full ownership.

It seems, in fact, that the ratio of no. 2 of article 4 is precisely to include in the concept of property the units (fractions, floors or units) of independent use.

This sense seems to be confirmed by the provision of no. 3 of article 12 of the CIMI, which provides that "[e]ach floor or part of a property susceptible to independent use is considered separately in the registration, which also discriminates its respective taxable patrimonial value."

From this it follows that the units of independent use of immovables registered in full ownership are subject to evaluation on the basis of the criteria provided for in article 38 of the CIMI, relevant for the purposes of applying Item 28 of the TGIS, as results from the final part of the provision contained in item 28.1 of the TGIS, which determines that the taxable value corresponds to the "taxable patrimonial value used for the purpose of IMI".

The Tax and Customs Authority considers as TPV relevant for the purpose of applying item 28.1 of the TGIS the global TPV of the immovables registered in full ownership, in manifest contradiction with the practice of a plurality of assessment acts, relating to the various floors susceptible to independent use.

From the literal element of the interpretation, in conjunction with the systematic and teleological elements, it follows that the taxable patrimonial value to be considered for the purposes of applying item 28.1 of the CIS is that corresponding to each of the units susceptible to independent use.

In the same sense, the Supreme Administrative Court understands that "[n]ot having item 28 of the General Table made any distinction between properties in the regime of horizontal and full/vertical ownership and referring to the taxable patrimonial value used for the purpose of IMI, it shall not be incumbent on its applicator to introduce any distinction, particularly since it is a rule of incidence. If it were the intention of the legislator to tax the immovables which having a single land register article, because they are constituted by parts susceptible to independent use have assigned to them various taxable patrimonial values, and intended that for the purposes of taxation under stamp duty, in this case, regard be had to the sum of these various taxable patrimonial values, it would not have added the final part of the provision: on the taxable patrimonial value used for the purpose of IMI. Nothing in the law imposing the consideration of any sum of all or part of the TPV assigned to the various parts of a property with a single land register article, it also appears to be non-conforming with the law to carry out such arithmetic operation only for the purpose of the taxation enshrined in item 28 of the General Stamp Duty Table." (cf. Decision of 04-05-2016, rendered in case no. 0166/16).

This is also the sense most in accordance with the Constitution of the Portuguese Republic, particularly with the principle of tax equality.

The Tax and Customs Authority, in applying item 28.1 of the TGIS in a differentiated manner depending on whether the residential unit is inserted in immovable property registered in horizontal ownership or in full ownership, is causing a formal criterion of differentiation to prevail, to the detriment of the material equality required by the Fundamental Law.

From the point of view of contributory capacity, as an operative criterion of the principle of equality, which postulates material equality, it is irrelevant whether the property is in vertical or horizontal ownership – the contributory capacity evidenced is the same, and the application of item 28.1 of the TGIS should be made in the same terms.

Accordingly, with respect to immovables registered in full ownership, only subject to Stamp Duty, by application of item 28.1 of the TGIS, is the floor or unit susceptible to independent use with residential use whose TPV is equal to or exceeding €1,000,000.00.

Given that, in the present case, none of the floors with respect to which Stamp Duty was assessed by application of Item 28.1 of the TGIS has a TPV equal to or exceeding €1,000,000.00, it is concluded that the respective assessment acts are unlawful and the respective annulment is decided.

From the unlawfulness of the assessment acts in question, and from the consequent annulment thereof, results the right of the Claimant to be reimbursed of the amounts of duty unduly paid.

The Claimant further requests payment of compensatory interest. As to these, no. 1 of article 43 of the General Tax Law provides as follows: "[c]ompensatory interest is due when it is determined, in administrative reclamation or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due".

It is considered that "[t]he error attributable to the services which effected the assessment is demonstrated when they proceed to administrative reclamation or challenge of that same assessment and the error is not attributable to the taxpayer" (DIOGO LEITE DE CAMPOS, BENJAMIM SILVA RODRIGUES, JORGE LOPES DE SOUSA, Lei Geral Tributária. Anotada e comentada, 4th ed., Lisbon, 2012, p. 342).

The law further determines, in article 100 of the General Tax Law, that: "[t]he tax administration is obliged, in case of total or partial merit of administrative claims or appeals, or of judicial proceedings in favour of the taxpayer, to the immediate and complete restitution of the situation that would exist if the unlawfulness had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided for in the law."

As affirmed in the Decision of the STA of 11/02/2009, appeal no. 1003/08, "[h]aving the legislator adopted compensation in the form of compensatory interest, following a decision annulling an assessment act, presuming the patrimonial damage derived from the deprivation of the amount paid following an unlawful assessment act, the interpretation of article 100 of the LGT in conformity with the Constitution is that it recognizes the right to compensatory interest from the date on which the deprivation of the amount unlawfully assessed occurred and not only as from the expiry of the term of execution of the annulling decision."

In the present case we are faced with a plurality of Stamp Duty assessments based on error attributable to the services, resulting in unduly paid tax payments by the Claimant, and therefore this is recognized as having the right to compensatory interest on the amounts of duty unduly paid.

In accordance with the provision of no. 1 of article 61 of the Tax Procedure and Process Code (CPPT), "[i]nterest is calculated from the date of unduly paid duty until the date of processing of the respective credit note, in which they are included".

The Claimant further requests payment of default interest.

These, differently from compensatory interest, are only due in case of delay in the restitution of duty unduly paid, decided in a judgment. They aim to compensate the taxpayer for the deprivation of the availability of the amount unduly paid with respect to the period between the date of the expiry of the term of voluntary execution of the judgment that has become final and the issuance of the credit note, in accordance with the provision of articles 43, no. 5 and 102, no. 2, of the General Tax Law.

Thus, the Claimant shall have the right to payment of default interest in case of delay by the Respondent in the execution of the present arbitral decision as to the reimbursement of duty unduly paid.

IV. DECISION

In these terms, and with the grounds set out, this Tribunal decides:

i) Judge the request for arbitral decision to be well-founded and, consequently, annul the Stamp Duty assessments in question, with all legal consequences;

ii) Judge the request for reimbursement of duty unduly paid, plus compensatory interest and default interest, at the legal rate, calculated from the date of payment of the duty, until full reimbursement, all in accordance with what shall be determined in execution of judgment.

V. VALUE OF THE CASE

In accordance with the provision of article 306, no. 2, of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €53,340.14.

VI. COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at €2,142.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, chargeable to the Respondent.

Let notification be made.

Lisbon, 24 February 2017

The Arbitrator

Paulo Nogueira da Costa