Stamp Tax on Vertical Property: CAAD Ruling on Verba 28.1 TGIS for Independent Housing Units (Process 411/2015-T)

ARBITRAL DECISION

I – REPORT

1. The undivided estate opened by the death of A, with taxpayer number …, represented by B, a national of Brazil, divorced, resident at …, in ..., in the capacity of head of household, filed on 03-07-2015, at the Administrative Arbitration Center (CAAD) a petition for constitution of a singular arbitral tribunal, under the combined provisions of Articles 2 and 10 of the Legal Regime for Arbitration in Tax Matters, hereinafter referred to as "RJAT" and Articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, against which the Tax and Customs Authority (AT) is respondent, seeking the declaration of illegality and/or unconstitutionality and consequent annulment of the assessments of stamp duty – item 28.1 of the General Table of Stamp Duty (TGIS), in the total amount of €10,927.40, relating to the year 2014, concerning sixteen independent units of use intended for housing of the urban property located at …, parish of …, municipality of ..., registered in the respective property matrix under article ..., and the condemnation of AT to reimburse the sums improperly paid with respect to these assessments, increased by the corresponding indemnificatory interest.

2. The Petitioner opted not to designate an arbitrator.

3. The petition for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to AT on 16 July 2015.

4. The Signatory was designated by the President of the Deontological Council of CAAD as arbitrator of the singular arbitral tribunal, in accordance with Article 6 of the RJAT, and notified his acceptance of the appointment within the applicable time period.

5. On 28 August 2015, the Parties were notified of this designation, and neither opposed it, in accordance with the combined provisions of Article 11, No. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the CAAD Deontological Code.

6. Thus, in accordance with the provisions of paragraph c) of No. 1 of Article 11 of the RJAT, the singular arbitral tribunal was constituted on 14 September 2015.

7. The Respondent was notified, by arbitral order of this date, to, in accordance with Article 17, No. 1, of the RJAT and within 30 days, submit a response and, if desired, request the production of additional evidence.

8. On 14 October 2015, the Respondent submitted its response, defending the lack of merit of the claims.

9. It did not remit a copy of the administrative file on which the assessment acts were based, considering the documents attached by the Petitioner to be accurate.

10. On the same date it requested the waiver of the hearing referred to in Article 18 of the RJAT as well as of arguments.

11. Thus, considering that the Parties did not request the production of any evidence other than that which the Petitioner attached to the petition for arbitral pronouncement, nor was any exception raised, the Arbitral Tribunal, in light of the principles of autonomy in the conduct of proceedings, celerity, simplification and procedural informality, inherent in No. 2 of Articles 19 and 29 of the RJAT, by order of 15 October 2015, waived the holding of the hearing provided for in Article 18 of the same act as well as the submission of final arguments by the Respondent, fixing a period of 10 days for the submission of optional written arguments by the Petitioner.

12. The date of 17 November 2015 was also set for the delivery of the respective final arbitral decision.

13. The Parties were notified of this order on 15 October 2015.

14. On 21 October 2015, the Petitioner manifests its agreement with the waiver of the said hearing, also waiving the submission of final arguments.

15. On the same date the Petitioner made the payment of the subsequent arbitration fee, see Article 4, No. 3, of the Regulation of Costs in Tax Arbitration Proceedings.

II – PRELIMINARY MATTERS

1. The Parties have legal standing and capacity, are legitimate (Articles 4 and 10, No. 2 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March) and are duly represented.

2. The Arbitral Tribunal is regularly constituted and is materially competent to know and decide the claim, see Article 2, No. 1, paragraph a) of the RJAT.

3. The proceedings do not suffer from any nullities.

III – FACTS AND GROUNDS

1. Subject-matter of the dispute –

The contested questions are whether, in an urban property not subject to the regime of horizontal property ownership, the subjection to stamp duty, in accordance with item No. 28.1 of the TGIS, is determined by the Taxable Patrimonial Value (VPT) corresponding to each of the parts of the property, economically independent and with residential use, as the Petitioner argues, or whether, on the contrary, it is determined by the global VPT of the property, which would correspond to the sum of all VPTs of the floors or independent units of use with residential use that compose it, as the AT contends, and whether either of the interpretations in confrontation is unconstitutional, by violation of the principles of legality and fiscal equality.

1. Position of the Parties –

A. The Petitioner supports its petition for arbitral pronouncement, synthetically, as follows:

1. "No. 2 of Article 67 of the CIS provides that 'to matters not regulated in the present Code regarding item No. 28 of the General Table, the provisions of the CIMI shall apply, subsidiarily'" (Article 34 of the p. i.);

2. "(…) following the referral ordered by the legislator, it is necessary to take into consideration what is provided in Article 12, No. 3 of the CIMI which establishes that 'each floor or part capable of independent use is considered separately in the matriculation entry, which also discriminates the respective taxable patrimonial value'" (Article 35 of the p. i.);

3. "(…) each floor or division capable of independent use has its own VPT, in accordance with the CIMI" (Article 36 of the p. i.);

4. "In the context of IMI (the regime by which Stamp Duty is governed) (…) each floor/division capable of independent use is individualized, receiving its own annual IMI assessment, the payment of which may or may not, depending on the amount, be divided into several installments" (Article 37 of the p. i.);

5. "By adopting the thesis that the VPT of properties with residential use should be calculated by adding the VPT of each of the independent floors, for the purposes of applying item 28 of the TGIS, the AT contradicts the legal regime established regarding the calculation of VPT" (Article 38 of the p. i.);

6. "Evidence that the CIMI intended to individualize the floors capable of independent use is (…) Article 15, paragraph o) of Decree-Law 287/2003, when it refers to 'property or part of urban property'" (Article 39 of the p. i.);

7. "The subjection to stamp duty of properties with residential use results from the addition of item 28 of the TGIS, made by Article 4 of Law 55-A/2012, of 29 October, which typified the following tax facts:

'28 – Ownership, usufruct or surface right of urban properties whose taxable patrimonial value recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the taxable patrimonial value for IMI purposes:

28.1 – Per residential property or per land for construction whose authorized or foreseen construction is for housing, in accordance with the provisions of the IMI Code – 1%;

28.2 – Per property, when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial ordinance – 7.5%'" (Article 43 of the p. i.);

1. "It is important to note that, by stating that the VPT to be considered under this item of Stamp Duty is the VPT recorded in the matrix, in accordance with the CIMI, the legislator intended expressly to establish the uniqueness of this value for both these taxes" (Article 44 of the p. i.);

2. "(…) it has been the understanding of AT (…), that what should be taken into account is the provision of Article 7, No. 2, paragraph b) of the CIMI, which establishes that 'b) If the different parts are economically independent, each part is evaluated by application of the corresponding rules, being the value of the property the sum of the values of its parts'" (Article 45 of the p. i.);

3. "(…), if Article 7, No. 2 establishes that 'the taxable patrimonial value of urban properties with parts that can be classified in more than one of the classifications of No. 1 of the preceding article …' is that which is determinable by adding the various units, and if in the case all the divisions considered fall within the same classification, residential, this rule does not apply to the case at hand" (Article 48 of the p. i.);

4. "The taxation of the property identified in 9, under Stamp Duty, namely by application of item 28 of the TGIS, constitutes a flagrant violation of the principle of equality, as enshrined in Article 13, No. 2, and, more specifically, as it concerns taxes, in Article 104, No. 3, both of the CRP" (Article 53 of the p. i.);

5. "(…) note that if the same property, exactly as it now exists at a physical level, were legally constituted in horizontal property ownership, and even if the patrimonial values of each of the autonomous fractions were equal to the current ones, it could no longer be taxed under Stamp Duty by virtue of this item or any other" (Article 54 of the p. i.);

6. "Objectively, the interpretation advocated by AT (…) contributes to inequality among citizens, and is therefore, materially unconstitutional (…)" (Article 57 of the p. i.);

7. "In support of the unconstitutionality of such interpretation, see the learned arbitral decision handed down by this same CAAD in process No. 132/2013-T, whose learned reasoning we adopt as current and pertinent" (Article 58 of the p. i.);

8. "It is important to consider the ratio of the legislator in creating item 28 in the TGIS, which underlies (…) the idea that a capacity to pay far above average should correspond to a contributive effort that is also superior" (Article 54 of the p. i.);

9. "Such reasoning, however, cannot be reconciled with interpretive maneuvers that lead to a reality that, prima facie, would not fit within the presuppositions provided for in the said increase in contributive effort, would ultimately lead to the same consequences … " (Article 60 of the p. i.);

10. "As the learned arbitral decision handed down by this same CAAD in the course of process 183/2013-T well alludes, at page 14, point 28:

'The legislator's intention appears, then, to indicate that the scope of the rule of incidence is to tax independent realities, individualized and not resulting from an aggregation or sum, even if legal'" (Article 63 of the p. i.).

B. The Respondent, sustaining the lack of merit of the petition for arbitral pronouncement, responded, in summary, in the following terms:

1. "The now petitioner is a co-owner (of an uncertain and indeterminate part) of a property in full or vertical ownership regime. From the notion of property in Article 2 of the CIMI, only autonomous fractions of property in horizontal property ownership regime are regarded as properties - No. 4 of the cited Article 2 of the CIMI" (Article 19 of the response);

2. "The property of which it is co-owner, being in full ownership regime, does not have autonomous fractions, to which the tax law assigns the qualification of property" (Article 20 of the response);

3. "Thus, the now petitioner, for purposes of IMI and also of stamp duty, by force of the wording of the said item, is not the owner of 21 autonomous fractions, but rather of a single property" (Article 21 of the response);

4. "Having admitted this fact, what the now petitioner intends is that the AT consider, for purposes of the assessment of the present tax, that there is an analogy between the regime of full ownership and that of horizontal ownership, since there should be no discrimination in the legal-fiscal treatment of these two ownership regimes, as it would be illegal" (Article 22 of the response);

5. "As is well known, horizontal property ownership is a specific legal regime of property provided for in Articles 1414 et seq. of the Civil Code, the manner of its constitution being provided therein, as well as the other rules on the rights and charges of co-owners, having to recognize in this provision the existence of a more evolved regime of property" (Article 23 of the response);

6. "(…), to intend that the interpreter and applier of tax law apply, by analogy, to the regime of full ownership, the regime of horizontal property ownership is what is abusive and illegal (…)" (Article 24 of the response);

7. "These two property ownership regimes are regimes of civil law, which were imported into tax law, namely in accordance with the terms referred to in Article 2 of the CIMI" (Article 19 of the response);

8. "And the interpreter of tax law cannot equate these regimes, in accordance with the rule according to which the concepts of other branches of law have the meaning in tax law that is given to them in those branches of law, or in the words of Article 11, No. 2 of the LGT, on the interpretation of tax law: 'Whenever, in tax rules, terms proper to other branches of law are employed, they should be interpreted in the same sense as that which they have therein, unless another sense derives directly from the law'" (Article 26 of the response);

9. "On the other hand, even taking into account that in determining the meaning of tax rules and in qualifying the facts to which they apply the general rules and principles of interpretation and application of laws are observed, in accordance with Article 11, No. 1 of the LGT which refers, thus, to the Civil Code, its Article 10 on the application of analogy, determines that it shall only be applicable in case of lacunae in the law" (Article 27 of the response);

10. "Now tax law does not contain any lacuna! The CIMI determines, to which the cited item refers, that in the regime of horizontal property ownership the fractions constitute properties. The property not being subject to this regime, legally the fractions are parts capable of independent use, without there being common parts" (Article 28 of the response);

11. "We cannot, therefore, accept that it be considered that, for purposes of item 28.1 of the General Table annexed to the CIS, the parts capable of independent use have the same tax regime as the autonomous fractions of the horizontal property ownership regime" (Article 29 of the response);

12. "The property being subject to the regime of full ownership, but being physically constituted by parts capable of independent use, tax law attributed relevance to this materiality, evaluating these parts individually, in accordance with Article 12 and consequently, in accordance with Article 12, No. 3, of the C.I.M.I., each floor or part of property capable of independent use is considered separately in the matriculation entry, but in the same matrix, proceeding to the assessment of IMI taking into account the taxable patrimonial value of each part" (Article 30 of the response);

13. "The floors or independent divisions, evaluated in accordance with Article 12, No. 3, of the CIMI, are considered separately in the matriculation entry, which also discriminates the respective taxable patrimonial value on which IMI is assessed" (Article 31 of the response);

14. "The unity of the urban property in vertical ownership composed of several floors or divisions is not, however, affected by the fact that all or part of those floors or divisions are capable of economically independent use" (Article 36 of the response);

15. "Without prejudice to the regime of co-ownership, where applicable, its ownership cannot be attributed to more than one owner" (Article 38 of the response);

16. "However, as stated by Silvério Mateus and Leonel Curvelo de Freitas, 'Property Taxes and Stamp Duty Commented and Annotated', ... 2005, pages 159 and 160, each one of the parts of the property may be subject to lease or any other type of use by the owner, which should be expressed in the respective property matrix" (Article 39 of the response);

17. "The fact that IMI has been calculated based on the taxable patrimonial value of each part of property with economically independent use does not equally affect the application of item 28, No. 1, of the General Table" (Article 40 of the response);

18. "This results from the fact that the determining element for the application of that item of the General Table is the total taxable patrimonial value of the property and not separately that of each one of its portions" (Article 41 of the response);

19. "Any other interpretation would violate, in fact, the letter and spirit of item 28.1 of the General Table 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)" (Article 42 of the response);

20. "A type of incidence according to which the taxable patrimonial value of urban properties on which the application of item 28.1 of the General Table depends is the patrimonial value of each floor or division capable of independent use and not the total taxable patrimonial value of the urban property with residential use has certainly no expression in the law" (Article 44 of the response);

21. "It is, therefore, unconstitutional, by reason of violating the principle of fiscal legality, the interpretation of item 28.1 of the General Table, in the sense that the patrimonial value on which its incidence depends should be determined globally and not floor by floor or division by division" (Article 45 of the response);

22. "It is not seen how, on the other hand, the taxation in question could have violated the principle of equality referred to by the claimants" (Article 46 of the response);

23. "In truth, horizontal property ownership and vertical property ownership are differentiated legal institutions" (Article 47 of the response);

24. "The constitution of horizontal property ownership implies, it is a fact, a mere legal alteration of the property, with no new evaluation taking place (Circular Order No. 40.025, of 11 August 2000, of the Directorate of Services of Municipal Contribution, D.S.C.A.)" (Article 48 of the response);

25. "The legislator can, however, subject to a distinct legal-fiscal framework, therefore discriminatory, properties in horizontal and vertical ownership regimes, in particular, benefiting the legally more evolved institute of horizontal property ownership, without that discrimination needing to be considered necessarily arbitrary" (Article 49 of the response);

26. "The fact that the now claimants legitimately disagree with that discrimination does not imply the violation of any constitutional principle" (Article 51 of the response);

27. "What is intended to be concluded is that these procedural rules for evaluation, matriculation entry and assessment of the parts capable of independent use do not permit to state that there exists an equation of the property in full property ownership regime with the vertical property ownership regime (…)" (Article 53 of the response);

28. "These legal-civil regimes are different, and tax law respects them" (Article 54 of the response);

29. "The tax fact of stamp duty of item 28.1 consisting in the ownership of urban properties whose taxable patrimonial value recorded in the matrix, in accordance with the C.I.M.I., is equal to or greater than €1,000,000.00, the patrimonial value relevant for purposes of the incidence of the tax is, therefore, the total taxable patrimonial value of the urban property and not the taxable patrimonial value of each one of the parts that compose it, even when capable of independent use" (Article 55 of the response);

30. "In this vein, the petition of the petitioner does not succeed to claim that there be applied, by analogy to its property, the regime of horizontal property ownership, considering that each one of the fractions capable of independent use constitutes a property, as that would not be to interpret the rules of the CIMI, and consequently of the CIS, that would be to subvert the entire regime instituted therein, with the violations of the principles referred to above" (Article 57 of the response).

31. Proven Facts

The following facts are considered proven:

a) The urban property located at ..., No.s …, in ..., registered in the property matrix under article ... of the parish of ..., is part of the undivided estate, with taxpayer number ..., opened by the death of A, resident that was at …, 120/1404, …, Brazil.

b) The said property is constituted by twenty-one floors or divisions of independent use, sixteen of which intended for housing, and is not constituted in horizontal property ownership;

c) The taxable patrimonial value (VPT) of the various divisions of independent use was determined separately, in accordance with Article 7, No. 2, paragraph b), of the Municipal Property Tax Code (hereinafter CIMI), totaling a global value of €1,083,139.68;

d) The sum of the VPT of the floors with residential use corresponds to the amount of €1,029,739.53;

e) The assessments of Stamp Duty referred to in the proceedings relate to the year 2014 and were made on 20 March 2015, for payment in three installments, during the months of April, July and November of the same year, respectively, containing the following identification elements, in accordance with the documents attached to the initial petition:

[TABLE OF ASSESSMENTS - 16 entries showing various residential units with stamp duty calculations]

1. Unproven Facts

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

1. Grounds

The facts were established as proven based on the documents attached with the petition for arbitral pronouncement, as the Tax and Customs Authority did not attach the administrative file.

There is no controversy regarding the facts.

IV – LEGAL ANALYSIS AND GROUNDS

Questions to be decided:

The illegality of the assessments challenged; and

The claim for payment of indemnificatory interest.

On the illegality of the challenged assessments –

Law No. 55-A/2012, of 29 October, amended Article 1 of the Stamp Duty Code and added to the General Table of Stamp Duty item 28, creating a new taxable reality, consisting of the ownership, usufruct or surface right of urban properties whose taxable patrimonial value recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00.

As the Supreme Administrative Court has stated, "The concept of 'urban property 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 No. 2 of Article 67 of the Stamp Duty Code (equally introduced by that Law) refers on a subsidiary basis. And it is a concept which, probably due to its imprecision – a fact all the more serious given that it is based on it that the scope of the objective incidence of the new taxation is defined –, had a short life, as it was abandoned upon entry into force of the Budget Law for 2014 (Law No. 83-C/2013, of 31 December), which gave new wording to that item 28 of the General Table, and which now defines its objective incidence scope through the use of concepts that are legally defined in Article 6 of the IMI Code.

From the letter of the law nothing unequivocal emerges, in fact, as it itself by using a concept which it did not define and which was also not found defined in the instrument to which it referred on a subsidiary basis lent itself, unnecessarily, to equivocations, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its "spirit", ascertainable in the statement of reasons of the bill proposal that is the origin of Law No. 55-A/2012 (Bill Proposal No. 96/XII – 2nd, Journal of the Assembly of the Republic, series A, No. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more emerges but the concern to raise new tax revenues from sources of wealth "spared" in the past from the tax collector's voracity compared to labor income, in particular investment income, securities gains and property ownership, reasons which bring no relevant contribution to the clarification of the concept of "urban properties with residential use", as they take it for granted, without any concern to clarify it. Such clarification will, however, have emerged – as reported in the Arbitral Decision delivered on 12 December 2013, in process No. 144/2013-T, available in the CAAD database –, upon the presentation and discussion in the Assembly of the Republic of that bill proposal, in the words of the Secretary of State for Tax Affairs, who is reported to have stated expressly, as is gathered from the Journal of the Assembly of the Republic (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 housing. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros" (underlines ours), from which it is gathered that the reality to be taxed with a view are, after all, and notwithstanding the terminological imprecision of the law, 'the residential urban properties', in common language 'the houses', and not other realities'.

As was stated in the decision of the Administrative Arbitration Center (CAAD), which we follow, 'Consulting the CIMI it can be verified that its Article 6 only indicates the different species of urban properties, among which it mentions residential ones (…)

From this we can conclude that, from the perspective of the legislator, what matters is not the legal-formal rigor of the concrete situation of the property but its normal use, the purpose for which the property is intended.

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

(…) Using the criterion that the law itself introduced in Article 67, No. 2 of the Stamp Duty Code, 'to matters not regulated in the present code regarding item 28 of the General Table, the IMI Code shall apply, subsidiarily'.

That is, having in mind that the registration in the property matrix of properties in vertical ownership, for purposes of the IMI Code, follows the same rules of registration of properties constituted in horizontal ownership, with the respective IMI, as well as the new IS, being assessed individually in relation to each one 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, with respect to 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, with respect to the rule of incidence of Item 28 of the TGIS.

Therefore, IS, within the scope of Item 28 of the TGIS, could only apply to a given fraction if it, possibly, had a VPT greater than €1,000,000.00.

And, more is to be said, that this was also the understanding adopted by the ATA.

In fact, the latter (ATA) also issued individualized assessment notices, referring to each one of the fractions capable of autonomous use, demonstrating that, in its opinion, the said fractions, despite not being legally constituted in horizontal ownership, would be, for all effects, independent from one another.

However, the ATA overlooked that it could not, by virtue of the aforementioned framework, proceed to sum the individual VPTs of the fractions previously mentioned, seeking a value that would already fall within the basis of incidence of Item 28 of the TGIS.

This when the legislator itself established a different rule within the scope of the IMI Code which, as previously referred, is the Code applicable to matters not regulated in the Stamp Duty Code, with regard to Item 28 of the TGIS.

In summary, the criterion established by the ATA, of considering the value of the sum of the individual VPTs attributed to the parts, floors or divisions with independent use, making use of the fact that the property is not constituted in the regime of horizontal ownership, 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 the terms mentioned above), under IS.

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

In parallel, note that Article 12, No. 3 of the IMI Code does not make any distinction as to the regime of properties that are in horizontal or vertical ownership.

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

On this point, see what was said regarding this matter in the Arbitral Decision delivered in the course of Process No. 132/2013-T, of 16 December, whose understanding the present tribunal adopts.

"In fact, it does not make sense to distinguish in the law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Moreover, to distinguish, in this context, between properties constituted in horizontal and full ownership would be an 'innovation' without associated legal support, especially because, as has been stated here, nothing denotes, neither in item 28, nor in the provisions of the CIMI, a justification for that particular differentiation.

Note, for example, what Article 12, No. 3, of the CIMI says: each floor or part of property capable of independent use is considered separately in the matriculation entry, which also discriminates the respective taxable patrimonial value.

The uniform criterion that is required is, therefore, that which determines that the incidence of the rule in question only takes place when some of the parts, floors or divisions with independent use of property in horizontal or full ownership with residential use, possesses a VPT greater than €1,000,000.00.

Setting as reference value for the incidence of the new tax the global VPT of the property in question, as the now respondent intended, does not find basis in the applicable legislation, which is the CIMI, given the referral made by the cited Article 67, No. 2 of the Stamp Duty Code.

(…) Moreover, admitting the differentiation of treatment could produce results incomprehensible from the point of view of law and contrary to the objectives that the legislator said it had for adding item 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now respondent: a citizen who is the owner of a property constituted in full ownership intended for housing, the global value of the autonomous units being equal to or greater than €1,000,000.00 and the VPT of each one less than €1,000,000.00, is subject to an annual tax rate of 1% of that value (as occurred in the situation under analysis); already another citizen who holds a property with the exact same characteristics as the previous one but which has been constituted in horizontal ownership, the global value of the autonomous fractions being equally equal to or greater than €1,000,000.00 and the VPT of each one less than €1,000,000.00, will not be subject to taxation in accordance with the mentioned item 28.

On the other hand, one might ask: if such fractions have the same owner, why does it not make sense to aggregate, for purposes of taxation, the respective VPTs? The answer can be illustrated by another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each one of its 20 fractions possesses a VPT less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the global VPT exceeded that amount; already another citizen with identical 20 fractions distributed by 5, 10 or 20 properties would not be subject to any taxation in accordance with the said item 28.

If this line of reasoning makes sense – justifying, therefore, the non-aggregation of the VPTs of 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 at hand, it is found that the VPTs of the floors (autonomous units) of the property with residential use vary between (…), whereby each one of them is less than €1,000,000.00.

From this is concluded, as a result of what was referred, that Stamp Duty referred to in item 28 of the TGIS cannot apply to the same, being, therefore, illegal the assessment acts challenged by the claimant".

One last point worthy of highlighting (notwithstanding the previous framework being sufficient to recognize the illegality of the assessment acts carried out by the ATA), is based on the understanding advocated, both by the legislator and by the government itself, upon the addition of Item 28 to the TGIS.

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

"Law No. 55-A/2012, of 29/10, does not have any preamble, hence from it is it not possible to withdraw the intention of the legislator.

This law of the Assembly of the Republic had its origin in bill proposal No. 96/XII (2nd), which, in its statement of reasons, speaks of the introduction of fiscal measures inserted in a broader set of measures to combat budget deficit.

In the statement of reasons of the said bill proposal, it is stated that, 'these measures are fundamental to strengthen the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of those sacrifices will be made by all and not only by those who live from the income of their work. In accordance with this aim, this act broadens the taxation of capital and property, equitably encompassing a broad set of sectors of Portuguese society'.

In that statement of reasons it is also stated that, beyond the increase in the taxation of investment income and securities gains, a rate is created under stamp duty applying to urban properties with residential use whose taxable patrimonial value is equal to or greater than one million euros.

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

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

'The Government has elected social equity as the priority principle of its fiscal policy.

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

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

For the tax system to be fairer it is decisive to promote the broadening of the tax base requiring an increased effort from taxpayers with higher incomes and protecting in this way Portuguese families with lower incomes.

For the tax system to promote more equality it is fundamental that the effort of budgetary consolidation be distributed among all types of income encompassing with special emphasis investment income and high-value properties. This matter, recall, was extensively addressed in the Constitutional Court judgment.

Finally, for the tax system to be more equitable, it is crucial that all be called to contribute according to their capacity to pay, conferring on the tax administration reinforced powers to control and supervise situations of fraud and tax evasion.

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

This proposal has three essential pillars: the creation of special taxation on urban properties worth more than 1 million euros; the increase in taxation on investment income and on securities gains and the reinforcement of the 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 housing. This rate will be 0.5% to 0.8% in 2012, and 1%, in 2013, and will apply to houses worth equal to or greater than 1 million euros. With the creation of this additional rate the fiscal effort required of these property owners will be significantly increased in 2012 and 2013'".

Next, it is necessary to gather the conclusions that permit, without margin for doubt, to decide on the matter under discussion (that is, if, for purposes of applying Item 28 of the TGIS, in cases where a property with various autonomous fractions, capable of independent use, is not constituted in horizontal ownership, the relevant VPT is determined by the sum of the individual VPTs, or, alternatively, is individually considered).

In this sense, it should be noted, in the first place, that the present matter is, by force of Article 67, No. 2 of the Stamp Duty Code, subject to the norms of the IMI Code, "to matters not regulated in the present code regarding item 28 of the General Table, the CIMI shall apply, subsidiarily".

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

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

The legislator, in accordance with the terms previously mentioned, de-emphasizing any prior constitution of horizontal or vertical ownership.

In fact, for the latter (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 appears to agree with the criterion exposed, which is why the assessments that it itself issues are very clear in their essential elements, from which results that the value of incidence is that corresponding to the VPT of each one of the floors and individualized assessments.

Therefore, if the legal criterion imposes 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 the definition of the rule of incidence of the new tax.

Thus, there would only be IS (within the scope of Item 28 of the TGIS) incidence if some of the parts, floors or divisions with independent use presented a VPT greater than €1,000,000.00.

The ATA cannot consider as 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 with regard to Item 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, whereby the action of the ATA translates into an 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 fiscal system, as well as the principle of fiscal legality provided for in Article 103 of the Constitution of the Portuguese Republic, and also the principles of justice, equality and fiscal proportionality.

In the case at hand, the property in question was, at the relevant date of the facts, constituted in full ownership and had […] fractions with independent use, as appears from the documents […].

Given that none of those fractions has a taxable patrimonial value equal to or greater than €1,000,000.00, as appears from the documents attached to the file, it is concluded that the legal presupposition of incidence was not verified'.

In the same sense we proceed to transcribe part of the decision of the Administrative Arbitration Center (CAAD), with which we also agree,

'Faced with the positions in confrontation, it will be noted first that the AT is right to refer that a property constituted in horizontal ownership is a legal-tax reality distinct from an urban property in "full ownership" or "vertical ownership".

The rules of interpretation oblige to this, which has the text as its starting point, the function of eliminating any meaning that has no support in the letter of the law falling to them.

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

This alone would suffice to conclude that, having the legislator fixed distinct tax qualifications for juridically differentiated realities (properties and parts of properties), it will not be legitimate for the applier of the rule, in the name of the "necessary adaptations" referred to in Article 23, No. 7 of the Stamp Duty Code (CIS), to create a new rule of incidence of that tax, determining the taxation of parts of properties, as it is a matter submitted to the principle of fiscal legality, inherent in Article 103, No. 2, of the Constitution of the Portuguese Republic (CRP), according to which the essential elements of taxes – the incidence, the rate, the tax benefits and the guarantees of taxpayers – are established by law of the Assembly of the Republic, except for legislative authorization to the Government (Article 165, No. 1, paragraph i) and No. 2, of the CRP).

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

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

28.1 – Per property with residential use – 1%;

28.2 – Per property, when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial ordinance – 7.5%.'

Here too the literal element of the rule must be the starting point for its interpretation and, "in the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter must opt in principle for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions employed, and specifically to their technical-legal meaning, in the supposition (not always exact) that the legislator knew how to express correctly its thinking".

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

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

In fact, § 1 of Article 232 of the CCPISIA provided that "Each housing or part of new property capable of separate lease shall be taken autonomously for the purpose of determining the aggregate income on which the assessment shall apply," (underlined), but such autonomy only mattered for purposes of entry in the records and respective unitary assessment, and no longer for purposes of matriculation entry, which was unique for each property not constituted in horizontal ownership, differently from what is currently determined by Article 12, No. 3, of the CIMI.

The objective of the autonomy to which § 1 of Article 232 of the CCPISIA alluded to was, as is still that of autonomous matriculation entry for each floor or division capable of independent use, the control of the income generated thereby, in case of lease; however, that income is now taxed under IRS (category F).

With regard to the determination of the value of properties not constituted in horizontal ownership, Article 7, No. 2, of the CIMI applies, but only for "urban properties with parts that can be classified in more than one of the classifications of No. 1 of the preceding article", in which case, in accordance with its paragraph b) "(…) each part is evaluated by application of the corresponding rules, being the value of the property the sum of the values of its parts".

Pursuant to No. 1 of Article 6 of the CIMI, urban properties are divided into: a) Residential; b) Commercial, industrial or service; c) Land for construction; d) Others.

From the combination of the rules of No. 2 of Article 7 and No. 1 of Article 6, both of the CIMI, it follows that, if an urban property not constituted in horizontal ownership, integrating exclusively parts or divisions of residential use (which is not the case of the proceedings, as the Petitioner argues, although the value taken into consideration in the assessments made by the AT was the sum of the VPTs of the divisions intended for housing), the value of the property does not equal the sum of its parts.

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

Reached at this point, it will be necessary to question the subjection to stamp duty of item 28 of the TGIS, of a part or division of independent use, with residential use, of a property not constituted in horizontal ownership, in which are integrated parts or divisions of independent use, classifiable in another of the classifications of No. 1 of Article 6 of the CIMI, for example, divisions intended for commerce, industry or services, as is the case at hand, in which, of the 21 floors/divisions of independent use, only 16 are intended for housing.

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

This is because here, note well, two juridically distinct realities are not being compared, such as the parts or divisions of independent use of an urban property not constituted in horizontal ownership with the autonomous fractions of properties submitted to that regime, which, for purposes of IMI, are themselves properties.

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

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

Not appearing to be that the legislative intent, one cannot accept that the AT formulates a new rule of incidence, diverse from that which was created by the legislator, intending to tax parts of properties, although economically and functionally independent and, as such, separately registered in the matrix, which also discriminates the respective taxable patrimonial value (see No. 3 of Article 12 of the CIMI), as the law is clear in subjecting to stamp duty of item 28.1 of the TGIS urban properties with residential use, whose VPT, for purposes of IMI, is greater than €1,000,000.00.

Different would be the case of a part or division of independent use and residential use, inserted in urban property not constituted in horizontal ownership, but with a VPT, for purposes of IMI, equal to or greater than €1,000,000.00, having in mind the ratio legis of the rule of incidence.

Effectively, as referred by the Petitioner in its arguments and has already served as grounds for other arbitral decisions, namely that delivered in process No. 50/2013-T, "The ratio legis underlying the rule of item 28 of the TGIS, introduced by Law No. 55-A/2012 of 29 October, in obedience to the provisions of Article 9 of the Civil Code, according to which the interpretation of the legal rule should not be confined to the letter of the law, but reconstruct from the texts and other elements of interpretation the legislative thought, taking into account the unity of the legal system, the circumstances in which it was elaborated and the specific conditions of the time in which it is applied.

The legislator in introducing this legislative innovation considered as the determining element of capacity to pay urban properties, with residential use, of high value, more precisely, of value equal to or greater than €1,000,000.00, on which it then imposed a special rate of stamp duty, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or surface right of high-value urban properties with residential use. The criterion was the application of the new rate to urban properties with residential use, whose VPT is equal to or greater than €1,000,000.00.

Such logic appears to make sense when applied to "housing", whether it be "house", "autonomous fraction" or "part of property with independent use" "autonomous unit", because it supposes a capacity to pay above average and, to that extent, justifies the need to carry out an additional contribution effort, it would make little sense to proceed to disregard the "unit by unit" determinations when only through the sum of the VPTs of the same, because held by the same individual, would the million euros be exceeded.

This is concluded from the analysis of the discussion of Bill Proposal No. 96/XII in the Assembly of the Republic, available for consultation in the Journal of the Assembly of the Republic, I series, No. 9/XII/2, of 11 October 2012.".

We have therefore that, beyond the grammatical element of the interpretation of the rule of incidence contained in item 28.1 of the TGIS, also its rational or teleological element, the ratio legis or purpose intended by the legislator in elaborating that rule, points in the sense that taxation applies to urban properties of high VPT and not to parts of urban properties, although of independent use, with VPT of value less than that legally determined.

On this matter there is extensive arbitral jurisprudence.

Called for the first time to decide an identical question, the Supreme Administrative Court pronounced itself in the same sense, see judgment of 09-09-2015, delivered in Process No. 047/15, summarized as follows:

"I - Regarding properties in vertical ownership, for purposes of incidence of Stamp Duty (Item 28.1 of the TGIS, as worded by Law No. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential use and the VPT recorded in the matrix equal to or greater than €1,000,000.

II - In the case of a property constituted in vertical ownership, the incidence of IS must be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors capable of independent use (individualized in the property matrix article), but by the VPT attributed to each one of those floors or divisions intended for housing".

Given the foregoing, considering that none of the sixteen floors or divisions capable of independent use here in question and on which the assessments subject of the present petition for arbitral pronouncement fell, individually reach the value of €1,000,000.00, the alleged defect of violation of law by error regarding the presuppositions of Law is considered verified, which determines the declaration of illegality and consequent annulment of the assessments carried out.

Thus, the knowledge of the questions relating to the alleged unconstitutionality of the interpretations given by the Parties to the rule of item 28.1 of the TGIS, by violation of the principles of legality and fiscal equality, is rendered moot, once that rule does not bear the interpretation which was given to it, in the case, by the Respondent AT, upon issuing the assessments subject of the petition for arbitral pronouncement, and which cannot remain in the legal order.

On the claim for payment of indemnificatory interest –

The Petitioner further requests that it be paid indemnificatory interest, due to error by the services, in accordance with No. 1 of Article 43 of the General Tax Law (LGT), having, however, not proven having paid the sum assessed of €10,927.40.

This provision, applicable subsidiarily to tax arbitration proceedings, by force of the provisions of Article 29, No. 1, paragraph a), of the RJAT, states "Indemnificatory interest is due when it is determined, in administrative claim or judicial challenge, that there was error attributable to the services resulting from payment of the tax debt in an amount greater than that legally owed."

The existence of error attributable to the services is considered verified, according to uniform jurisprudence of the STA, whenever they proceed to administrative claim or judicial challenge of the assessment act (in the same sense, the decision in arbitral process 218/2013-T).

Having demonstrated the erroneous application of the rule of objective incidence contained in item 28.1 of the TGIS, which justifies the annulment of the assessments challenged, the right of the Petitioner to indemnificatory interest is recognized at the legal suppletive rate, in accordance with Articles 43, Nos. 1 and 4, and 35, No. 10, of the LGT, Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April, from the date of actual payment of each one of the installments in which the assessed amount was divided, until the date of processing of the respective credit note, in accordance with the provisions of No. 5 of Article 61 of the Code of Tax and Customs Procedure.

V – DECISION

In light of the foregoing, it is decided:

a) To uphold the claim for declaration of illegality of the Stamp Duty (IS) assessments for the year 2014, relating to item 28.1 of the TGIS, made on 20-03-2015, in the amount of €10,297.40, due to error regarding the legal presuppositions and, consequently, to annul the assessments challenged;

b) To uphold the claim for condemnation of the Tax and Customs Authority to reimburse the sums improperly paid by the Petitioner, increased by interest, at the legal rate, from the dates of the improper payments until the date of issuance of the respective credit notes.

Value of the proceedings

In accordance with the provisions 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 proceedings is fixed at €10,297.40.

Costs

Pursuant to Article 22, No. 4, of the RJAT, the amount of costs is fixed at €918.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 16-11-2015

The Arbitrator,

(Rui Ferreira Rodrigues)

Text prepared by computer, in accordance with the provisions of Article 131, No. 5, of the CPC, applicable by referral of Article 29, No. 1, paragraph e), of the RJAT.