Summary
Full Decision
CLAIMANT: A… – Property Administration Company, Ltd.
RESPONDENT: Tax and Customs Authority
Arbitral Decision[1]
I REPORT
A) The Parties and Constitution of the Arbitral Tribunal
A… – Property Administration Company, Ltd., with registered office in …, in …, legal entity no. …, hereinafter designated as "Claimant", submitted a request for constitution of a single Arbitral Tribunal, pursuant to article 10 of the Legal Framework for Tax Arbitration, approved by Decree-Law no. 10/2011, of 20 January, hereinafter designated as "LFTA" and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, to consider the claim opposing the Tax and Customs Authority, hereinafter designated as "Respondent" or "TCA", with a view to the annulment, on the grounds of illegality, of sixty stamp duty assessment acts, relating to the first, second and third instalments of the year 2013, identified and attached to the arbitral request as documents numbers 1 to 60 which are hereby deemed fully reproduced, in the total amount of €16,815.90.
The contested assessments concern an urban property in full ownership, consisting of 10 floors with 20 storeys or divisions capable of independent use, registered in the urban property register of the Parish of …, under property register article no. …, of the Municipality of …, as set out in document no. 61 attached to the case file as an annex to the arbitral request which is hereby deemed fully reproduced.
The request for constitution of the Arbitral Tribunal, presented on 12 June 2014, was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 16 June 2014. The Claimant opted not to appoint an arbitrator, whereupon, pursuant to article 6, no. 1 of the LFTA, the undersigned arbitrator was appointed by the Ethics Council of the Administrative Arbitration Centre for the single Arbitral Tribunal. The appointment was accepted and the parties, notified of the acceptance, on 31 July 2014, did not refuse the appointment, in accordance with the provisions of paragraphs a) and b), no. 1, article 11 of the LFTA, in conjunction with articles 6 and 7 of the Code of Ethics.
Thus, in accordance with the provisions of paragraph c), no. 1, article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the single Arbitral Tribunal was constituted on 19 August 2014.
On 25 August 2014, the Respondent "TCA" was notified to present a reply within the legal deadline, in accordance with the provisions of no. 1 and 2 of article 17 of the LFTA. On 7 October 2014 the TCA filed a Motion requesting the setting of a deadline for written submissions, basing its request on the fact that it had not submitted the reply on time, further requesting exemption from the meeting referred to in article 18 of the LFTA, as there were no issues of fact to clarify, this being merely a matter of law. An arbitral order was issued admitting the filing of the motion and setting a deadline for the other party to respond. On 14 October 2014 the Claimant made submissions having no objection to what was requested by the TCA. On the same date an arbitral order was issued setting a deadline of 20 successive days for the parties to present their respective submissions.
The parties filed their submissions respectively on 6 and 20 November 2014. By motions filed respectively on 4 August 2014 and 1 December 2014, the Claimant attached to the case file the proofs of payment of the 2nd and 3rd instalment of stamp duty at issue in the present case. An arbitral order was issued determining the filing of the documents presented and notification to the TCA. The Claimant also attached the proof of payment of the subsequent arbitration fee.
B) Procedural Requirements
The Arbitral Tribunal is duly constituted and is materially competent, in accordance with article 2, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.
The parties have legal personality and capacity, are entitled and are legally represented.
The process does not suffer from nullities that invalidate it and no exceptions have been raised that prevent judgment on the merits of the case, wherefore the Tribunal is in a position to deliver the arbitral decision.
C) THE CLAIM FORMULATED BY THE CLAIMANT
The Claimant formulates the present request for arbitral decision seeking a declaration of illegality and consequent annulment of the stamp duty assessment acts relating to the year 2013, in the total amount of €16,815.90, as set out in documents no. 1 to 60 filed with the case by the Claimant and which are hereby deemed reproduced.
The stamp duty assessment acts concern an urban property in full ownership without storeys or divisions capable of independent use, registered in the urban property register of … under article …, of the Municipality and District of …. The contested assessment acts have as their legal basis the provision in item 28.1 of the general table of stamp duty (hereinafter GTSD), in the manner in which it was applied by the TCA, in the case of the present proceedings.
The urban property to which the stamp duty assessments contested in the present proceedings relate, is owned by A… – Property Administration Company, Ltd., now Claimant, which is held in full ownership regime, also designated as vertical. The limited company now Claimant had and has as its corporate purpose the purchase and administration of the urban property, located in …, in the …, of the parish of …, in …, which is held in vertical ownership, corresponding to each of the partners a quota, corresponding to the individual right to housing in each of the storeys or houses that comprise it. At the time of its establishment the law did not even enshrine the institute of horizontal ownership.
The legal basis of the claim for arbitral decision rests, summarily, on the allegation of the defect of lack of substantiation and, further, on the violation of law by error regarding the factual and legal premises underlying it, in that it understands that the relevant TPC for determining the incidence of stamp duty should be that corresponding to the TPC of each of the independent divisions comprising the vertically owned property, in accordance with the provisions of article 7, no. 2, paragraph b) of the CIMI;
With respect to a property in full ownership, each storey or division capable of independent use is considered, in accordance with no. 3, article 12 of the CIMI, separately in the property register entry, which also specifies the respective TPC, there being no legal provision whatsoever that makes the tax-assessed value of the fully owned property, with several storeys and independent divisions, correspond to the sum of its parts.
The Claimant therefore understands that all the stamp duty assessment acts contested in the present proceedings are illegal and further invokes the arbitral jurisprudence contained in arbitral decisions nos. 50/2013-T of 29 October; 48/2013-T of 09 October, 49/2013-T of 18 September, 53/2013-T of 2 October and 132/2013-T of 16 December;
The Claimant does not accept the contested assessments, which it considers illegal, inasmuch as they are based on an incorrect presumption that the property has a tax-assessed value (TPC) exceeding €1,000,000.00 (one million euros), which does not correspond to the truth. The tax-assessed value that is relevant is that which corresponds to each storey and not, as the TCA intends, that corresponding to the sum of all TPCs assigned to all the storeys or independent divisions which comprise it. In the Claimant's view, the property in question does not fall within the assumptions of taxation in stamp duty contained in item 28.1.
It concludes by petitioning for the annulment of all assessments and the reimbursement of all sums paid as well as the condemnation of the TCA in the payment of indemnifying interest.
D) The Position of the Tax Authority
The Respondent entity TCA did not present a reply within the legal deadline, having subsequently justified this fact by work overload and deadlines to be met in ongoing proceedings, requesting that a deadline be set for the parties to submit written arguments. Thus, considering the position of the TCA contained in the submissions presented, it is possible to infer that its understanding is as follows:
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The said property being, at the date of the tax event, as appears in the property register and as results from the respective property record, in full ownership and having housing as its use, the value relevant for determining the incidence of stamp duty is the overall TPC corresponding to the sum of the values assigned to each of the storeys or parts of the property, namely, €1,681,590.00;
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Accordingly, it is subject to the incidence of stamp duty by virtue of the provisions in articles 6, no. 1, paragraph f), sub-paragraph i), the stamp duty of item 28.1 of the General Table, as worded by article 4 of Law 55-A/2012, of 29 October, at the rate of 1% with respect to the year 2012.
In accordance therewith the TCA contends for the legality of the contested tax acts and for the dismissal of the arbitral claim.
II - QUESTION TO BE DECIDED
The essential question to be decided is to ascertain, with reference to the property in full or vertical ownership identified in the present proceedings, comprising various storeys and divisions with independent use, with housing use, how the relevant TPC is determined for defining the incidence of stamp duty, in accordance with the provisions in item 28.1 of the GTSD. The question that arises is, therefore, whether the relevant TPC as a criterion for tax incidence is that corresponding to the sum of the tax-assessed value assigned to the different parts or storeys (overall TPC) or, rather, the TPC assigned to each of the parts or residential storeys.
III – Factual Matters
A) Facts Found Proven:
Relevant to the assessment of the issues raised, the following facts are considered proven:
The Claimant is the owner of the urban property registered in the urban property register of the Parish of … under article …, located in …;
This property was, at the date of the tax event, in full or vertical ownership regime, and is composed of 10 floors with 20 storeys or divisions capable of independent use used for housing;
The Claimant was notified of collection documents nos. 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014… and 2014…, relating to the 1st instalment of stamp duty with payment deadline of 4 April 2014;
The Claimant was also notified of collection documents nos. 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014… and 2014…, relating to the 2nd instalment of stamp duty with payment deadline in July 2014;
The Claimant was further notified of collection documents nos. 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014…, 2014… and 2014…, relating to the 3rd instalment of stamp duty with payment deadline in November 2014;
The aforementioned assessments, corresponding respectively to the first, second and third instalments of stamp duty on the urban property described above, total the overall amount of €16,815.90;
The Claimant proceeded to payment of the said assessments on 22 April 2014, in July 2014 and in November 2014, as appears from the documents attached to the case file in annex to the arbitral request with nos. 63 to 82 and the documents attached in annex to the motions presented in the proceedings on 4 August and 1 December 2014, which are hereby deemed fully reproduced;
The overall tax-assessed value (TPC), corresponding to the sum of the individual TPCs of each storey or independent division, totals €1,681,590.00;
The TPC assigned in accordance with the provisions of the CIMI to each of the independent divisions is €84,530.00 per storey or independent division, with the exception of one of the independent divisions whose TPC is €75,520.00.
On 11 September 2014 a public deed of horizontal ownership of the property identified in the present proceedings was executed, as set out in the document attached to the case by the claimant on 15 October 2014, which is hereby deemed fully reproduced.
B) FACTUAL SUBSTANTIATION
The conviction regarding the facts found proven was based on the documentary evidence submitted to the case by the Claimant not contradicted by the opposing party, as well as the facts mutually accepted by the parties.
There are no unproven facts of relevance to be recorded for the decision to be rendered in the present proceedings.
IV – LEGAL SUBSTANTIATION
With the factual matters established, it is necessary to address the legal question indicated above, corresponding, in summary, to the issues of illegality raised by the Claimant in the present arbitral request.
From the arbitral claim filed by the Claimant emerge invoked the defects of lack of substantiation and of violation of law by error regarding the factual and legal premises underlying the stamp duty assessments contested.
A) Regarding the alleged defect of lack of substantiation:
The Claimant alleges violation of the duty of substantiation, given that the tax acts do not expressly mention the reasons which led to the issuance of the assessments, wherefore it concludes for an absolute lack of substantiation. However, from the tenor of the subsequent petition it is concluded that the Claimant understood well the reason underlying the contested assessments.
There is no doubt that substantiation is a requirement of tax acts in general, being a constitutional requirement (article 268 of the CRP) and legal requirement (article 77 of the General Tax Law). It can be said, briefly, that it is settled understanding among us, both in doctrine and in case law, that the substantiation legally required must meet a minimum set of characteristics, such as: i) officiality, substantiation being the sole initiative and obligation of the administration (power/duty), substantiation on request is not admissible and must accompany the performance of the act, it makes no sense for substantiation to be "a posteriori"; ii) the substantiation must be clear, that is, comprehensible to an average recipient, avoiding polysemic concepts or deeply technical matters of difficult comprehension; iii) it must contain all the essential elements that were determinative in the decision taken, indicating the legal norms and the motivation of the act.
Despite the above, it is known that substantiation may also be express or tacit, by reference to prior opinions, information or proposals, as indeed results expressly from the provision in no. 1, article 77 of the General Tax Law.
Now, as the tax act is an act of notable onerous nature in the legal sphere of its recipient, it must be carefully substantiated so as to convince the taxpayer of the legality underlying it and of the criteria that presided over its quantification. However, it is also today settled, for doctrine and case law, that substantiation must be expressed through a succinct exposition of the factual and legal grounds, being equivalent to lack of substantiation the adoption of grounds which, by obscurity, by contradiction or insufficiency do not clearly explain the motivation of the act. The act should therefore be considered as sufficiently substantiated when it allows a normal recipient to understand the cognitive and evaluative itinerary followed by the author of the act in terms that allow its recipient to understand the reasons that led the author of the act to perform it.
In the case of the present proceedings, in each one of the contested tax acts the property is properly identified, as well as the indication of the tax in question (Stamp Duty – item 28.1), the periods to which the tax relates, as well as the amount calculated in the respective assessment and the payment deadline. Precisely for this reason, the Claimant understood perfectly, as recipient of the tax acts, the entire situation of fact and law underlying it, which is to say that it understood its content.
To which may be added that substantiation must be assessed in accordance with "the concrete circumstances, among which stand out those of the type of act, those of the taxpayer's participation in the procedure and its extent (…)". Now, in the present proceedings the Claimant as owner of the property as alleged in the proceedings, was in a position to identify the concrete circumstances, underlying the procedure which would have led to the contested assessments, in terms sufficient to understand them clearly and to be able to present the present arbitral request, which shows that it understood well the substantiation underlying the contested assessment acts.
From the confrontation of all the elements contained in the arbitral request itself, based on the content of the tax acts notified to the Claimant, as recipient, it is possible to conclude that it understood properly their grounds, as is evidenced in the argument adduced. In other words, it is sufficiently perceptible to an average recipient, placed in the position of the concrete recipient, what the substantiation of the tax acts contested in the present proceedings is, wherefore the allegation of the defect of lack of substantiation is unfounded.
C) Regarding the defect of violation of law
From the factual framework set out by the procedural parties it is concluded that for the TCA, the criterion for determining the incidence of stamp duty, provided for in item 28.1 of the GTSD, for properties in vertical ownership with storeys and divisions with independent use with housing use, corresponds to the sum of the respective TPCs assigned to the parts or divisions, in accordance with the provisions of the CIMI. It was this understanding that led to the stamp duty assessments here contested.
For the Claimant, such understanding is illegal, since subjection to stamp duty contained in item no. 28 of the GTSD, is determined by the conjunction of two factual assumptions: housing use and TPC listed in the property register equal to or exceeding €1,000,000.00. In the case of a property in vertical ownership, with the characteristics described in the present proceedings, subjection to stamp duty is determined, not by the total TPC of the property, but by the TPC assigned to each of these storeys or divisions. It is necessary to decide.
The essential question to be decided is to ascertain what the relevant TPC is for purposes of incidence of stamp duty, with reference to the property of the present proceedings, which at the date of the tax event (relating to the year 2013) was not constituted in the regime of horizontal ownership, although it was composed of various storeys and divisions with independent use, with housing use, in conditions in all respects identical to those of a property in horizontal ownership. To prove that this is so, it is referred to the fact that its horizontal ownership was established in September 2014.
The answer to the stated question requires analysis of the applicable legal framework and the reference principles in order to determine which interpretation is in accordance with the Law and the Constitution, with the care that assessing a tax incidence assumption requires, by force of the principle of fiscal legality resulting from article 103, no. 2 of the CRP.
On this particular matter, the CAAD has already ruled in several decisions in which the fundamental question is the same, dealing with the scope of the provision of the rule of incidence of items 28 and 28-1 of the GTSD. Some of the arbitral decisions already delivered on the matter are invoked by the Respondent in its arbitral request.
On the fundamental question at issue it should 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 rule it is necessary to discover the underlying ratio legis, "a task of interconnection and assessment that escapes the literal domain". – (In this sense see Arbitral Decision no. 30/2014-T, of 20/06/2014 and Arbitral Decision no. 50/2013-T of 29/10/2013; also in the same sense, see Arbitral Decisions delivered in cases nos. 132/2013, 181/2013 and 183/2013, among others)
Accordingly, the question is whether the rule of incidence, as expressed in the legal provision of items 28 and 28.1 of the GTSD, referring to "ownership, usufruct or right of superficies of urban properties, with housing use (28.1) whose tax-assessed value listed in the property register, in accordance with the CIMI, is equal to or greater than 1,000,000.00 euros – on the tax-assessed value used for purposes of the Municipal Real Estate Tax", accommodates or not the understanding that as regards properties "with housing use" in vertical ownership, with storeys or divisions capable of independent use, held by an entity, the TPC on which the stamp duty tax rate should apply, must be the individual TPC of each storey or division capable of independent use (in the manner that happens with properties in horizontal ownership regime) or, differently, whether it should be considered as such the sum of all the TPCs of all its parts.
In other words, as has already been considered in the arbitral decisions referred to above (Arbitral Decision no. 50/2013-T and 30/2014-T), what is at issue is the adoption of an adequate reading of the scope of the provision of the rule of incidence of items 28 and 28.1 of the GTSD, in light of what no. 7 of article 23 of the Stamp Duty Code states regarding the determination of the taxable matter and the subsequent operation of tax assessment: "Where stamp duty is due 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."
No. 3 of article 11 of the General Tax Law provides: "Should doubt persist regarding the meaning of the rules of incidence to be applied, account must be taken of the economic substance of the tax facts".
In the case in question, account must be taken of the "economic substance of the tax facts" in order to properly implement the "necessary adaptations of the rules contained in the CIMI", for the proper assessment of the factual matter under discussion.
Given this, the delimitation of the scope of the rule of incidence of this new tax should follow the orientation of the letter and the spirit of the law. In the first place, account should therefore be taken of what is expressly provided in items 28 and 28-1 of the GTSD, with the "necessary adaptations of the rules contained in the CIMI", as results from the provision in no. 7, article 23 of the Stamp Duty Code.
It is important, therefore, to bear in mind that the subjection to stamp duty of properties with housing use resulted from the addition of item 28 of the GTSD, 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 superficies of urban properties whose tax-assessed value listed in the property register, in accordance with the Municipal Real Estate Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the tax-assessed value for purposes of the Municipal Real Estate Tax:
28-1 – For property with housing use – 1%
28.2 – For property, when the taxpayers are not natural persons and are resident in a country, territory or region, subject to a clearly more favorable tax regime, as listed in an order approved by the Finance Minister – 7.5%."
This law came into force on the day following its publication, namely, on 30 October 2012. From the transitional rules contained in its article 6 it results that the tax fact is considered to have occurred on 31 October 2012 and that the tax-assessed value to be used in the assessment of the tax corresponds to what results from the rules of the Municipal Real Estate Tax Code by reference to the year 2011.
Law 55-A/2012 says nothing regarding the qualification of the concepts in question, namely, regarding the concept of "property with housing use."
Article 67, no. 2 of the Stamp Duty Code, added by the said Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table shall be applied subsidiarily the CIMI."
The rule of incidence refers, therefore, to urban properties, the concept of which is what results from article 2 of the CIMI, with the determination of the TPC obeying the terms of article 38 and following of the same code. Consulting the CIMI it is verified that its article 6 only indicates the different types of urban properties, among which it mentions residential properties (see paragraph a) of no. 1), clarifying in no. 2 of the same article that "residential, commercial, industrial or service properties are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes."
From the regulations referred to we can conclude that, in the legislator's view, the legal-formal rigor of the concrete situation of the property does not matter but rather its normal use, the purpose to which the property is effectively destined. We conclude further that for the legislator the situation of the property in vertical or horizontal ownership was not relevant, since no reference or distinction is made between one and the other. The same conclusion is drawn from the reference that the legislator introduced in the matter of stamp duty to the CIMI. Now, this tax establishes as a criterion for properties in vertical ownership the assignment of a TPC to each of the parts or independent divisions. What is relevant is, therefore, the material truth underlying its existence as an urban property and its use, that is, "with housing use". In the case of the present proceedings the property in question, comprised of 10 floors with 20 storeys or divisions capable of independent use, is shown to be a property with housing use.
The question continues to require resolution which concerns the determination of the value relevant for the incidence of stamp duty on properties in vertical ownership, as happens in the present proceedings, which the TCA considers by the value of the sum of the TPCs of all parts or divisions and, in this manner, easily exceed the reference value, namely one million euros.
Well, this criterion of expediency adopted by the TCA does not appear to be acceptable, nor in accordance with the principle of fiscal legality. 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 relating to item 28 of the General Table shall be applied subsidiarily the CIMI."
Now, considering the provision in no. 4 of article 2 of the CIMI, it results that: "For purposes of this tax, each autonomous unit, in the regime of horizontal ownership, is considered as constituting a property."
Adding further no. 3 of article 12 of the CIMI that: "Each storey or part of property capable of independent use is considered separately in the property register entry which also determines the respective tax-assessed value".
Thus, considering that the registration in the property register of real estate in vertical ownership, comprised of different parts, storeys or divisions with independent use, in accordance with the CIMI, obeys the same registration rules of real estate comprised in horizontal ownership, with the respective Municipal Real Estate Tax being assessed individually in relation to each of the parts, it offers no doubt whatsoever that the legal criterion for defining the incidence of the new stamp duty should be the same.
Wherefore, if the legal criterion under the Municipal Real Estate Tax 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 the definition of the rule of incidence of the new stamp duty contained in item 28 of the GTSD.
It is the legislator himself who in the letter of the law tells us that this is the criterion when he makes an unequivocal reference to the CIMI for purposes of applying the aforementioned item 28 of stamp duty. The TCA cannot, therefore, consider as the reference value for the incidence of the new tax the total value of the property (overall TPC), when the legislator himself established a different rule under the Municipal Real Estate Tax, and this is the Code applicable to matters not regulated with respect to item 28 of the GTSD.
Having said this, it appears clear that stamp duty incidence would only occur if one of the parts, storeys or divisions with independent use had a TPC exceeding €1,000,000.00, which does not happen in the present proceedings in relation to any of the parts or independent divisions of the property indicated in the present arbitral request. This very fact was unequivocally proven by the documentary evidence produced in the proceedings, summarized in section III – Facts Found Proven – of the present arbitral decision.
The criterion used by the TCA, in considering the value of the sum of the TPCs assigned to the parts, storeys or divisions with independent use, with the argument that the property was not constituted in the regime of horizontal ownership, has no legal support, is clearly contrary to the criterion that is applicable under the Municipal Real Estate Tax and, by reference, under the new stamp duty (stamp duty), wherefore it appears illegal.
To the foregoing is added the argument drawn from the law itself expressly establishing, in the final part of item 28 of the GTSD, that stamp duty to apply to urban properties of value equal to or greater than €1,000,000.00 – "on the tax-assessed value used for purposes of the Municipal Real Estate Tax."
It should be noted that the property in question in the present proceedings has already, in the year 2014, moved to the regime of horizontal ownership, wherefore, from that moment on, even the TCA's argument cannot subsist. Now, it would clearly be offensive to the principles of equality and proportionality, constitutionally enshrined, that the same property, without any factual alteration to justify it, by mere alteration of the legal regime of the constitution of the respective property right, would be subject to stamp duty in 2013 only to cease to be in such circumstances in the following years.
Thus, the interpretation defended by the TCA, in addition to violating in the first instance the principle of legality and the interpretation underlying it, contravenes the principles of fiscal equality, as well as that of the prevalence of material truth over legal-formal reality. The question of the conformity of the provision of the rule of incidence, in light of the constitutional text, would, however, only arise if the interpreter arrived at the conclusion that a certain and unequivocal reading of the law, applied to a concrete case, wounded one or more constitutional principles. But that is not what is at issue, since the legislator himself was coherent in determining that for purposes of the incidence of the new stamp duty – item 28 the criteria provided under the Municipal Real Estate Tax should be followed. The TCA, however, insists on denying the application of the provisions contained in the CIMI despite the express reference of the legislator in the Stamp Duty Code. To which is added the fact that, at the time of its establishment as an urban property composed of various floors and storeys capable of independent use, the law in force did not even provide for the existence of the regime of horizontal ownership. By this it is seen that the interpretation contended for by the TCA appears unjust and discriminatory, namely, as regards properties of more ancient construction, such as is the case of the property in question in the present proceedings. And this is further reinforced, if we consider the TPC actually assigned to each of the independent divisions, which is €84,530.00 in relation to the majority of the divisions and €75,520.00 in relation to one of the divisions that comprise the property, amounts which are fixed in clearly far off amounts from reaching the legally established limit, namely, a value exceeding €1,000,000.00.
Thus, in the case in question what is at issue is an interpretation by the TCA which led it to an application of the law without framework in the applicable legal provisions, suffering from error regarding the factual and legal premises underlying its correct application. In other words, the provisions in question do not lead to the solution that the TCA professes for its application.
In summary, the uniform criterion, the only one compatible with the letter of the law and with the underlying ratio legis for the introduction of taxation of "luxury homes" defined as those whose TPC is equal to or greater than €1,000,000.00, in the case of properties in vertical ownership with autonomous units or independent divisions, is that account be taken of the value of each of the units or divisions, as happens for purposes of the Municipal Real Estate Tax. In the case where one of those parts presents a TPC exceeding €1,000,000.00 the legal assumption of incidence is fulfilled; if the value is lower, there can be no incidence of the tax.
To contend, as the TCA does, to use as the reference criterion, specifically for the purpose of applying item 28.1 of the GTSD, the overall TPC, corresponding to the sum of all the TPCs of the various parts or independent divisions, is illegal, inasmuch as it has no support whatsoever in the applicable legal provisions nor in the ratio legis that led the legislator to introduce the new tax. Moreover, the understanding advocated by the TCA contravenes the indication expressly introduced by the legislator in this matter, in referring to article 67, no. of the CIMI. This constitutes violation of law by error regarding the factual and legal premises of application of the rule.
In the case of the present proceedings all, at the date of the tax event (2013) the property in question was in vertical ownership, comprised of storeys and divisions with independent use intended for housing, as was proven above. Given that none of the storeys intended for housing has tax-assessed value equal to or greater than €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal assumption of incidence of the new stamp duty provided for in Item 28.1 of the GTSD has not been fulfilled.
Finally, also regarding the ratio legis underlying the rule of items 28 and 28.1 of the GTSD, introduced by Law no. 55-A/2012 of 29 October, and in compliance with 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 rather 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 drafted and the specific conditions of the time in which it is applied.
The legislator, in introducing this legislative innovation, considered as a determining element of contributive capacity urban properties, with housing use, of high value (luxury), more precisely, of value equal to or greater than €1,000,000.00, on which a special stamp duty tax rate began to apply, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies of luxury urban properties with housing use. For this reason, the criterion was the application of the new rate to urban properties with housing use, whose TPC is equal to or greater than €1,000,000.00.
This very conclusion is drawn from analysis of the discussion of bill no. 96/XII in the Assembly of the Republic, available for consultation in the Record of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012. The substantiation of 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 upon the holders of properties of high value intended for housing to contribute in a more intense manner, making the new special rate apply to "houses of value equal to or greater than 1 million euros."
Clearly the legislator understood that this value, when attributed to a residence (house, autonomous unit or storey with independent use), reflects a contributive capacity above the average and, as such, capable of determining a special contribution to ensure fair distribution of the fiscal effort.
Also following these considerations inspiring the legislative innovation under review, it must be concluded that the existence of a property in vertical or horizontal ownership cannot, by itself, be an indicator of contributive capacity. On the contrary, it results from the law that one and the other should receive the same fiscal treatment in compliance with the principles of justice, fiscal equality and material truth. By contrast, the existence in each property of independent homes, in the regime of horizontal or vertical ownership, may be capable of triggering the incidence of the new tax if the TPC of each of the parts or units is equal to or greater than the limit defined by law: €1,000,000.00. But only in this concrete situation of fact which does not occur in the case of the present proceedings.
In this manner it is illegal to consider as the reference value that corresponding to the sum of the TPCs assigned to each part or division. First and foremost, because that was not the legislator's option but rather to follow as a reference the TPC as defined under the Municipal Real Estate Tax, but also because such understanding would result in a clear violation of the principle of equality and proportionality in fiscal matters. The fiscal legislator cannot treat equal situations differently. Now, if the property were in the regime of horizontal ownership, none of its residential units would be subject to the incidence of the new tax.
It should further be noted that, by the TCA's criterion, many of the urban properties existing in vertical ownership, despite being older, easily could reach the reference value for the incidence of stamp duty. On the other hand, properties of recent and, sometimes, luxury construction, in the regime of horizontal ownership, but provided that each unit does not equal and or exceed the value of €1,000,000.00, is not subject to the new tax. In light of article 104, no. 3 of the Constitution, such a situation appears, truly, disproportionate and intolerable, by clear violation of equality and fiscal equity. Concerns well evidenced in the memorandum of the Ombudsman attached to the case by the claimant as document no. 83 in annex to the arbitral request.
Thus, it is concluded that the TCA cannot distinguish where the legislator himself 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, no. 2 of the CRP, and also the principles of justice, equality and fiscal proportionality. For this very reason is it that article 12, no. 3, of the CIMI says that "each storey or part of property capable of independent use is considered separately in the property register entry which equally specifies the respective tax-assessed value."
From the provision in this rule results (in the manner that was provided for in article 232, rule 1, of the Code of Property Contribution and Tax on Agricultural Industry) that what is relevant for purposes of entry in the property register is the autonomy which, within the same property, can be attributed to each of its parts, economically and functionally independent. What does not appear coherent with the decision of the TCA to tax the housing parts of a property in vertical ownership, according to the overall TPC of the property, introducing a criterion completely contrary to that which results from the law provided, that is, in the Stamp Duty Code and the CIMI, by express reference of the legislator in this matter.
It is further added that the establishment of horizontal ownership implies a mere legal alteration of the property, which for tax purposes does not even impose a new assessment of the property. And, for that matter, for tax purposes, the manner of establishment of the property in full or horizontal ownership regime was not considered in the introduction of the new tax, just as it was not in the CIMI itself, surely because the legislator well attended to the injustice that would result from such discrimination. The material truth resulting from the value attributed to each of the parts or independent divisions, expressed in the TPC that is attributed to each of them for purposes of the Municipal Real Estate Tax and the actual use of the property for housing, is what is imposed as the determining criterion of contributive capacity and not the mere legal-formal reality of the property.
For everything that has been set out it is concluded that the stamp duty assessments contested are illegal, by violation of law resulting from error regarding the legal premises, wherefore they must be annulled with all legal consequences.
V – REGARDING THE REQUEST FOR INDEMNIFYING INTEREST
Paragraph b), no. 1, article 24 of the LFTA provides that the arbitral decision on the merits of the claim which is not subject to appeal or challenge binds the tax administration from the end of the deadline provided for appeal or challenge, with this – in the exact terms of the procedence of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for spontaneous execution of the sentences of the judicial tax courts – obliged to restore the situation that would exist if the tax act object of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose.
This provision is in harmony with the provision in article 100 of the General Tax Law, applicable to the case by force of paragraph a), no. 1, article 29 of the LFTA, in which it is established that "the tax administration is obliged, in the case of total or partial procedence of complaints or administrative appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and complete restoration of the situation that would exist if the illegality had not been committed, including the payment of indemnifying interest, in the terms and conditions provided for by law."
Article 43, no. 1, of the General Tax Law provides, in turn, that "indemnifying interest is due when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due."
From analysis of the evidentiary elements contained in the present proceedings it is possible to infer that the TCA had total and full knowledge of the factual elements relevant to proceed with the correct assessment of the tax.
With the notification of the arbitral request presented and of the evidence attached as an annex to the request, the TCA had the possibility to revoke the acts stopping their effects, which did not happen. Not having done so and maintaining the assessments tainted with error regarding the premises, and for this very reason illegal, it is obliged to indemnify.
Accordingly, in view of the provision in article 61 of the Tax Procedure Code and considering that the requirements of the right to indemnifying interest are fulfilled, that is, verified the existence of an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due, as provided for in no. 1 of article 43 of the General Tax Law, the Claimant is entitled to indemnifying interest at the legal rate, calculated on the amount of €16,815.90, running from the date on which payment was made until its complete reimbursement, as a means of achieving the restoration of the situation that would exist if the illegality had not been committed.
There do not appear to be any other issues of relevance raised by the parties.
VI - DECISION
In light of the foregoing, this Arbitral Tribunal decides:
A) - Judge the claim for declaration of illegality of all Stamp Duty assessments contested in the present proceedings as procedent, as they suffer from the defect of violation of law, by error regarding the factual and legal premises, annulling, consequently, the corresponding tax acts;
B) - Judge the claim for condemnation of the Tax Administration in the reimbursement of the amount unduly paid, in the amount of €16,815.90, plus indemnifying interest at the legal rate, counted from the date of payment made until the complete reimbursement of the mentioned amount, as procedent, condemning the Tax and Customs Authority to make these payments.
Value of the Case: In accordance with the provisions in articles 306, nos. 1 and 2 of the Code of Civil Procedure, article 97-A, no. 1, paragraph a), of the Tax Procedure Code and article 3, no. 2 of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is set at €16,815.90.
Costs: In accordance with the provision in no. 4, article 22 of the LFTA and in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, the amount of the costs is set at €1,224.00 charged to the Respondent Tax and Customs Authority.
It is registered and notified.
Lisbon, 29 December 2014
The Single Judge-Arbitrator,
(Maria do Rosário Anjos)
[1] The present decision is drafted in accordance with former Portuguese spelling.