Stamp Tax on Vertical Property: CAAD Ruling on Verba 28 TGIS Illegality (414/2015-T)

ARBITRAL DECISION

I. REPORT

1. A…, CRL (hereinafter "Claimant"), with tax identification number ("NIF") … with tax residence at …Street, No. …, in Lisbon, filed, on 7 July 2015, pursuant to the combined provisions of Articles 2nd and 10th of Decree-Law No. 10/2011, of 20 January, i.e., the Legal Framework for Arbitration in Tax Matters ("RJAT"), a request for the constitution of an arbitral tribunal, so that the illegal acts of assessment of Stamp Duty ("IS") set out below, in the total amount of € 11,536.07 (see table below), by reference to the fiscal year 2014, respectively, could be declared;

The Tax and Customs Authority ("Respondent" or "AT") is the respondent.

A) Constitution of the Arbitral Tribunal

1. Pursuant to the provisions of Article 6(2)(a) and Article 11(1)(b) of the RJAT, the Ethics Council of this Administrative Arbitration Center ("CAAD") appointed the undersigned as sole arbitrator, who communicated acceptance of the assignment within the applicable timeframe, and notified the parties of this appointment on 28 August 2015.

2. Thus, in accordance with the provisions of Article 11(1)(c) of the RJAT, and through the communication of the President of the Ethics Council of the CAAD, the Sole Arbitral Tribunal was constituted on 14 September 2015.

B) Procedural History

1. In the request for arbitral determination, the Claimant petitioned for a declaration of illegality of the IS assessments mentioned above, relating to the year 2014, by reference to an urban property, constituted in full ownership, located at Ave. …, No. …, registered with land register article number … at the Land Registry of Lisbon, in deed …/2005…, under No. ….

2. The AT presented its response, petitioning for the dismissal of the request for arbitral determination, on the grounds that there was no violation of law, requesting that the tax acts under analysis, as they did not violate any legal or constitutional provision, be maintained in the legal order.

3. By order of 21 January 2015, the Sole Arbitral Tribunal, pursuant to Article 16(c) of the RJAT, and following the request by the AT, decided, without opposition from the parties, that it was not necessary to hold the meeting referred to in Article 18 of the RJAT, as a result of the simplicity of the matters at issue, as well as considering that it had in its possession all the elements necessary to reach a clear and impartial decision.

4. It also decided, in accordance with Article 18(2) of the RJAT, that it was not necessary to hold oral arguments, as the positions of the parties were clearly defined in their respective pleadings, and set the end of February 2016 as the deadline for the arbitral decision.

5. In the context of the order, it also requested the parties to submit their final arguments. In this regard, it is important to note that the Claimant submitted the aforementioned arguments outside the deadline (10 days), and therefore they were not considered, and the Respondent chose not to make any statement.

6. The Tribunal was regularly constituted and is competent to rule on the matters indicated (Article 2(1)(a) of the RJAT); the parties have legal personality and capacity and have full standing (Articles 4 and 10(2) of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March). No irregularities occurred and no exceptions were raised, and therefore nothing prevents judgment on the merits.

7. Thus, the present case is in conditions for a final decision to be rendered.

II. QUESTION TO BE DECIDED

1. The essential question to be considered and decided with regard to the merits of the case, as it emerges from the parties' procedural documents, is the following: by reference to properties not constituted under a horizontal property regime, comprising various floors and divisions capable of independent use (and with residential allocation), what is the Tax Patrimonial Value ("TPV") relevant for the purposes of calculating the IS to be paid, pursuant to Item No. 28 of the General Table of IS ("GTIS")?

2. That is, the present tribunal seeks to determine whether the amount to be considered is the TPV attributed individually to each of the parts capable of autonomous use, or, conversely, the total value resulting from the sum of the TPVs of those autonomous fractions.

III. DECISION ON THE FACTS AND ITS REASONING

1. Having examined the documentary evidence produced, the tribunal finds proven, as relevant to the decision of the case, the following facts:

I. The Claimant is the owner of an urban property, constituted in full ownership, located at Ave. …, No. …, registered with land register article number … at the Land Registry of Lisbon, in deed …/2005…, under No. ….

II. The aforementioned property consists of 5 fractions capable of independent use, intended for residential purposes.

III. The Claimant received, with respect to the fiscal year 2014, and as a result of Item No. 28 of the GTIS, assessment notices from the AT, mentioned above, in the total amount of € 11,536.07.

1. The Tribunal's conviction regarding the proven facts resulted from the documents annexed to the case file and contained in the claim and in the uncontested allegations of the parties, as specified in the points of the statement of facts outlined above.

2. In parallel, it is important to note that the bank guarantee supported by the Claimant, in the amount of € 1,600, as indicated in the respective initial petition, was not established as proven.

IV. ON THE LAW

A) Legal Framework

1. Given that the legal question to be decided in the present case requires the interpretation of the relevant legal texts, it is important, first, to list the norms that compose the relevant legal framework, as of the date of the occurrence of the facts.

2. The subjection to IS of properties with residential allocation resulted from the addition of Item No. 28 to the GTIS, carried out by Article 4 of Law 55-A/2012, of 29 October, which typified the following taxable facts:

"28 – Ownership, usufruct or surface right of urban properties whose tax patrimonial value registered in the property register, in accordance with the Municipal Property Tax Code ("IMI") (…), is equal to or greater than € 1,000,000.00 – on the tax patrimonial value for IMI purposes:

28.1 – For property with residential allocation – 1%

28.2 – For property, when the taxable persons who are not individuals are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%."

1. The aforementioned law also added, in the IS Code, Article 23(7), concerning the assessment of IS: "in the case of tax due by 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 IMI Code", and Article 67(2) which provides that "to matters not regulated in the present code regarding Item 28 of the General Table, the IMI Code applies subsidiarily".

2. In this context, and having regard to the indication above, let us now focus on the IMI Code.

3. First, attention should be paid to Article 2(4) of the IMI Code which states that "for the purposes of this tax, each autonomous fraction, under the horizontal property regime, is considered as constituting a property".

4. In turn, Article 12(3) of the IMI Code establishes that "each floor or part of a property capable of independent use is considered separately in the land register entry, which also discriminates the respective tax patrimonial value".

5. Thus, it is within this legal framework that it is important to decide whether, in cases where the horizontal property ownership of an urban property with various autonomous fractions is not constituted, the TPV, for the purposes of Item No. 28 of the GTIS, is calculated individually for each fraction capable of being used autonomously, or, alternatively, determined by the sum of the TPVs of those fractions.

B) Arguments of the Parties

1. In summary, the Claimant bases its claim on the following arguments:

2. First, it understands that the scope of Article 7(2) of the IMI Code "aims to determine, in case of doubt, the taxable value of urban properties when the parties are classifiable under more than one of the legal categories, namely: residential; commercial industrial or for services; land for construction or other (…).

Now when the parties are classifiable under more than one of the legal categories (…) the TPV is determined as follows: "if the different parts are economically independent, each part is valued by applying the corresponding rules, and the value of the property is the sum of the values of its parts (…)".

By contrario sensu, we must understand that when the parties are classifiable under only one legal category (…), the property should be valued and consequently taxed as a whole.

(…)

Having regard to the norm that the AT intends to apply (…) and the rules for interpreting Tax Law, it must be said that this norm applies only when an urban property is involved in which the parts / units capable of independent use have different types of allocation, and it is not possible to interpret extensively the final part of the norm – namely: "and the value of the property is the sum of the values of its parts" - to cases in which the parts capable of independent use are intended for the same type of allocation, that is, in the present case, for residential purposes.

Thus, the inclusion of this property in the scope of the incidence norms falls away".

1. In parallel, the Claimant also considers that the law is being interpreted unconstitutionally, violating, in particular, the principle of equality and fair distribution of wealth.

2. In its opinion, "the inequality arises through the application of Article 2(3) of the IMI Code which states that each fraction, under the horizontal property regime, is considered as constituting a property".

3. Indeed, "an interpretation that leads to the taxation of properties in full ownership is manifestly unconstitutional due to a clear violation of the principle of equality and fair distribution of wealth, not to mention the absurd results to which it leads.

(…)

We are convinced, for the reasons advanced, that this was not the intention of the legislator at the time of the creation of the norm, since two equal tax legal relationships (taxable person and object of taxation) cannot give rise to different taxation".

1. The Claimant also draws attention to the "difference in the criterion adopted between IMI and IS regarding the application of the same legal norms and the application of a "single item" to the same reality.

(…) the Respondent uses and abuses the law as it pleases, forgetting that the procedures established by the AT to evaluate and tax for IMI purposes the properties, floor by floor – and thus obtain a much higher value for each floor, because it takes into account the specificities of each one, than if it were to evaluate the property as a single whole – cannot be disregarded when it wishes to apply IS".

1. Finally, the Claimant also contends that, by virtue of the Tax Benefits Statute ("EBF"), it should be automatically exempt from IS, since it is a cooperative.

2. In this respect, the Claimant draws attention to the fact that, "in accordance with Article 66-A(12) of the EBF, 'cooperatives are exempt from IS on acts, contracts, documents, securities and other facts, including transfers of goods, when this tax constitutes their charge.

In our opinion, this appears to be a benefit of automatic recognition since, as prescribed in Article 5(1) of the EBF, it derives directly and immediately from the law, unlike what happens with many others (…)".

1. The Claimant concludes its claim by requesting that it be granted compensation, to be borne by the Respondent, in the amount of € 4,300, corresponding to the guarantee provided to prevent the commencement of the enforcement proceedings (€ 1,600) and, as well, to the fees paid to the lawyer (€ 2,700, plus Value Added Tax).

2. For its part, the Respondent, after being duly notified, presented its response in which it argued that "the AT has consistently held the view that if the building is constituted under a horizontal property regime with parts or divisions capable of independent use (so-called full ownership), it comprises the legal tax concept of 'property', that is, a single unit, and its tax patrimonial value is determined by the sum of the parts with residential allocation, and if this is equal to or greater than € 1,000,000, there is subjection to IS under Item No. 28 of the GTIS.

In other words, for a property not constituted under a horizontal property regime, the criterion for determining the incidence of IS is the global tax patrimonial value of the fractions and other divisions intended for residential purposes".

1. For the Respondent, to advocate an understanding contrary to the above, "is to confuse teleologically distinct realities, full ownership, on the one hand, and horizontal property, on the other, whose distinction finds its foundation right away in civil law".

2. Resorting to doctrine to support its understanding, the Respondent contends that "the Claimant, for the purposes of IMI and also of IS, by virtue of the wording of the aforementioned item, is not the owner of autonomous fractions, but rather of a single property, with the AT considering that this is the understanding that best accords with the principle of legality inherent in Article 8 of the General Tax Law ("LGT")".

3. Thus, the Respondent understands that the assessments made by it result from a correct interpretation and application of the law to the facts, requesting, therefore, that the claim made be dismissed and the Respondent be absolved of the claim.

4. Finally, as regards the request for compensation, in the terms mentioned above, the Respondent contends that the Claimant does not present evidence supporting the claimed amount.

5. Moreover, it further considers that "the claim should not be brought in this venue, but rather in enforcement proceedings, should the Claimant's claim succeed in the case and the Respondent fails to comply with the judgment within the applicable legal deadline".

C) Tribunal's Assessment

1. As an introduction, it must be stated that, in the understanding of the present tribunal, and having regard to the legal framework previously presented, the essential normative proposition to be considered for the decision of the case is that which results from Item No. 28 of the GTIS.

2. It should also be noted that, in the eyes of the arbitral tribunal, the question to be decided relates exclusively to a matter of law, namely understanding, for the purposes of the application of the aforementioned item, which TPV is relevant.

3. First, it should be clarified that it is clear, from the letter of the law, that the TPV to be considered, for the purposes of the application of Item No. 28 of the GTIS, can only be that which is determined under the IMI Code.

4. This is, moreover, what the said item tells us, ipsis verbis, "(…) whose tax patrimonial value registered in the property register, in accordance with the Municipal Property Tax Code (…), is equal to or greater than € 1,000,000.00".

5. Thus, attention should be paid once again to what follows from Article 2(4) of the IMI Code which states that "for the purposes of this tax, each autonomous fraction, under the horizontal property regime, is considered as constituting a property".

6. Reinforced, nevertheless, by Article 12(3) of the same Code, which establishes that "each floor or part of a property capable of independent use is considered separately in the land register entry, which also discriminates the respective tax patrimonial value".

7. It is concluded, therefore, that, for the purposes of calculating the IMI to be paid, the TPV is considered individually for each floor or part capable of independent use.

8. And if this is the method of calculation followed for IMI, it must necessarily be the model equally applied under Item No. 28 of the GTIS, in the terms previously explained.

9. Nevertheless, and should the doubts raised still persist, the present tribunal relies on some arbitral decisions previously rendered, which addressed the matter under analysis.

10. Thus, first, let us examine decision No. 50/2013-T, of 29 October, which states the following.

11. "Law No. 55-A/2012 says nothing regarding the qualification of the concepts in question, in particular, regarding the concept of 'property with residential allocation'. However, Article 67(2) of the IS Code, added by the aforementioned Law, provides that 'to matters not regulated in the present code regarding Item 28 of the General Table, the IMI Code applies subsidiarily'.

The rule of incidence refers, therefore, to urban properties, whose concept is that which results from the provisions of Article 2 of the IMI Code, with the determination of the TPV being made in accordance with the provisions of Article 38 et seq. of the same code.

Consulting the IMI Code, it is found that its Article 6 only indicates the different types of urban properties, among which it mentions residential ones (…)

From this we can conclude that, from the legislator's perspective, what matters is not the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose for which the property is intended. 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. 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(2) of the IS Code, 'to matters not regulated in the present code regarding Item 28 of the General Table, the IMI Code applies subsidiarily'" (emphasis ours).

1. That is, taking into account that the registration in the property register of properties in vertical ownership, for the purposes of the IMI Code, follows the same rules as the registration of properties constituted under horizontal ownership, and their respective IMI, as well as the new IS, are assessed individually in relation to each of the parts, it does not appear to the present tribunal that there exists any doubt that the legal criterion for defining the incidence of the new tax must be the same.

2. In this context, if the law requires, with regard 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 regard to the rule of incidence of Item No. 28 of the GTIS.

3. Therefore, IS, under Item No. 28 of the GTIS, could only be incurred on a particular fraction if this, possibly, had a TPV exceeding €1,000,000.00.

4. And, furthermore, this was also the understanding adopted by the AT.

5. Indeed, the AT also issued individualized assessment notices, relating to each of the fractions capable of autonomous use, demonstrating that, in its opinion, the aforementioned fractions, despite not being legally constituted under a horizontal property regime, would, for all purposes, be independent from each other.

6. However, the AT overlooked that it could not, by virtue of the previously stated framework, proceed to sum the individual TPVs of the aforementioned fractions, seeking a value that would already fall within the scope of incidence of Item No. 28 of the GTIS.

7. This when the legislator itself established a different rule within the IMI Code which, as previously mentioned, is the Code applicable to matters not regulated in the IS Code, with regard to Item No. 28 of the GTIS.

8. In summary, the criterion established by the AT, of considering the value of the sum of the individual TPVs attributed to the parts, floors or divisions with independent use, taking advantage of the fact that the property is not constituted under a horizontal property regime, 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.

9. In this context, the present tribunal considers that the criterion defended by the AT violates the principles of legality and tax equality, as well as the prevalence of material truth over legal-formal reality.

10. In parallel, note that Article 12(3) of the IMI Code does not make any distinction regarding the regime of properties that are in horizontal or vertical ownership.

11. Therefore, and since if the property were constituted under a horizontal property regime, none of its residential fractions would be subject to the new tax, the AT cannot treat materially equal situations differently.

12. In this regard, see what was said regarding this matter in the arbitral decision rendered in Case No. 132/2013-T, of 16 December, whose understanding the present tribunal adopts.

"Indeed, it makes no sense to distinguish in law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Furthermore, to distinguish, in this context, between properties constituted under horizontal and full ownership would be an 'innovation' without any associated legal support, especially since, as has been stated here, nothing indicates, neither in Item No. 28 nor in the provisions of the IMI Code, a justification for that particular differentiation.

Note, by way of example, what Article 12(3) of the IMI Code says: each floor or part of a property capable of independent use is considered separately in the land register entry, which also discriminates the respective tax patrimonial value.

The uniform criterion that is required is thus 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 a property in horizontal or full ownership with residential allocation possesses a TPV exceeding € 1,000,000.00.

Setting as the reference value for the incidence of the new tax the global TPV of the property in question, as the now respondent intended, does not find a basis in the applicable legislation, which is the IMI Code, given the referral made by the aforementioned Article 67(2) of the IS Code.

(…)

Furthermore, admitting the differentiation of treatment could produce results incomprehensible from a legal viewpoint and contrary to the objectives which the legislator claimed to have for adding Item No. 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 residential use, with the global value of the autonomous units equal to or exceeding €1,000,000.00 and the TPV of each one below €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who has a property with the exact same characteristics as the previous one but which has been constituted under a horizontal property regime, with the global value of the autonomous fractions also equal to or exceeding €1,000,000.00 and the TPV of each one below €1,000,000.00, will not be subject to taxation under the aforementioned Item No. 28.

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for taxation purposes, their respective TPVs? The answer can be illustrated by another hypothesis: a citizen who is the owner of a property in horizontal property regime, in which each of its 20 fractions possesses a TPV below €1,000,000.00, would be subject to taxation if – should such aggregation be admitted – the global TPV exceeded that value; whereas another citizen with identical 20 fractions distributed among 5, 10 or 20 properties would not be subject to any taxation under the aforementioned Item No. 28.

If this line of reasoning makes sense – thus justifying the non-aggregation of the TPVs of the fractions of properties in horizontal property regime – there is no plausible reason why the same should not be applied to the autonomous units of properties in full ownership.

Observing now the case under analysis, it is found that the TPVs of the floors (autonomous units) of the property with residential allocation vary between (…), whereby any one of them is below €1,000,000.00.

From this it is concluded, as a result of what has been stated, that IS as referred to in Item No. 28 of the GTIS cannot be incurred upon them, and therefore the acts of assessment contested by the claimant are illegal" (emphasis ours).

1. A final point worth highlighting (notwithstanding that the previous framework is sufficient to recognize the illegality of the assessment acts carried out by the AT) is based on the understanding advocated, both by the legislator and by the government itself, at the time of the addition of Item No. 28 to the GTIS.

2. In this regard, let us now focus on the arbitral decision rendered in Case No. 48/2013-T, of 9 October, which analyzes, extensively, the objectives underlying the addition of the aforementioned item.

3. "Law No. 55-A/2012, of 29/10, has no preamble, and therefore it is not possible to extract the legislator's intention from it.

This law of the Parliament originated from the draft law No. 96/XII (2nd), which, in its explanatory statement speaks of the introduction of fiscal measures inserted in a broader set of measures to combat the budget deficit.

In the explanatory statement of the aforementioned draft law, it is stated that, 'these measures are fundamental to reinforce the principle of social equity in austerity, guaranteeing an effective distribution of the necessary sacrifices to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live from the income of their work. In accordance with that objective, this decree expands the taxation of capital and property, equitably covering a broad set of sectors of Portuguese society'.

In that explanatory statement it is also stated that, in addition to the increase in the taxation of income from capital and from securities capital gains, a tax is created under IS affecting urban properties with residential allocation whose tax patrimonial value equals or exceeds one million euros.

That is, in such explanatory statement, what is understood by urban properties with residential allocation is also not clarified.

In his intervention in Parliament, in the presentation and discussion of the aforementioned draft law, the Secretary of State for Tax Affairs stated the following:

'The Government chose 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 just distribution of the fiscal effort.

In the demanding period 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 – bearing the fiscal burden.

For the fiscal 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 thus protecting Portuguese families with lower incomes in this way.

For the fiscal system to promote more equality it is fundamental that the budgetary consolidation effort be distributed among all types of income, covering with special emphasis income from capital and high-value properties. This matter, it should be recalled, was extensively addressed in the ruling of the Constitutional Court.

Finally, for the fiscal system to be more equitable, it is crucial that all be called upon to contribute according to their tax-paying capacity, giving the tax administration enhanced powers to control and inspect situations of tax 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 adjustment effort by a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties valued at over 1 million euros; the increase in taxation on income from capital and on securities capital gains and the strengthening of rules to combat tax fraud and tax evasion.

First, the Government proposes the creation of a special tax on the highest-value residential urban properties. This is the first time that Portugal has created special taxation on high-value properties intended for residential use. This tax will be 0.5% to 0.8% in 2012, and 1% in 2013, and will affect homes valued at equal to or in excess of 1 million euros. With the creation of this additional tax, the fiscal effort required from these property owners will be significantly increased in 2012 and 2013'".

1. Next, it is necessary to bring together the conclusions that permit, without any doubt, deciding on the matter under discussion (that is, whether, for the purposes of the application of Item No. 28 of the GTIS, in cases where a property with various autonomous fractions, capable of independent use, is not constituted under a horizontal property regime, the TPV relevant is determined by the sum of the individual TPVs, or, alternatively, is individually considered).

2. In this sense, it should be stated, first, that this matter is, by virtue of Article 67(2) of the IS 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 IMI Code applies subsidiarily".

3. Therefore, and as has been mentioned so many times, in the understanding of the present tribunal, the mechanism for determining the TPV relevant for the purposes of the aforementioned item is that which is set out in the IMI Code.

4. Now, Article 12(3) of the IMI Code establishes that "each floor or part of a property capable of independent use is considered separately in the land register entry, which also discriminates the respective tax patrimonial value".

5. The legislator downplaying, in the terms previously mentioned, any prior constitution of horizontal or vertical property.

6. Indeed, for the legislator, what matters is the material truth underlying its existence as an urban property and its use.

7. It should be noted that the AT itself appears to agree with the criterion set out, which is why the assessments it issues are very clear in their essential elements, whereby the value of incidence is that corresponding to the TPV of each of the floors and the assessments are individualized.

8. Therefore, if the legal criterion requires 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 has clearly established the criterion, which must be unique and unequivocal, for defining the rule of incidence of the new tax.

9. Thus, there would only be grounds for incidence of IS (under Item No. 28 of the GTIS) if any of the parts, floors or divisions with independent use presented a TPV exceeding €1,000,000.00.

10. The AT cannot consider as the 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 regarding Item No. 28 of the GTIS).

11. In conclusion, the current legal regime does not impose the obligation to constitute a horizontal property regime, and therefore the AT's action translates into arbitrary and illegal discrimination.

12. Indeed, the AT cannot distinguish where the legislator itself chose not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of tax legality provided for in Article 103 of the Constitution of the Portuguese Republic, and also the principles of tax justice, equality and proportionality.

13. In the case at hand, the property in question was, as of the relevant date of the facts, constituted in full ownership and had 5 fractions with independent use, as results from the documents provided by the Claimant.

14. Given that none of those fractions, individually considered, has a patrimonial value equal to or exceeding €1,000,000.00, as results from the documents attached to the case file, it is concluded that the legal assumption of incidence has not been met.

15. Having regard to the above, it does not appear necessary, in the opinion of the present tribunal, to analyze the other questions raised by the Claimant to support the illegality of the assessments listed above.

16. However, it is important, from another angle, to analyze the request for compensation requested by the Claimant, relating to the bank guarantee constituted (which, in its understanding, is undue) and, as well, to the fees it incurred with the lawyer.

17. As regards the guarantee, let us examine the arbitral decision relating to Case No. 21/2015-T, of 14 July, whose understanding the present tribunal adopts.

"The Claimant also presents a request for compensation for the undue provision of a guarantee.

Requests of this kind are not new to the CAAD, with several decisions recognizing their cognizability by arbitral tribunals. As has already been stated in summary terms, this arbitral tribunal also understands that it can rule on this request.

Item (b) of Article 1(1) of the RJAT provides that 'the arbitral decision on the merits of the claim is binding on the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the favorable decision on the merits for the taxable person and until the end of the period provided for the voluntary execution of sentences of the tax courts, restore the situation that would have existed if the tax act subject of the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose'.

It is not ignored that the legislative authorization granted to the Government by Article 124 of Law No. 3-B/2010, of 28 April, on the basis of which the RJAT was approved, determines that the tax arbitration process constitutes an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters.

Even though items (a) and (b) of Article 2(1) of the RJAT base the competence of arbitral tribunals on 'declarations of illegality', it seems reasonable the understanding that their competences include the powers attributed in judicial challenge proceedings to the tax courts, and it is certain that in judicial challenge proceedings, in addition to the annulment of tax acts, claims for compensation can be considered, whether they relate to compensatory interest or to the undue provision of guarantees.

Indeed, the principle of cognizability of claims for compensation, in administrative review or in judicial proceedings, is justified whenever the damage that is sought to be redressed results from a fact attributable to the AT. Manifestations of this principle can be found in Article 43(1) of the General Tax Law ("LGT") and in Article 61(4) of the Code of Tax Procedure and Process ("CPPT").

Specifically regarding compensation in case of an undue guarantee, Article 171 of the CPPT is referred to, making clear from that provision that the claim for compensation can be ruled upon in the proceedings in which the legality of the enforceable debt is contested, which is required for reasons of procedural economy, since the right to compensation for improperly provided guarantee depends on what is decided regarding the legality or illegality of the assessment act. Thus, it must be concluded that the arbitration process must also be considered as adequate to consider the claim for compensation for improperly provided guarantee.

The regime for the right to compensation for improperly provided guarantee is contained, as the Claimant well notes, in Article 53 of the LGT, which establishes the following:

Article 53

Guarantee in case of undue payment

1. The debtor who, to suspend enforcement, offers a bank guarantee or equivalent will be compensated in whole or in part for the damages resulting from its provision, should it have been maintained for a period exceeding three years in proportion to the success in administrative review, judicial challenge or opposition to enforcement that have as their object the guaranteed debt.

2. The period referred to in the previous number does not apply when it is established, in administrative review or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3. The compensation referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the compensatory interest rate provided for in this law and can be requested in the administrative review proceedings itself or in judicial challenge, or autonomously.

(…)

In the present case, as stated, the contested assessment acts are illegal, since the norms on which they are based do not prove applicable to the factuality of the case, error that cannot fail to be attributable to the Respondent since the said assessments are of its exclusive initiative and responsibility.

However, the arbitral tribunal cannot condemn the Respondent to pay the Claimant compensation aimed at indemnifying it from damages which it does not quantify, nor even, in the proper sense, allege".

1. In conclusion, the present tribunal considers that, like what is cited above, the Claimant will have the right to compensation for undue guarantee.

2. Nevertheless, as the Claimant has not proven the amount supported, the present tribunal cannot decide on the condemnation of the Respondent to payment of the aforementioned compensation.

3. In this sense, should the Claimant consider it relevant, and in accordance with Article 53 of the LGT, it may autonomously request the aforementioned compensation.

4. On the other hand, as regards, specifically, the part of the compensation relating to the fees incurred with the lawyer, it is important to note that its consideration does not fall within the competence of the present tribunal, which, as previously stated, may only deal with compensations relating to compensatory interest and / or undue bank guarantees.

V. DECISION

1. In these terms, this Arbitral Tribunal decides:

A) To find the claim well-founded and, in consequence, declare illegal and annul the IS assessments mentioned above, by reference to the fiscal year 2014, resulting from which tax was payable in the amount of € 11,536.07, relating to the taxation of urban properties with TPV equal to or exceeding €1,000,000, in accordance with the provisions of Item No. 28 of the GTIS;

B) To find the claim for compensation with respect to the guarantee constituted, in the terms previously mentioned, not well-founded; and

C) To condemn the Respondent in the costs of the proceedings.

VI. VALUE OF THE PROCEEDINGS

1. The value of the proceedings is set at € 11,536.07, in accordance with Article 97-A(1)(a) of the CPPT, applicable by virtue of Article 1(1)(a) and (b) of Article 29 of the RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT").

VII. COSTS

1. In accordance with the provisions of Article 22(4) of the RJAT, the arbitration fee is set at € 918, in accordance with Table I of the aforementioned Regulation, to be borne by the Respondent, given the full success of the claim.

Notify.

Lisbon, CAAD, 23 February 2016

The Arbitrator

(Sérgio Santos Pereira)