Stamp Tax on Vertical Property: CAAD Rules on VPT Threshold Under Verba 28 TGIS

ARBITRAL DECISION

I. Report

1. A…, taxpayer no.…, resident at Rua …, no.…, …, Cascais, B…, taxpayer no.…, resident in …, …, Alenquer and C…, taxpayer no.…, resident at Avenida …, …, …, Lisbon, have requested the constitution of an arbitral tribunal in tax matters with a view to declaring the illegality of stamp duty tax assessments in the total amount of €20,592.57, relating to an urban property not registered under a horizontal ownership regime, recorded in the respective property register of the parish of …, municipality of Lisbon, under article…. The aforementioned assessments, made on the basis of the norm of article 1 of the Stamp Duty Code (CIS), combined with Item no. 28.1 of the respective General Table, relate to the year 2015. As a consequence of the declaration of illegality of the aforementioned acts, the Applicants request that the annulment of the assessments in question be determined and the consequent reimbursement of the amount paid, plus the respective indemnity interest accrued under the legal terms. The Applicants further request that the Tax and Customs Authority (AT) be condemned to pay the fees of the legal representatives to be quantified and justified in execution of judgment, and other costs of the proceedings.

2. As the basis for their claim, the Applicants allege, in essence, that the taxation provided for in the cited norms concerns urban properties with residential use whose taxable property value used for Municipal Real Estate Tax (IMI) purposes is equal to or greater than €1,000,000.00. In the case of properties not registered under horizontal ownership but composed of parts or divisions capable of independent use, the taxable property value used for IMI purposes and, consequently, relevant for the incidence of stamp duty, is, in accordance with the aforementioned norm, the value determined with reference to each of those parts or divisions.

3. For its part, the Respondent – Tax and Customs Authority (AT) – in response to the foregoing, submits that the claim is unmeritorious and, consequently, that the questioned tax assessments should be maintained, on the ground that there is a single urban property in question, and the taxable property value relevant for the purposes of stamp duty incidence is the value resulting from the sum of the taxable property values attributed to the various parts that compose it.

4. The request for constitution of the arbitral tribunal, presented on 15-07-2016, was accepted by the President of CAAD and automatically notified to the Respondent (AT) on 17-08-2016.

5. Pursuant to the terms set forth in subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law no. 10/2011, of 20 January (RJAT), as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable period and notified the parties of that appointment on 29-09-2016.

6. Duly notified of that appointment, the parties did not manifest any intention to refuse the appointment of the arbitrator in accordance with the combined terms of article 11, paragraph 1, subparagraphs a) and b), of RJAT and articles 6 and 7 of the Deontological Code.

7. Accordingly, in conformity with the provision contained in subparagraph c) of paragraph 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31/12, the single arbitral tribunal was constituted on 17-10-2016.

8. Duly constituted, the arbitral tribunal is materially competent, given the provision set forth in articles 2, paragraph 1, subparagraph a), of RJAT.

9. The parties have legal personality and capacity and have standing (articles 4 and 10, paragraph 2, of RJAT, and article 1 of Regulation no. 112-A/2011, of 22/03).

10. In light of the evidence resulting from the procedural documents submitted by the parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the hearing referred to in article 18 of RJAT.

11. The proceedings do not suffer from any nullities and no other issues were raised that would prevent the examination of the merits of the case, and the conditions are met for a final decision to be rendered.

II. Statement of Facts

1. With relevance for the examination of the issue raised, the following factual elements are noteworthy:

12.1. The Applicants are co-owners, in the proportion of one-third each, of the urban property recorded in the respective property register of the parish of …, municipality of Lisbon, under article…, better identified in the urban property record attached as document no. 52 in the annex, issued on 13-07-2015;

12.2. The property in question, in full ownership, is composed of 9 divisions capable of independent use, which are individually leased or held in loan for use;

12.3. To each of the independent divisions there was assigned a taxable property value separately determined in accordance with the norm of subparagraph b) of paragraph 2 of article 7 of the Municipal Real Estate Tax Code (CIMI);

12.4. None of the parts or floors with residential use has a taxable property value exceeding €1,000,000.00, the sum thereof resulting in a total taxable property value of €2,059,260.00;

12.5. Considering the sum of the taxable property values of the floors with independent residential use, the AT proceeded with stamp duty assessments provided for in Item 28.1 of the respective General Table, with reference to the year 2015 and to each of the units capable of independent use;

12.6. For payment in April, July and November of 2016, collection notices were sent to the Applicant relating to three instalments of the assessments in question, totalling €20,592.57;

1. There are no other facts relevant to the decision on the merits that have not been proven.

III. Statement of Law

1. As previously mentioned, the Applicants in their request for arbitral pronouncement sustain, essentially, that the norm of Item 28.1 of the General Table of the Stamp Duty is not applicable to properties in full ownership composed of parts or divisions capable of independent use whenever the taxable property value attributed to each of those intended for residential use does not exceed €1,000,000.00.

2. To the allegations of the Applicants, the Respondent (AT) responded, in essence, that Item 28 of the General Table of Stamp Duty applies to urban properties with residential use and that the taxable property value upon which the application of that legal norm depends is, as expressly results from the law, the value of each property and not of its distinct parts, although capable of independent use. Concluding, therefore, that the tax acts in question, having not violated any legal norm, should be maintained.

3. From the positions expressed by the Applicants and by the Respondent, summarized above, it follows that the examination concerns purely legal matters, making the production of evidence unnecessary, beyond the documentary elements attached to the proceedings.

4. Indeed, the question to be decided centres solely on determining whether within the scope of the stamp duty incidence referred to in Item 28 of the General Table of Stamp Duty (TGIS) are included, or not, residential urban properties which, although not registered under horizontal ownership, are composed of floors or divisions capable of independent use, whenever the taxable property value attributed to each of those distinct parts does not exceed the value of €1,000,000.00.

5. In other words, the question is whether the quantitative element relevant under the aforementioned norm should be considered on the basis of the taxable property value attributed to each of the parts, as the Applicant contends, or whether that element is what results from the sum of the taxable property values attributed to them, as the Respondent maintains.

6. It is therefore necessary, first and foremost, an analysis, albeit brief, of the prerequisites for stamp duty incidence on urban properties with residential use, by recourse to the relevant tax norms for the definition of the respective legal concepts.

On Tax Incidence

1. Through Law no. 55-A/2912, of 29/10, Item 28 was added to the General Table of Stamp Duty, subjecting to this tax urban properties whose taxable property value recorded in the register, under the terms of the Municipal Real Estate Tax Code (CIMI), is equal to or greater than €1,000,000.00.

2. The taxable base is constituted by the taxable property value taken into account for IMI purposes, such tax being annually assessed by the AT with respect to each urban property (CIS, article 23, paragraph 7), at the rate of:

• 1%, per urban property with residential use;

• 7.5%, per property, when the taxable persons, not being individuals, are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in an approved regulation by the Minister of Finance.

1. The taxable persons, and debtors of the tax, are the owners, usufructuaries or holders of superficiary rights of the properties on 31 December of the year to which the tax relates, as follows from article 8 of CIMI, by express reference in articles 3, paragraph 3, subparagraph u), and 2, paragraph 4, of CIS.

2. With respect to the date of constitution of the tax obligation, tax connection, determination of the taxable base, assessment and payment of the stamp duty in question, the corresponding rules of CIMI are applicable, by express reference in articles 5, paragraph 1, subparagraph u), 4, paragraph 6, 23, paragraph 7, 44, paragraph 5, 46, paragraph 5 and 49, paragraph 3, of CIS. In general, by reference to article 67, paragraph 2, of the same Code, the provisions of CIMI are applicable supplementarily to matters not specially regulated.

3. Not being questioned, in the present case, the category of the property in question, classified as urban and with residential use, in accordance with the criteria established in articles 2, 4 and 6 of the Municipal Real Estate Tax Code, the only question is to determine the exact meaning of "taxable property value taken into account for IMI purposes" contained in the norm of stamp duty incidence.

4. It is therefore necessary to resort to the rules of the Municipal Real Estate Tax Code relating to the treatment that, in the context of that tax, is given to parts of urban properties capable of independent use, in particular with respect to the determination of the respective taxable property value and the rules applicable to assessment and payment of the aforementioned tax.

5. According to paragraph 3 of article 12 of the cited Code, which establishes the concept of property register, "each floor or part of property capable of independent use is considered separately in the property registration, which specifies the respective taxable property value."

6. The separation in the register of the functionally and economically independent parts of a property in full ownership is based on fiscal and extra-fiscal reasons. On the fiscal plane, this separation relates to the very determination of the taxable property value, which constitutes the taxable base of the IMI, given that the formula for determining that value, provided for in article 38 of the same Code, contains indices that vary depending on the use attributed to each of those parts. On the extra-fiscal plane, that separation continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in urban rental legislation.[i]

7. However, in the structure of IMI, the separation of parts of urban property capable of independent use is not limited to their separation in the property register and the specification of the respective taxable property value. That autonomy extends to the very assessment of the tax.

8. Indeed, article 119, paragraph 1, of the aforementioned Code (CIMI), determines that the tax collection document must contain the specification of the properties, their parts capable of independent use and the respective taxable property value. In order to comply with this provision, the assessment of IMI, in the strict sense of application of the rate to the taxable base, does not take as reference the sum of the taxable property values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

9. In the same direction of individualization, for tax purposes, of the autonomous parts of urban properties, the norm of paragraph 1 of article 15-O of Decree-Law no. 287/2003, of 12/11, added by Law no. 60-A/2011, of 30/11, is also relevant.

10. In accordance with the provision of the aforementioned norm, the safeguard clause relating to the increase in IMI taxation resulting from the general valuation of urban properties is applicable per property or part of urban property that is the subject of the aforementioned valuation.

11. It results, therefore, from the relevant norms of CIMI, which apply by reference to the stamp duty referred to in Item 28 of the respective Table, that the autonomous parts of urban properties assume full autonomy, in terms of valuation and description in the property register and assessment of the tax.

12. In referring to the taxable property value taken into account for IMI purposes, the norm of incidence and quantification of the stamp duty referred to in Item 28 of the respective Table cannot but appeal to the reality described above, that is, to the taxable property value considered for IMI purposes with respect to each part of an urban property capable of independent use.

13. As, moreover, is reflected in the assessments questioned in the present request for arbitral pronouncement: the AT, after, without legal support, carrying out the sum of the taxable property values of the various autonomous parts of the property in order to extract therefrom the quantitative prerequisite of stamp duty incidence, carries out the assessment with reference to each of those parts although, individually, none of them reaches that value.

14. It is noted that the question raised in this proceeding is entirely identical to those raised and decided in numerous arbitral decisions [ii], as well as judgments of the Supreme Administrative Court [iii], to whose conclusion, to the effect of the illegality of the AT's decision to subject to taxation the residential parts of a property in full ownership based on the overall taxable property value of the property and not on that which is effectively attributed to each of the parts separately, full agreement is expressed.

IV. Right to Indemnity Interest

1. Along with the declaration of illegality and annulment of the assessments with the consequent reimbursement of the amounts that have meanwhile been indeadly paid, the Applicant further requests that it be granted the right to indemnity interest, under article 43 of the General Tax Law (LGT).

2. Indeed, pursuant to the terms of the norm of paragraph 1 of the aforementioned provision, indemnity interest is due "when it is determined, in administrative review or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally due." Beyond the means referred to in the norm transcribed, it is understood that, as follows from paragraph 5 of article 24 of RJAT, the right to the aforementioned interest may be recognized in the arbitral proceeding and thus the claim is examined.

3. The right to indemnity interest referred to in the norm of the LGT mentioned above presupposes that tax was paid in an amount higher than that due and that such results from error, of fact or of law, attributable to the services of the AT. In the present case, both conditions are met, thus constituting the obligation of indemnity interest in favour of the taxpayer, which is hereby declared.

4. Along with the annulment of the assessments and consequent reimbursement of the amounts indeadly paid plus the corresponding indemnity interest, the Applicants further petition the condemnation of the AT to payment of the fees of the legal representatives "to be quantified and justified in execution of judgment, and other costs of the proceedings."

5. This is, however, a matter which, as it falls outside the scope of material competence of this Tribunal, as defined in article 2 of RJAT, approved by Decree-Law no. 10/2011, of 20/01, is not examined.

V. Decision

For these reasons, and based on the grounds set forth above, the Arbitral Tribunal decides to uphold the request for arbitral pronouncement, determining the annulment of the questioned assessments with the consequent reimbursement of the amounts that have been paid, plus the respective indemnity interest, due and quantified under the legal terms.

Value of the proceeding: The value of the proceeding is fixed at €20,592.17, pursuant to article 97-A, paragraph 1, subparagraph a) of CPPT, applicable by reference of article 29, paragraph 1, subparagraphs a) and b), of RJAT and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs: Under article 22, paragraph 4, of RJAT, and pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,224.00, to be paid by the Respondent (AT).

Lisbon, 28 December 2016

The Arbitrator, Álvaro Caneira

[i] Cf. Silvério Mateus and Leonel Corvelo de Freitas, "The Taxes on Real Property and Stamp Duty Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160.

[ii] Among many others, and referring only to the most recent: CAAD, Proceedings 544/2015-T, 552/2015-T, 554/2015-T, 560/2015-T, 562/2015-T, 573/2015-T, 576/2015-T, 581/2015-T, 589/2015-T, 597/2015-T, 606/2015-T, 632/2015-T, 643/2015-T, 644/2015-T, 651/2015-T, 659/2015-T, 681/2015-T, 718/2015-T, 755/2015-T, 768/2015-T, 777/2015-T, 10-2016-T, 20/2016-T.

[iii] Cf. STA, Proceedings 047/15, 01352/15, 01354/15, 01504/15, 01534/15, 0166/16, 0498/16.