ARBITRAL DECISION

Process No. 405/2014-T

Claimant/Applicant: …

Respondent: Tax and Customs Authority (hereinafter AT)

1. Report

On 28-05-2014, …, taxpayer no. …, resident at …, in the capacity of Head of the Estate of … and of …, taxpayer no. …, hereinafter designated as Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal, with a view to the annulment of tax assessment acts for stamp duty under item no. 28 of the General Schedule of Stamp Duty, relating to apartments and units with independent use in the urban property held in full ownership situated at … and …, of the parish of …, municipality of …, registered in the urban real estate matrix under article … of the said parish, namely:

i. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, for the year 2013, with a taxable property value of €65,280.00;

ii. Assessment No. 2014 …, for the amount of € 246.17, relating to the property described at property register article no. …, with a taxable property value of €73,850.00;

iii. Assessment No. 2014 …, for the amount of € 193.17, relating to the property described at property register article no. …, with a taxable property value of €57,950.00;

iv. Assessment No. 2014 …, for the amount of € 227.33, relating to the property described at property register article no. …, with a taxable property value of €68,200.00;

v. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, with a taxable property value of €65,280.00;

vi. Assessment No. 2014 …, for the amount of € 248.10, relating to the property described at property register article no. …, with a taxable property value of €74,430.00;

vii. Assessment No. 2014 …, for the amount of € 193.17, relating to the property described at property register article no. …, with a taxable property value of €57,950.00;

viii. Assessment No. 2014 …, for the amount of € 248.10, relating to the property described at property register article no. …, with a taxable property value of €74,430.00;

ix. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, with a taxable property value of €65,280.00;

x. Assessment No. 2014 …, for the amount of € 248.10, relating to the property described at property register article no. …, with a taxable property value of €74,430.00;

xi. Assessment No. 2014 …, for the amount of € 243.57, relating to the property described at property register article no. …, with a taxable property value of €73,070.00;

xii. Assessment No. 2014 …, for the amount of € 193.17, relating to the property described at property register article no. …, with a taxable property value of €57,950.00;

xiii. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, with a taxable property value of €65,280.00;

xiv. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

xv. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

xvi. Assessment No. 2014 …, for the amount of € 143.14, relating to the property described at property register article no. …, with a taxable property value of €85,880.00;

xvii. Assessment No. 2014 …, for the amount of € 162.69, relating to the property described at property register article no. …, with a taxable property value of €97,610.00;

xviii. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

xix. Assessment No. 2014 …, for the amount of € 144.09, relating to the property described at property register article no. …, with a taxable property value of €86,450.00;

xx. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

xxi. Assessment No. 2014 …, for the amount of € 162.69, relating to the property described at property register article no. …, with a taxable property value of €97,610.00;

xxii. Assessment No. 2014 …, for the amount of € 144.09, relating to the property described at property register article no. …, with a taxable property value of €86,450.00.

The Claimant seeks the annulment of the aforementioned stamp duty assessment acts.

The Claimant alleges, to that end, that the property to which the stamp duty assessments in question relate is property held in full ownership, composed of 8 floors and 23 apartments/units with independent use, to which an autonomous taxable property value was assigned, and that none of these has a taxable property value equal to or greater than € 1,000,000 (one million euros), and that, in its view, the legal basis for the application of item 28.1 of the General Schedule of Stamp Duty is not satisfied.

A sole arbitrator, Ricardo Marques Candeias, was appointed on 18-07-2014. In accordance with the provisions of article 11, no. 1, paragraph c), of the Tax Arbitration Regulations (RJAT), the singular arbitral tribunal was constituted on 04-08-2014.

Duly notified, the AT submitted its response on 15-10-2014. It argues that the taxable property value relevant for purposes of the tax assessment basis is the total taxable property value of the urban property and not the taxable property value of each of the parts that compose it, even though they are capable of independent use, because the property is not held in horizontal co-ownership.

The AT further requested the waiver of the holding of the meeting referred to in article 18 of the RJAT and respective oral arguments.

Despite being notified, the PA did not submit the administrative file.

Notified to make submissions, the Claimant made none or filed any requests.

Upon further insistence to the AT to attach the administrative file to the present proceedings, it responded in the sense of its waiver, arguing that we are dealing with a matter of law and considering the principle of procedural efficiency.

The arbitral tribunal understood, in light of the elements brought before the tribunal, and there being no exceptions to resolve, that the holding of the meeting provided for was not necessary, nor was the production of arguments required. Consequently, on 23-01-2015, the date of 30-01-2014 was set for delivery of the decision.

The parties possess legal personality and capacity and are legitimate (articles 4 and 10, nos. 1 and 2, of the RJAT, and article 1 of Ordinance No. 112-A/2011, of 22 March). The process is not vitiated by nullities and no preliminary questions were raised that must be addressed.

2. Facts

Having analyzed the documentary evidence produced by the Claimant, the following facts are considered proven and relevant for the decision of the case:

a) The urban property situated at … and …, of the parish of …, municipality of …, registered in the urban real estate matrix under article … of the said parish is part of the assets of the estate of the present claimant;

b) The property is held in full ownership;

c) It is composed of 23 apartments/units capable of independent use, without being held under a horizontal co-ownership regime;

d) The AT assessed on 17-03-2013 the Stamp Duty relating to the year 2013, concerning part of the apartments or units with independent use existing in the aforementioned property, in the amount corresponding to 1% of its taxable property value, as follows:

I. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, for the year 2013, with a taxable property value of €65,280.00;

II. Assessment No. 2014 …, for the amount of € 246.17, relating to the property described at property register article no. …, with a taxable property value of €73,850.00;

III. Assessment No. 2014 …, for the amount of € 193.17, relating to the property described at property register article no. …, with a taxable property value of €57,950.00;

IV. Assessment No. 2014 …, for the amount of € 227.33, relating to the property described at property register article no. …, with a taxable property value of €68,200.00;

V. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, with a taxable property value of €65,280.00;

VI. Assessment No. 2014 …, for the amount of € 248.10, relating to the property described at property register article no. …, with a taxable property value of €74,430.00;

VII. Assessment No. 2014 …, for the amount of € 193.17, relating to the property described at property register article no. …, with a taxable property value of €57,950.00;

VIII. Assessment No. 2014 …, for the amount of € 248.10, relating to the property described at property register article no. …, with a taxable property value of €74,430.00;

IX. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, with a taxable property value of €65,280.00;

X. Assessment No. 2014 …, for the amount of € 248.10, relating to the property described at property register article no. …, with a taxable property value of €74,430.00;

XI. Assessment No. 2014 …, for the amount of € 243.57, relating to the property described at property register article no. …, with a taxable property value of €73,070.00;

XII. Assessment No. 2014 …, for the amount of € 193.17, relating to the property described at property register article no. …, with a taxable property value of €57,950.00;

XIII. Assessment No. 2014 …, for the amount of € 217.60, relating to the property described at property register article no. …, with a taxable property value of €65,280.00;

XIV. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

XV. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

XVI. Assessment No. 2014 …, for the amount of € 143.14, relating to the property described at property register article no. …, with a taxable property value of €85,880.00;

XVII. Assessment No. 2014 …, for the amount of € 162.69, relating to the property described at property register article no. …, with a taxable property value of €97,610.00;

XVIII. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

XIX. Assessment No. 2014 …, for the amount of € 144.09, relating to the property described at property register article no. …, with a taxable property value of €86,450.00;

XX. Assessment No. 2014 …, for the amount of € 144.60, relating to the property described at property register article no. …, with a taxable property value of €86,760.00;

XXI. Assessment No. 2014 …, for the amount of € 162.69, relating to the property described at property register article no. …, with a taxable property value of €97,610.00;

XXII. Assessment No. 2014 …, for the amount of € 144.09, relating to the property described at property register article no. …, with a taxable property value of €86,450.00;

e) The payment deadline expired on 30-04-2014;

f) The total taxable property value of the property is € 1,674,420.00;

g) The Claimant was notified to proceed with payment of the said assessment notices in the total amount of €4,246.38;

h) The Claimant did not proceed with payment of the said amount.

The arbitrator's conviction was based on the documentary evidence attached to the case, specifically points a) and f) result from the content of the property register attached to the case, and points b), c), d), g) and h) result from the first assessment notices for the stamp duty.

For the decision of the case, no other facts with relevance were proven.

3. Law

These are the facts that merit examination. Let us proceed.

The Claimant argues in its initial petition that "the interpretation made by the AT is not in accordance with the Law and the Constitution, because item no. 28, by opening the possibility of taxing in a differentiated manner the ownership of real property of equal value held by different persons on the basis of criteria that may contend, without the minimum necessary justification, with, namely, the principle of tax capacity (as is the case with the 'dispersion' or 'concentration' of residential real property of each one), cannot fail to be considered unconstitutional, given the violation of the principle of equality".

The Claimant argues that "subjection to stamp duty contained in item 28.1 of the General Schedule of Stamp Duty should have been determined by the combination of the following factors: residential use; the taxable property value listed in the property register equal to or greater than €1,000,000.00; and, in the case of a property with the characteristics described above, subjection to stamp duty is determined, not by the total taxable property value of the property, but by the taxable property value attributed to each of these apartments or independent units."

It further states that "the application of stamp duty should have been determined on each apartment or independent unit, provided that each apartment or unit was greater than € 1,000,000.00, under penalty of violating article 28.1 itself of the General Schedule of Stamp Duty and articles 13 and 104, no. 3 of the Constitution of the Portuguese Republic (CRP), which are hereby invoked for the necessary legal effects".

The Claimant thus concludes that "the AT cannot distinguish where the legislator itself understood not to do so – to distinguish between property held in full ownership and property held in horizontal co-ownership, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in article 103, no. 2 of the CRP, and also the principles of justice, equality and fiscal proportionality."

The Claimant terminates by advocating for the acceptance of the claim and, by way thereof, requests that it be ordered "the annulment, with all legal effects, of the aforementioned impugned assessment acts".

For its part, the AT comes to contest the position of the Claimant, basing its claim on the fact that the property is held under a full ownership regime and the concentration in each property of independent dwellings is not susceptible to triggering the assessment of stamp duty on each of them.

In the understanding of the AT "the taxable property value relevant for purposes of the tax assessment basis is, therefore, the taxable property value of each of the parts that compose it, even when capable of independent use."

And the fact that the urban property with residential use is part of an undivided estate does not prejudice the application of item 28 of the General Schedule.

In accordance with the AT "according to article 81, no. 1 of the Code of Municipal Property Tax (CIMI), the property that forms part of the undivided estate is registered in the respective property matrix in the name of the author of the estate with the addendum 'Head of the Estate of...', with an undivided estate, on its own initiative, being assigned the respective tax identification number by the finance service referred to in article 25 of the Stamp Duty Code.

The undivided estate is a passive subject of Municipal Property Tax in accordance with articles 2, no. 4, of the Stamp Duty Code and article 8, no. 1 of the CIMI, to which the first aforementioned legal norm refers."

The fact that Municipal Property Tax was computed on the basis of the taxable property value of each part of property with economically independent use does not equally affect the application of article 28, no. 1 of the General Schedule.

The AT concludes that "any other interpretation would, in fact, violate the letter and spirit of item 28.1 of the General Schedule and the principle of legality of the essential elements of the tax provided for in article 103, no. 2 of the Constitution of the Portuguese Republic (CRP)."

The AT further argues for the unconstitutionality of the interpretation made by the Claimant of item 28.1 of the General Schedule of Stamp Duty, to the effect that the taxable property value on which its application depends is computed per apartment and not globally, violating the principle of fiscal legality.

In its view, it is important to emphasize the different civil-law regime assigned to horizontal co-ownership as opposed to full ownership, which would consist, even for tax purposes, of different legal institutes. Hence the different treatment in terms of the application of item 28.1 of the General Schedule of Stamp Duty.

Having set out a brief description of the argumentative positions made by the parties, let us proceed.

The issue to be decided concerns whether the rule of application of item 28.1 of the General Schedule of Stamp Duty (TGIS) applies to properties that are not held in horizontal co-ownership. In effect, in those cases, it is questioned whether the aforementioned item should apply to the sum of the taxable property values attributed to the different apartments, that is, to the total taxable property value of the property, or rather to the taxable property value of each apartment with economically independent use of the property.

This issue has already been the subject of several decisions of the CAAD, namely, those delivered in cases 132/2013-T, 14/2014-T, 30/2014-T and 88/2014-T, which we will follow closely.

Item 28 of the General Schedule of Stamp Duty (TGIS) was added by Law No. 55-A/2012, of 29 October. It establishes the following:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value listed in the property matrix, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than € 1,000,000 – on the taxable property value used for the purpose of Municipal Property Tax:

28.1 – For property with residential use – 1% (...);"

With the addition of no. 2 of article 67 of the Stamp Duty Code (CIS), also operated by the aforementioned Law, it was established that as to "matters not regulated in the present code concerning item 28 of the General Schedule, the CIMI shall apply subsidiarily."

By force of this referral, with the standard of application of item 28.1 TGIS referring to urban properties, the concept of urban property will be that resulting from the CIMI.

The CIMI establishes in no. 1 of article 2 the concept of property, defining it as "any tract of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or erected thereon, with a permanent character, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances described above, with economic autonomy in relation to the land on which they are located, although situated in a tract of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature".

Article 4 of the CIMI establishes that urban properties are "all those that should not be classified as rural, without prejudice to the provisions of the following article".

In turn, article 6, ibidem, proceeds to classify the various types of urban properties, distinguishing them, in no. 1 of the said article, into four subcategories: "a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Other".

In no. 2 of the same article we find the criterion used for this distinction, considering "Residential, commercial, industrial or for services are the buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes".

In effect, the legal provisions of the aforementioned statute do not establish any classification of urban properties that distinguishes them between properties held in horizontal co-ownership versus properties held in full ownership.

Being thus, legal support will be lacking for the application of different tax regimes by force of the civil-law nature that an urban property with residential use may have.

It is true that no. 4 of article 2 of the CIMI provides that "for the purposes of this tax, each autonomous unit, under the regime of horizontal co-ownership, is deemed to constitute a property". However, it is also true that the same does not establish any differentiation between the autonomous units of properties held in horizontal co-ownership and the parts of property with independent use regardless of the classification as urban residential properties.

It follows from this that the legislator intended only, as it did, to differentiate urban properties considering their normal destination, that is, considering the destination to which each one is subject. In this manner, it thus prevents, from the tax perspective, a distinction that civil law provides, between properties held in horizontal co-ownership and properties held in full ownership, but does not allow that legal characterization to be relevant for what interests us, which is the scope of application of the tax, both as regards Municipal Property Tax and item 28.1 of the General Schedule of Stamp Duty, deriving from the aforementioned referral.

Being thus, we conclude that it is irrelevant, for tax purposes, whether the property is held in full ownership or horizontal co-ownership. What is rather relevant is the material reality underlying its existence as an urban property and its residential use.

Indeed, in light of the legislator's intention in creating item 28 of the General Schedule of Stamp Duty and the application that the AT has been making of it, it is considered that the criterion adopted by it as to properties held in full ownership does not conform to the principles of legality, equality and fiscal proportionality, enshrined constitutionally in our legal order.

The principle of fiscal equality should be understood in its material sense. Therefore, the emphasis of this principle will always rest on the tax capacity of each taxpayer. The same is to say that we will have an equal tax for those with equal tax capacity, and a different tax for those with different tax capacity. It is certain that the difference in tax will be proportional to the different tax capacity.

This principle is imposed on us by the combination of article 13 of the Constitution of the Portuguese Republic (CRP) with articles 103 and 104 of the same statute.

It is certain that the tax established by item 28 of the General Schedule of Stamp Duty intends to harmonize the distribution of the tax burden of taxpayers, by imposing this tax on the holders of properties of high value intended for residential use, exceeding € 1,000,000.00, for each apartment with independent use.

In effect, as the principle of fiscal equality determines that what is equal should be treated fiscally in the same manner and what is different should be treated differently, the differentiated treatment, for tax purposes, of the apartments of a property is not justified solely on the basis that the same is already held in horizontal co-ownership, provided that these apartments have independent use.

And in remitting the Stamp Duty Code to the CIMI, we consider that registration in the property matrix of properties held in full ownership, composed of different apartments with independent use, should follow the same registration rules as properties composed of horizontal co-ownership.

Note the provision of no. 3 of article 12 of the CIMI, according to which "each apartment or part of property capable of independent use is considered separately in the property registration, which also discriminates the respective taxable property value".

Fixing as the reference value for the application of the new tax the total taxable property value of the property in question, as the AT intends, finds no basis whatsoever in the applicable legislation mentioned above.

Indeed, it was the Respondent itself that issued twenty-two assessment notices, each of them concerning each of the apartments with independent use and residential application. It is apparent, moreover, from each of them that there is a specific reference to the taxable property value of each apartment, for purposes of application of item 28.1 of the General Schedule of Stamp Duty. It follows from this that the tax was assessed individually in relation to each of the parts with independent use and not considering the sum of the taxable property values of the apartments of the property held in full ownership.

In light of all the foregoing, the legal criterion to be used for definition of the application of the tax established in item 28.1 of the General Schedule of Stamp Duty must be identical to that established for purposes of Municipal Property Tax.

As can be read in the Arbitral Decision delivered in case 132/2013-T "there is no discernment, in the work relative to the discussion of the draft law no. 96/XII in the Assembly of the Republic, of an interpretative ratio distinct from that presented here. In effect, such measure, dubbed a 'special tax on urban residential properties of the highest value', was justified with the need to comply with the principles of social equity and fiscal justice, more significantly burdening the holders of properties of high value intended for residential use, and, in that measure, imposing the new 'special tax' on 'residences of value equal to or greater than 1 million euros'."

The aforementioned decision further states that "if such logic seems to make sense when applied to 'residence' - be it 'dwelling', 'autonomous unit' or 'part of property with independent use' / 'autonomous unit' - because one assumes a tax capacity above the average and, in that measure, the need to make an additional tax effort is justified, it would make little sense to then proceed to disregard the calculations 'unit by unit' when only through the sum of the taxable property values of the same (because held by the same individual) would the million euro threshold be exceeded".

Given that only the AT would have reason and, consequently, the right to assess the tax in question, if any of the apartments with independent use corresponded to a taxable property value greater than € 1,000,000.00, which is not the case, as the highest value corresponds only to €97,610.00.

It follows from what has been stated so far that the position of the AT is contrary to the Law and the Constitution, violating the principles of legality and fiscal equality.

The property in question is held in full ownership and contains seven apartments with independent use intended for residential purposes. As proven, none of them has a taxable property value equal to or greater than €1,000,000.00. We thus observe the non-satisfaction of the legal basis for the application of Stamp Duty provided for in item 28 of the General Schedule of Stamp Duty.

As a consequence of the foregoing, we conclude as to the illegality of the stamp duty assessments impugned by the Claimant. Therefore, the taxable matter, which serves as the basis for the standard of application of item 28.1 of the General Schedule of Stamp Duty, should be the taxable property value determined in accordance with the CIMI, for each of the apartments of the property that are capable of independent use.

4. Decision

In light of the foregoing, it is hereby decided to judge as wholly acceptable the claim made by the Claimant in the present tax arbitration proceeding, as to the illegality of the Stamp Duty Assessments No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 …, No. 2014 … and No. 2014 …, which should be considered void, with the necessary legal consequences.

Value of the Case:

In accordance with the provisions of article 306, no. 2, of the Code of Civil Procedure (CPC) and article 97-A, no. 1, paragraph a) of the Tax Procedure Code (CPPT) and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at €4,246.38.

Costs:

In accordance with the provisions of article 22, no. 4, of the Tax Arbitration Regulations (RJAT), and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €612.00, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 30 January 2015.

Document prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29, no. 1, paragraph e) of the Tax Arbitration Regulations (RJAT), with blank verses and reviewed by me.

The Sole Arbitrator

Ricardo Marques Candeias