Stamp Tax on Vertical Property Under Verba 28.1 TGIS: Challengeability and Compensatory Interest

ARBITRAL DECISION

I – REPORT

A) The Parties and the Establishment of the Arbitral Tribunal

A…, with Tax Identification Number…, with domicile at Rua…, … – 3rd Floor Left, …– … LISBON, registered with the Finance Service of Lisbon…, hereinafter referred to as "Claimant", filed a request for the establishment of a sole arbitral tribunal, pursuant to the provisions of Article 2, paragraph 1, subparagraph a) and Article 10, paragraphs 1 and 2 of Decree-Law No. 10/2011, of 20 January, hereinafter referred to as "RJAT" and Ministerial Order No. 112 – A/2011, of 22 March, to challenge and declare the illegality of tax acts for the assessment of Stamp Tax (IS), issued in application of the provisions of item 28.1 of the General Stamp Tax Table (TGIS) relating to the year 2014, in the total amount of €3,846.14, seeking their annulment, with reference to the urban property located at Rua…, … – …, in Lisbon, described in the Property Registry of Lisbon, under sheet…, registered in the urban property register under article….

The tax acts challenged in these proceedings correspond to the value of the 1st installment of Stamp Tax for the year 2014, assessed and collected in three installments. In these proceedings, the Claimant challenged the following IS assessments, all relating to the first installment of 2014, with a payment deadline during the month of April 2015, namely:

Assessment No. 2015…, relating to the left basement, in the amount of €328.80;

Assessment No. 2015…, relating to the right basement, in the amount of €347.30;

Assessment No. 2015…, relating to the ground floor, in the amount of €608.10;

Assessment No. 2015…, relating to the first floor, in the amount of €634.14;

Assessment No. 2015…, relating to the second floor, in the amount of €640.48;

Assessment No. 2015…, relating to the third floor, in the amount of €640.48;

Assessment No. 2015…, relating to the fourth floor, in the amount of €646.84.

These assessments are duly identified and attached to the file, as are the respective proof of payments.

The request for the establishment of the Arbitral Tribunal was submitted by the Claimant on 08-07-2015, was accepted by the Honorable President of CAAD and notified to the Tax and Customs Authority. The Claimant opted not to designate an arbitrator, whereby, pursuant to the provisions of Article 6, paragraph 1 of the RJAT, the undersigned was designated by the Ethics Council of the Administrative Arbitration Center, on 28-08-2015, as arbitral judge.

Thus, in accordance with the provisions of Article 11, paragraph 1, subparagraph c) of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the sole Arbitral Tribunal was established on 02-10-2015. On 06-10-2015, an arbitral order was issued to the Tax and Customs Authority (ATA) to submit its answer within the legal period, in the terms and for the purposes of Articles 17, paragraphs 1 and 2 of the RJAT.

On 03-11-2015, the Respondent submitted its answer to the file, which is reproduced in full herein.

On 13-11-2015, an arbitral order was issued, pursuant to Article 18 of the RJAT, in which the meeting provided for in this legal provision was scheduled for 4/12/2015, at 14 hours and 30 minutes, in order for witness testimony indicated by the claimant to be produced and other relevant matters to be discussed, namely the matter of the exception raised by the Respondent.

The Respondent submitted a petition on 1/12/2015 requesting the waiver of the scheduled meeting, but in light of the non-response from the Claimant, the Arbitral Tribunal maintained the scheduled meeting.

On the scheduled date, the meeting was held, without the presence of the illustrious representatives of the ATA, who justified their absence, as appears in the minutes drawn up and attached to the file, which are reproduced in full herein. Witness testimony indicated by the Claimant was not produced, as the latter dispensed with its production. The Claimant confirmed the request formulated and pronounced on the matter of the exception raised by the ATA, declaring its preference to pronounce in writing, with the submission of its written arguments. Accordingly, a period was set for the parties to submit written arguments. A date was set for the delivery of the arbitral decision until 20/02/2016. The Claimant was further notified to make the payment of the subsequent arbitration fee.

B) THE REQUEST FORMULATED BY THE CLAIMANT

The Claimant submitted this request for arbitral decision arguing for the illegality of the IS assessments identified above, determined pursuant to item 28.1 of the TGIS, as appears in the documents attached with the arbitration request.

The tax assessments challenged are relating to the property located at Rua…,…– …, in Lisbon, which is owned by the present Claimant. As appears from the property register attached to the file, the property in question is comprised of seven floors, with various parts or divisions capable of independent use, all intended for housing, and is held under a regime of full or vertical ownership. The Taxable Property Value (VPT) shown in the urban property register is €1,153,830.00, and each of its parts or divisions capable of independent use have VPT determined in accordance with the CIMI, ranging between €98,640.00 and €194,050.00.

On this property, the ATA assessed IS, with reference to the year 2014, in accordance with item 28.1 of the TGIS, because the total VPT of the property, calculated on the basis of the sum of the VPT assigned to each independent part or division, exceeds €1,000,000.00. In accordance with this understanding, Stamp Tax assessments were issued, corresponding to the 1st installment due with reference to 2014, which were notified to the Claimant for payment during the month of April 2015. These assessments were paid within the due period, as appears in the documents attached to the arbitration request, which are reproduced in full herein.

In summary, to substantiate its request, the Claimant argues that the assessment of IS on the sum of the VPT of the divisions capable of independent use that make up the property, under a regime of full or vertical ownership, is illegal. According to the Claimant, the reference value for the incidence of IS, in the case of a residential property composed of various parts or divisions capable of independent use, in vertical ownership, should be that corresponding to the VPT assigned to each of those parts or divisions. It concludes by requesting the annulment of the tax assessments challenged, with reference to the year 2014, and claims reimbursement of the amounts paid plus compensatory interest.

C – THE RESPONSE OF THE RESPONDENT

The Respondent ATA, duly notified for such purpose, submitted its response in a timely manner in which, by opposition, it alleged, in summary, the following:

By exception, it alleges the non-challengeability of the subject matter of this arbitration request, on the understanding that despite the assessment and collection of the tax in three installments, we are always faced with a single assessment regardless of whether the tax can be paid in more than one installment. Thus, the Claimant cannot autonomously challenge only one of the installments, as it did in the present case, but would have to wait for the assessment and collection of all three installments. It invokes the existence of a dilatory exception provided for in Article 89, paragraph 1 of the CPTA, subsidiarily applicable by Article 29, paragraph 1, subparagraph c) of the RJAT, which prevents knowledge of the merits and entails the absolution of the ATA.

By opposition, the Respondent ATA invoked that the assessments in question were issued in compliance with and in accordance with the provisions of Article 6, paragraph 2 of Law No. 55-A/2012, of 29/10, which added item No. 28 to the TGIS, as amended by Law No. 83-C/2013 of 31/12, and whose respective rule of incidence refers to urban properties, valued in accordance with the Municipal Property Tax Code (CIMI), with VPT equal to or exceeding €1,000,000.00 and, in accordance with item 28.1, with residential destination. What is relevant for the purposes of IS incidence is the VPT of the property, which, in the present case, corresponds to the sum of the VPT corresponding to the parts or divisions capable of independent use, which in the present case amounts to €1,153,830.00. Whereby, the ATA assessment of the tax in question in these proceedings results from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary appreciation.

The concept of property is defined in Article 2, paragraph 1 of the CIMI, and it is established in paragraph 4 that, in the regime of horizontal ownership, each autonomous fraction is deemed to constitute a property.

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

It concludes arguing in favor of the legality of the IS assessments challenged and the dismissal of the arbitration request.

II - PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is regularly established. It is materially competent, in accordance with Article 2, paragraph 1, subparagraph a) of the RJAT.

The Parties have legal personality and capacity, are entitled and are legally represented (cf. Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Ministerial Order No. 112/2011, of 22 March).

The proceedings are not affected by defects that would invalidate it.

In light of the above, it falls to this tribunal to decide on the preliminary question of the dilatory exception raised by the ATA.

The Claimant requested in these proceedings the annulment of the acts assessing Stamp Tax for the year 2014, and attached to its request the assessments already issued, notified and paid, relating to the 1st of the three installments due. From the current regime of assessment of stamp tax on immovables, provided for in Item 28.1 of the TGIS, it results that an annual levy is calculated and three assessment acts are subsequently issued corresponding to each of the three installments relating to the same property.

The question that the ATA raises is, therefore, that of the non-challengeability of the acts challenged because it understands that there is only one assessment act corresponding to the set of three installments collected at three different times. The parties invoke arbitral jurisprudence in the sense of the positions both defend, revealing some controversy on this question.

However, the position here defended by the ATA does not appear to be defensible. Immediately, a different conclusion is drawn from the content of the very assessment of each of the installments collected. In fact, it is the ATA itself that designates each of the assessments as such, indicating the value, the date of assessment, the installment to which it corresponds (in the present case the 1st), the deadline for assessment (April 2015) and the means of defense available to the taxpayer, indicating that "may lodge a claim or challenge the tax assessment within the periods established in Articles 70 and 102 of the CPPT".

Let us see by way of example the first of the assessments challenged:

[Assessment document reference]

From the assessment procedure established by law, it results that a single assessment is not issued followed by three collection notes, but rather three assessment acts (as designated by the ATA itself), corresponding to each of the installments to be paid. It does not appear from the file that any other prior assessment act was practiced and notified to the Claimant, in which the total annual amount to be collected was mentioned. The only assessment acts issued and notified to the taxpayer, in the case of IS, are those corresponding to the tax installments to be paid. In turn, these have underlying an act of determination of the taxable base and the levy, which is divided for purposes of payment into three installments. Nothing prevents, therefore, the Claimant from immediately challenging the assessments corresponding to the 1st installment without having to wait for the 3rd installment, as is the case in these proceedings. Indeed, this is what results from the content of the notification itself to the Claimant, in which the mechanisms of reaction against the act are mentioned, referring to the provisions of Articles 70 and 102 of the CPPT.

With respect to IS, items 28 and 28.1 of the TGIS, the assessment and collection procedure follows the terms of the CIMI. The ATA alleges that from the provision of Article 120, paragraph 4 of the CIMI, that in the case provided for in paragraphs 1 and 3, the non-payment of an installment or an annuity, within the established period, implies the immediate maturity of the remaining installments. "That is, the law does not comprehend the autonomous challenging of one installment of item 28 of IS contained in the collection notes, as is the case in the proceedings." However, it does not appear that the conclusion is inevitably the one that the ATA draws from reading the legal provisions. The reference to "immediate maturity of all remaining installments", in the sense that emerges from the law, in case of non-compliance, would always imply the issuance of assessments corresponding to the missing installments. Thus, it is not seen that the ATA has reason when it seeks the non-challengeability of the acts in question in these proceedings.

Arbitral tribunals, under Article 2, paragraph 1 of the Legal Framework for Tax Arbitration, have competence to decide on tax assessment acts and acts of determination of the taxable base. The acts here under consideration concern the assessment of Stamp Tax for the year 2014, on an urban property in a regime of non-horizontal or vertical ownership, in which the tax was calculated on the basis of the overall VPT of the property by means of the sum of all the VPT of all its independent parts or divisions. For this purpose, a levy is calculated, from which three assessments will be issued corresponding to each of the installments due. Should the taxpayer fail to pay the first, the following mature, which will imply the acceleration of the issuance of all those corresponding to the missing installments.

As can be verified from the documents attached to the file with the arbitration request, the ATA, after determining the levy (overall VPT of €1,153,830.00) proceeded to issue the first installment of the three that will be due with reference to the Stamp Tax assessment for 2014. The assessments notified to the Claimant therefore contain, from the outset, the indication of the challengeable guarantees at the disposal of the taxpayer, in compliance with the requirements of the legal obligation to notify the taxpayer. It is a single tax, to be sure, which is assessed in three installments, having as reference the concept of assessment as an act that is reduced to the determination of the levy through the application of the rate to the taxable or taxable base, quantifying the amount due, the conditions and periods of payment, as well as the means of defense.

Accordingly, the passive subject may resort to the arbitral tribunals operating in the CAAD to request the examination of the acts in question, since they are covered by Article 2, paragraph 1 of the Legal Framework for Tax Arbitration.

Taking into account that the passive subject came to request the annulment of the 1st installment of the payment of IS, based on an error of law underlying the determination of the taxable base that will serve as the basis for the determination of the levy expressed in all assessments of all installments relating to the same period and the same property. As better clarified in its arguments, in response to the exception raised, what is at issue is the challenge against the IS assessed on this property, with reference to the year 2014. If we consider the effects of the declaration of illegality of an assessment act based on an error in the determination of the taxable base, such declaration will have effects as to all connected or resulting acts. This itself results from the provisions of Article 289 of the Civil Code regarding the effects of the declaration of nullity and voidability of the act.

Finally, in the written arguments, the Claimant came to clarify that: "Despite not agreeing with the thesis defended in the decisions mentioned by the Respondent to the effect that the moment for challenging the tax will be the date of assessment of the third and last installment – the Claimant would always say that it would have to be invited to correct its initial petition to identify which tax acts it seeks to have challenged (the totality of Stamp Tax for 2014), all in obedience to the principle of procedural economy and to the very thesis invoked by the ATA.

The Claimant considers that such a request is absolutely unnecessary, since the challenge is to the assessment acts of Stamp Tax for the year 2014."

This itself already resulted from the entire content of the initial petition, in which the Claimant argued in favor of the illegality of the act of determination of the taxable base that underlies the entire Stamp Tax assessment procedure for 2014. But, in the written arguments, it made this very clear.

For all the foregoing, the dilatory exception raised by the Respondent is deemed to be without merit, and it is necessary to address the material facts relevant to the decision on the legal question under examination in these proceedings.

Taking into account the documentary evidence attached to the file, it is necessary to establish the material facts relevant to the understanding of the decision, which is established as follows.

III – Material Facts

A) Proven Facts

As relevant material facts, this tribunal accepts the following facts as established:

a) The Claimant was the owner, at the date of the tax fact in question in the present proceedings, of the urban property located at Rua…, No.…, …, in Lisbon, described in the Property Registry under sheet… and registered in the urban property register under No….

b) On this property the ATA assessed stamp tax, with reference to the year 2014;

c) For this purpose, it determined as the incidence base of the tax the value corresponding to the sum of the VPT assigned to each independent part or division, which is €1,153,830.00 (a value exceeding €1,000,000.00);

d) The IS determined in accordance with the above, with reference to the year 2014, corresponds to three installments of €3,846.14 each;

e) The property in question is comprised of seven floors with divisions capable of independent use, intended for housing, with taxable property values ranging between €98,640.00 and €194,050.00;

f) The ATA, for the year 2014, assessed IS, with reference to item 28.1 of the TGIS, for the property described above, on the sum of the taxable property value of all floors or divisions capable of independent use, with residential destination;

g) At the date of filing this arbitration request, the Claimant had voluntarily paid the IS assessments corresponding to the 1st installment, as evidenced by the proof of payment attached to the file, which are reproduced in full herein;

h) For purposes of IMI, each part or division capable of independent use has an individual VPT assigned, as appears in the respective property register attached to the file, which is reproduced in full herein.

B) UNPROVON FACTS

With relevance to the decision, there are no facts that should be considered as unproven.

C) REASONING OF THE PROVEN FACTS

The facts described above were accepted as proven based on the documentary evidence that the parties attached to this proceeding.

Regarding the material facts, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and to discriminate the proven from the unproven matters [cf. Article 123, paragraph 2 of the CPPT and Article 607, paragraph 3 of the Code of Civil Procedure (CPC), applicable ex vi Article 29, paragraph 1, subparagraphs a) and e) of the RJAT]. In this manner, the facts pertinent to the judgment of the case are chosen and selected according to their legal relevance, which is established in view of the various plausible solutions of the legal question(s) [cf. previous Article 511, paragraph 1 of the CPC, corresponding to the current Article 596, applicable ex vi Article 29, paragraph 1, subparagraph e) of the RJAT].

Thus, taking into account the positions assumed by the parties, the documentary evidence attached to the file, the facts listed above were accepted as proven, with relevance to the decision, as facts that were consensually recognized and accepted by the parties.

IV – ON THE LAW: reasoning of the merits decision

1. Having established, in the manner stated above, the material facts, it is necessary to address the legal question raised by the Claimant, which consists in examining the terms of the configuration of the subjective scope of IS provided for in item 28 of the TGIS, in the specific case of a property in full (or vertical) ownership, composed of various floors, with divisions or parts capable of independent use.

It is necessary to decide.

1. At issue in these proceedings is, in the first place, the question of whether the owner(s) of a property in full (or vertical) ownership, constituted by divisions capable of independent use, whose VPT was determined separately, in accordance with Article 7, paragraph 2, subparagraph b) of the CIMI, is (are) subject to the incidence of IS, by force of the provision of item 28.1 of the TGIS, on the sum of the VPT of those divisions, when none of the said divisions have a VPT exceeding €1,000,000.00, but the sum of their respective VPT exceeds this amount.

From the argumentative framework presented by the parties, it is concluded that for the ATA, the criterion for determining the incidence of IS, provided for in item 28.1 of the TGIS, of properties in full (or vertical) ownership, with floors and divisions with independent use with residential destination, corresponds to the sum of the respective VPT assigned to the parts or divisions. It was this understanding that led to the IS assessments challenged here and which the Claimant contests, on the understanding that such judgment is illegal and unconstitutional, which prompted the filing of this request for the establishment of an Arbitral Tribunal.

As to the fundamental question for decision in these proceedings, this tribunal considers that the solution thereof is duly contained in the applicable infra-constitutional norm and, therefore, it does not appear necessary to resort to the application of constitutional principles that may be contravened by the reading that the ATA makes of the rule of incidence in question. This reference is justified, taking into account the recent decisions handed down by the Constitutional Court, declaring that the provision in items 28 and 28.1 do not appear to be unconstitutional. This in no way contradicts or imposes a different solution from that which this tribunal advocates, since it merely applies the principles enshrined in the rule of incidence, in accordance with the interpretation that results from the letter of the law and the other elements of interpretation of the applicable legal norm.

1. This question has already been the subject of recurring examination in arbitral proceedings, and the jurisprudence is consistent in the sense of a negative response, as can be seen, by way of example, in the decisions handed down in proceedings No. 48/2013-T, 49/2013-T, 50/2013-T, 53/2013-T, 132/2013-T, 181/2013, 183/2013-T 248/2013-T and 280/2013-T, 30/2014-T, among others.

In the same sense, the Supreme Administrative Court (STA) recently pronounced itself, in an Accord in which the Honorable Judge Counselor Francisco Rothes was the Reporter, in which it was decided:

"I - With respect to properties in vertical ownership, for the purposes of Stamp Tax incidence (Item 28.1 of the TGIS, as amended by Law No. 55-A/2012, of 29 October), subjection is determined by the combination of two factors: residential destination and VPT listed in the property register equal to or exceeding €1,000,000.

II - In the case of a property constituted in vertical ownership, the incidence of IS should 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 record), but by the VPT assigned to each of those floors or divisions intended for housing." [1]

Notwithstanding the foregoing, the Respondent ATA has continued to maintain the understanding expressed in these proceedings, arguing for an interpretation based on formal concepts, particularly with respect to the concept of property for purposes of IS incidence. Now, on the fundamental question at issue, it will be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretive task requires something more, that is, from the text of the norm it is necessary to discover the underlying ratio legis, "a task of interconnection and valuation that escapes the literal domain" [2], in other words "the jurist must always keep in mind the purpose of the law, that is, the practical result that it proposes to achieve".[3]

In this connection, the question centers on the interpretation of the rule of incidence, as it is expressed in the legal provision of items 28 and 28.1 of the TGIS, referring to "ownership, usufruct or right of surface of urban properties, with residential destination (28.1) whose taxable property value listed in the property register, in accordance with the CIMI, is equal to or exceeding €1,000,000.00 – on the taxable property value used for purposes of IMI". (our emphasis)

Now, it seems that such legal provision does not embrace the understanding followed by the ATA, insistent and recurrently, according to which for properties "with residential destination" in vertical ownership, with floors or divisions capable of independent use, the VPT on which the IS rate should apply must be the total VPT, corresponding to the sum of the VPT assigned individually to each fraction, part, or independent division.

Such understanding is, from the outset, contradicted by the very letter of the law, when it unequivocally refers to the application of the principles prevailing in the context of IMI, which means that the incidence for purposes of IS – items 28 and 28.1 of the TGIS – should apply to each floor or division capable of independent use (similar to what happens with properties in the regime of horizontal ownership), just as it does in the context of IMI.

For purposes of IMI, each part or division capable of independent use is, as we know, taxed individually, based on the individual VPT assigned for this purpose. The reference to the CIMI, which the legislator introduced, expressly and unequivocally, in the letter of the law (items 28 and 28.1 of the TGIS), can only have one meaning, which offers no doubt: it is that same VPT (individual, of each independent part or division) that is the reference for purposes of IS incidence enshrined in items 28 and 28.1 of the TGIS.

By way of example, see Arbitral Decision No. 280/2013-T, which is particularly succinct and precise, in which the following was affirmed:

"The question of law to be resolved first is whether, in accordance with the provision of item 28.1 of the TGIS, one should or should not consider the sum of the VPT of each of the parts or divisions capable of independent use, since none of them has a value equal to or exceeding €1,000,000.00;

Taking into account that the CIS refers to the CIMI for the regulation of the concept of property and matters not regulated with respect to item 28 of the TGIS (No. 6 of Article 1 and No. 2 of Article 67, both of the CIS), it is in the CIMI that we must observe the concepts that will allow us to resolve the question; (our emphasis)

The generalist concept of property is contained in Article 2 of the CIMI. In Article 3 of the same statute, the legislator, using criteria of destination and location, established the concept of rural properties, later, in a classification by exclusion, in Article 4, establishing that urban properties will be all those that should not be classified as rural;

In No. 2 of Article 5 of the same Code, the legislator establishes the concept of mixed properties that will be those in which there are distinct rural and urban economic realities and there is no subordination of one to the other;

Article 6 of the cited CIMI divides urban properties into: residential, commercial, industrial or service, land for construction and others;

In the specific case we are faced with an urban property with parts or divisions capable of independent use with residential destination and others with commercial destination, it is a property with parts that can be classified in the residential division of subparagraph a) of No. 1 of Article 6 and with parts that can be classified in subparagraph b) of the same No. and article, but in no way will it be a mixed property in the concept established in the already cited Article 5 of the CIMI;

Each of the parts or divisions capable of independent use that make up the immovable in question fulfills the concept of property established in Article 2 of the CIMI, they are physically and economically independent and are part of the estate of a legal entity;

Moreover, the ATA, in eliminating the VPT of the parts or divisions with destination other than residential, for purposes of taxation in IS, did nothing more than use the criterion defined in No. 4 of Article 2 of the CIMI for properties in the regime of horizontal ownership;

In other words, the ATA, in order to make this elimination, considered that the parts or divisions capable of independent use were true autonomous parts of property in vertical ownership fulfilling the concept of property;

And did nothing more than observe what is provided for in No. 3 of Article 12 of the CIMI: "each floor or part of property capable of independent use is considered separately in the property registry entry, which also discriminates the respective taxable property value.

Likewise, the ATA, in making the taxation in IMI, did so by taxing separately the VPT of each of the parts or divisions capable of independent use;

The ATA used the same criterion in taxation in IS, when calculating on the basis of the VPT of each of the parts or divisions with independent use with residential destination, except that at the end it considered the overall VPT, verifying that it exceeded €1,000,000.00 and summed the IS values calculated individually;

But this procedure has no legal support, since none of the parts or divisions with independent use with residential destination, each fulfilling the concept of property enunciated in Article 2 of the CIMI, has a VPT equal to or exceeding €1,000,000.00, the requirement necessary for there to be taxation in IS;

To make the taxation in IS considering the overall VPT of the property, even purged of the VPT of the parts or divisions not destined for housing, as the respondent claims, has no support in the CIMI, in accordance with the reference in No. 2 of Article 67 of the CIS;

Nor can it be said that there is a different valuation and taxation of an immovable in full ownership with parts or divisions capable of independent use, as opposed to an immovable in horizontal ownership. In fact, it does not exist in IMI, just as it cannot exist in IS, since, as has been said, the applicable legislation is the same;

From this perspective, and considering that none of the parts or divisions capable of independent use with destination or residential destination has VPT equal to or exceeding €1,000,000.00, it is necessary to conclude that the acts of assessment of IS are illegal for not having observed the conditions defined in item 28 of the TGIS."

What is stated above is, in itself, sufficiently clear to demonstrate that the thesis defended by the ATA cannot prevail. A proper reading of the scope of the provision of the rule of incidence of items 28 and 28.1 of the TGIS, in light of what Article 23, paragraph 7 of the CIS permits to conclude regarding the determination of the taxable base and subsequent operation of tax assessment, that: "In the case of the tax owed for the situations provided for in item No. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI." (our emphasis)

Furthermore, it may be said that in accordance with Article 11, paragraph 3 of the LGT: "if doubt persists regarding the meaning of the rules of incidence to be applied, regard must be had to the economic substance of the tax facts".

In the case of these proceedings, the correct interpretation of the legal norm contained in items 28 and 28.1 of the TGIS should have regard to the "economic substance of the tax facts" to properly implement the "necessary adaptations of the rules contained in the CIMI". This appears to be decisive for the proper examination of the legal matter under discussion. Not forgetting the respect for the "unity of the legal system", which is imposed, above all, by the coherence in values or axiological orientation of the legal order". This is, without question, a decisive factor for a correct interpretation of the legal norm as it was expressed in the legal text. Now, the legislator expressed coherently his thinking on this matter, by introducing a comprehensive reference to the principles contained in the CIMI, not least because he well knew that for purposes of IMI each of the independent parts or divisions was and is considered at the value assigned to it, individually. For this very reason each independent division is separated for purposes of IMI incidence.

Given this, the delimitation of the scope of the rule of incidence of this new tax must follow the guidance of the letter and spirit of the law. At the outset, regard must be had, therefore, to the express provision of items 28 and 28.1 of the TGIS, with the "necessary adaptations of the rules contained in the CIMI", as results from Article 23, paragraph 7 of the CIS.

It is important, therefore, to take into account that the subjection to IS of properties with residential destination resulted from the addition of item 28 to the TGIS, carried out by Article 4 of Law 55-A/2012, of 29/10, which typified the following tax facts:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable property value listed in the property register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding €1,000,000.00 – on the taxable property value for purposes of IMI:

28-1 – For property with residential destination – 1%

28.2 – For property, when the passive subjects are not natural persons and are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the approval by order of the Minister of Finance – 7.5%.

Article 67, paragraph 2 of the CIS, as amended by said Law, provides that "to matters not regulated in this code regarding item 28 of the General Table, the CIMI applies subsidiarily."

The rule of incidence refers, therefore, to urban properties, whose concept is that which results from the provision of Article 2 of the CIMI, with the determination of VPT following the terms provided for in Article 38 and following of the same code. Consulting the CIMI, it is verified that Article 6 merely indicates the different types of urban properties, among which it mentions residential (see subparagraph a) of paragraph 1), clarifying in paragraph 2 of the same article that "residential, commercial, industrial or service 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."

From the normative provisions referred to, we can conclude that, from the perspective of the legislator, what matters is not the formal legal rigor of the specific situation of the property (it is immaterial whether it is in vertical or horizontal ownership) but rather its normal use, the purpose to which the property is actually destined. It is thus in the context of IMI incidence and it must be thus in the context of IS, because the legislator determined that the latter follow the rules provided for in the context of IMI in everything that does not expressly result from regulation in the CIS.

We further conclude that for the legislator the situation of the property in vertical or horizontal ownership was not relevant, as no reference or distinction is made between them. An identical conclusion is drawn from the reference that the legislator introduced in the matter of IS to the CIMI. Now, this tax establishes as a criterion for properties in vertical ownership the assignment of a VPT to each of the independent parts or divisions. What is relevant is, therefore, the material truth underlying its existence as an urban property and its residential purpose.

Using the criterion that the law itself introduced in Article 67, paragraph 2 of the CIS, "to matters not regulated in this code regarding item 28 of the General Table, the CIMI applies subsidiarily."

From the provision of Article 2, paragraph 4 of the CIMI, it results that "For purposes of this tax, each autonomous fraction, in the regime of horizontal ownership, is deemed to constitute a property." Furthermore, Article 12, paragraph 3 of the CIMI adds that "Each floor or part of property capable of independent use is considered separately in the property registry entry, which also determines the respective taxable property value". (our emphasis)

The criterion of "opportunity" adopted by the ATA does not appear to conform to the law, nor to the principle of fiscal legality, whereby the assessments challenged are vitiated by a breach of law, for manifest error as to the assumptions of fact and law.

But if there were any doubts, recourse to the ratio legis and the principles of interpretation stated above would always lead us in the opposite direction to that which has been defended by the Respondent. It suffices to think that if the property in question in these proceedings were in the regime of horizontal ownership, none of its residential fractions would be subject to the incidence of the tax that seeks to tax properties or luxury homes.[4]

Moreover, as has been said, the legislator's thinking expressed in the rule of incidence, by referring to the application of the CIMI, was clear and unequivocal, following the principle of the prevalence of material truth over formal legal reality and the uniformity of the legal system.

1. To all that has been said, it will be added only this: even if, hypothetically, it were concedible that in cases of properties in full (or vertical) ownership, constituted by divisions capable of independent use, IS could be required for the totality of the property, if the value set in item 28.1 of the TGIS were reached, such value would always have to be set autonomously, through its own valuation, and not through the sum of the values in which each of the parts capable of independent use was autonomously valued. Indeed, and as can be readily seen, the "market value" of the whole will not necessarily – and will not be, as a rule – equal the sum of the parts, it being well known that sale of the "parts" is easier and more profitable (which will even constitute part of the economic foundation of the institute of horizontal ownership) than the sale of the entire whole, primarily due to the expansion of the market that the substantially lower price of the parts in relation to the whole brings. Moreover, it will be this increase in economic value resulting from the division that will justify an independent valuation of each autonomous part of the property in full ownership, so as to ensure that there is no less tax revenue, in the context of IMI and IMT, due to the fact that the division of the property has no correspondence in the legal form of horizontal ownership. In other words, the partition of the property always entails an increase in the value of the whole, since the "market value" of the whole will be, (at least) as a rule, less than the "market value" of the parts, separately. Whereby, at most, if the ATA intended, legitimately, to apply item 28.1 of the TGIS to a property in full (or vertical) ownership, constituted by divisions capable of independent use, it would always be obliged to a valuation of the same as a whole (which was a credible approximation to its "market value" by "wholesale") and not as a sum of the parts (by "retail"), not least because these are not capable of being, validly, placed on the "market" separately.

In the case of these proceedings, the property in question is in vertical ownership and contains floors and divisions with independent use, intended for housing, as was proven above. Given that none of the floors intended for housing has a taxable property value equal to or exceeding €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal assumption for IS incidence provided for in item 28.1 of the TGIS is not met.

1. Thus, as the ATA has not presented, and no reason for discrepancy on a sound basis can be perceived on its own initiative, from the arbitral jurisprudence cited, as well as from the STA jurisprudence above mentioned, it appears that the Stamp Tax assessments challenged suffer from a defect of breach of law by error in the legal assumptions underlying, judging the arbitration request submitted to be well-founded with the consequent annulment of the Stamp Tax assessments on the property in question, with reference to the year 2014.

V - Compensatory Interest

1. The Claimant cumulates, with the request for annulment of the tax acts subject to these proceedings, the request for the conviction of the ATA in the payment of compensatory interest.

In light of the well-foundedness of the annulment request, the amounts that, relating to the tax acts annulled, prove to have been paid by the Claimant should be reimbursed, if necessary in execution of the award. In the case at hand, it is manifest that the illegality of the assessment acts, the amount of which the Claimant paid, is attributable to the ATA, which, on its own initiative, practiced them without legal support.

Consequently, the Claimant is entitled to compensatory interest, in accordance with Articles 43, paragraph 1 of the LGT and 61 of the CPPT. Compensatory interest is owed, from the date of the payments that are shown to have been made, and calculated on the basis of the respective value, until its complete refund to the Claimant, at the legal rate, in accordance with Articles 43, paragraphs 1 and 4, and 35, paragraph 10 of the LGT, 61 of the CPPT and 559 of the Civil Code and Ministerial Order No. 291/2003, of 8 April (without prejudice to any subsequent amendments to the legal rate).

1. Furthermore, in accordance with the provision of subparagraph b) of Article 24 of the RJAT, the arbitral decision on the merits of the claim for which there is no recourse or challenge binds the tax administration from the expiry of the period provided for recourse or challenge, and the latter, in the exact terms of the well-foundedness of the arbitral decision in favor of the passive subject and until the expiry of the period provided for the spontaneous execution of the sentences of the judicial tax tribunals, "shall reestablish the situation that would have existed if the tax act subject to the arbitral decision had not been practiced, adopting the acts and operations necessary for such purpose", which is in line with the provision of Article 100 of the LGT [applicable by force of the provision of subparagraph a) of paragraph 1 of Article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of full or partial success of a claim, judicial challenge or recourse in favor of the passive subject, to the immediate and full restoration of the legality of the act or situation subject to the dispute, including the payment of compensatory interest, if applicable, from the expiry of the period of execution of the decision".

Although Article 2, paragraph 1, subparagraphs a) and b) of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating in the CAAD, making no reference to condemnatory decisions, it should be understood that the powers attributed in judicial challenge proceedings to tax tribunals are comprised in their competencies, this being the interpretation that is in line with the sense of the legislative authorization on which the Government based its approval of the RJAT and on which it proclaims, as a first guideline, that "the tax arbitration process should constitute an alternative procedural means to the judicial challenge process and the action for recognition of a right or legitimate interest in tax matters".

1. The judicial challenge process, despite being essentially a process of annulment of tax acts, admits the conviction of the tax administration in the payment of compensatory interest, as can be inferred from Article 43, paragraph 1 of the LGT, in which it is established that "compensatory interest is owed when it is determined, in a gracious claim or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due" and Article 61, paragraph 4 of the CPPT (in the version given by Law No. 55-A/2010, of 31 December, to which corresponds No. 2 in the original version), that "if the decision recognizing the right to compensatory interest is judicial, the period for payment shall begin on the date of the beginning of the period for its spontaneous execution".

2. Thus, paragraph 5 of Article 24 of the RJAT, when it states that "payment of interest is due, regardless of its nature, in accordance with the terms provided in general tax law and in the Code of Procedural and Tax Procedure" should be understood as permitting the recognition of the right to compensatory interest in the arbitration process. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the assessment acts challenged, there is grounds for reimbursement of the tax, by force of the said Articles 24, paragraph 1, subparagraph b) of the RJAT and 100 of the LGT, for this is essential to "reestablish the situation that would have existed if the tax act subject to the arbitral decision had not been practiced", in the part corresponding to the correction that was found to be illegal.

Thus, the ATA should execute this award, in accordance with Article 24, paragraph 1 of the RJAT, determining the amount to be refunded to the Claimant and calculating the respective compensatory interest, at the legal subsidiary rate for civil debts, in accordance with Articles 35, paragraph 10, and 43, paragraphs 1 and 5 of the LGT, 61 of the CPPT, 559 of the Civil Code and Ministerial Order No. 291/2003, of 8 April (or statute or statutes that succeed it).

Compensatory interest is owed from the date of the payments made until that of the processing of the credit note, in which they are included (Article 61, paragraph 5 of the CPPT).

VI - DECISION

The Arbitral Tribunal agrees as follows:

a) To judge the dilatory exception raised as without merit;

b) To judge the arbitration request submitted as well-founded and, in consequence, to annul the tax acts subject to these proceedings and to condemn the ATA to refund to the Claimant the amounts of tax that have been paid, increased by compensatory interest, counting from the date on which the payment was made.

c) To condemn the ATA in the costs of the proceedings, in the amount of €612.00.

VALUE OF THE PROCEEDINGS

The value of the proceedings is set at €3,846.14, in accordance with Article 97-A, paragraph 1, subparagraph a) of the CPPT, applicable by force of subparagraphs a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

COSTS

The amount of the arbitration fee is set at €612.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely well-founded, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the said Regulation.

Notify.

Lisbon, 19 February 2016

The Sole Arbitral Tribunal,

(Prof. Doctor Maria do Rosário Anjos)

[1] See STA Decision of 09-09-2015, handed down in proceeding No. 047/15, available at www.dgsi.pt)

[2] In this sense, see BAPTISTA MACHADO (1983) Introduction to Law and Legitimizing Discourse, Almedina Coimbra, pp. 181 et seq.

[3] In this sense, see FRANCESCO FERRARA, Interpretation and Application of Laws – translated by Manuel A. Domingues de Andrade (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, p. 137 et seq. Or also, in the same sense, see Manuel A. Domingues de Andrade, in Essay on the Theory of Interpretation of Laws. Collection Stvdivm, Philosophical, Legal and Social Themes (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, p. 23 et seq.

[4] This same conclusion is drawn from the analysis of the discussion of bill No. 96/XII in the Assembly of the Republic, available for consultation in the Diary of the Assembly of the Republic, I series, No. 9/XII/2, of 11 October 2012. The justification for the measure designated as "special tax on urban residential properties of highest value" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense way the holders of properties of high value intended for housing, making the new special tax apply to "houses of value equal to or exceeding 1 million euros."