Stamp Tax on Vertical Property: CAAD Rules VPT Must Be Assessed Per Independent Unit, Not Aggregate (428/2014-T)

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 428/2014 – T

Subject: Stamp Duty (IS) – Item 28.1 of the General Stamp Duty Table; Vertical Property Ownership

I. REPORT

A, widow, taxpayer no. …, resident at Avenue …, no.…, …, in Lisbon, requested the constitution of the Arbitral Court, pursuant to the provisions of article 10 of Decree-Law no. 10/2011, of 20 January ("RJAT"), with the purpose of declaring the illegality of the following stamp duty tax assessments ("IS"):

a) …1, …2, …3, …4, …5, …6, …7, …8, …9, …10, …11, …12, …13, …14, …15, …16, …17, …18, …19, …20, …21, …22 – all referring to the year 2012; and,1

b) …23, …24, …25, …26, …27, …28, …29 – all referring to the year 2013.

The legality of the compensation act …30, relating to the year 2012, is equally contested.

The assessments in question relate to the 11 divisions with independent use that constitute the urban property located at Avenue …, nos …, described in the Land Registry Office of …, under no. … of the parish of …, registered in the urban property matrix of the same parish under no. …, municipality of …, property of the Applicant.

These were made on the basis of item no. 28.1 of the General Stamp Duty Table.

The Applicant considers that the aforementioned tax assessment acts should be annulled because they are defective in their legal prerequisites.

In fact, the Applicant alleges that, in summary, the taxation enshrined in the cited legal provision is directed at urban properties, with residential use, whose tax property value ("TPV") is equal to or greater than € 1,000,000.00 used for the purposes of IMI [Municipal Property Tax], which is not the case here, since the TPV relating to each of the divisions capable of independent use is below what is legally established, such value being the relevant one for the purposes of IS tax incidence.

Specifically, the Applicant argues that for the purposes in question it is not minimally relevant whether a given property is constituted under the regime of vertical property ownership or horizontal property ownership, for the purpose of concluding that the fiction created by the Tax and Customs Authority ("AT") of the existence of a TPV corresponding to the sum of the TPV of the 11 divisions capable of independent use, on the basis of their respective residential use, lacks legal foundation. Moreover, that among the divisions considered there are 3 that could not even be assigned to residential use, as set out in paragraphs b), c) and d) of point 3 of the Initial Request.

Additionally, the Applicant raised the breach of article 6 of Law no. 55-A/2012, of 29 October, as well as of the Fundamental Law, through the violation of the constitutional principles of legality and fiscal equality, as well as the prevalence of substantive truth over formal legal reality.

Furthermore, the Applicant alleged that the following were breached: (i) paragraph c) of no. 1 of the aforementioned legal provision, in that the IS assessments for 2012 were based on the property valuation of 2013 and not of 2011; (ii) paragraphs d) and e) of the same provision, in that the IS assessments for 2012 should have been made by the end of November 2012, having only been carried out in February 2014; and (iii) point i) of paragraph f) of the same provision since the rate of 1% was applied when the rate of 0.8% should have been applied.

I.2 The AT, having failed to respond within 30 days, requested on 2 October 2014 (i) notification to submit written arguments under no. 2 of article 18 of RJAT, (ii) exemption from submission of the administrative file by the respondent entity, accepting as valid the documentary evidence supporting the Applicant's petition, and (iii) exemption from holding the meeting provided for in article 18 of RJAT.

Given the agreement of the Parties to dispense with the meeting provided for in article 18 of RJAT, they were notified by the Court to submit their written arguments.

After the arguments were presented, and given that exemption from submission of the administrative file was requested and the documentary evidence supporting the Initial Request was accepted as valid, the Respondent raised a preliminary issue, namely, the non-submission by the Applicant of various evidentiary elements, which would be contrary to the provision in paragraph d) of no. 2 of article 10 of RJAT, in which context it requested the Court to order the submission of the same to the proceedings.

With regard to the legal issue of the interpretation and application of item 28 of the General Stamp Duty Table, the Respondent argues that the property value relevant for the purposes of the tax incidence is (...) the total property value of the urban property and not the property value of each of the parts that compose it, even when capable of independent use" and that "the fact that IMI was calculated based on the tax property value of each part of property with independent economic use does not equally affect the application of article 28, no. 1 of the General Table [of IS].

In its arguments, the Applicant maintained all the facts and legal grounds contained in the Initial Request, having again attached the documents regarding which the Respondent raised the preliminary issue, having argued that the submission of the same had not been omitted, as they were presented in a timely manner.

II. PROCEDURAL SANITATION

The court was regularly constituted and is competent ratione materiae, in accordance with article 2 of RJAT.

The parties have legal personality and capacity, being legitimate, in accordance with articles 4 and 10, no. 2, both of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

No nullities in the proceedings were invoked or identified.

With regard to the preliminary issue raised by the Respondent, having consulted the CAAD case management system, this Court confirmed that the documents in question had been submitted by the Applicant and were available for consultation. For which reason, moreover, the Court did not notify the Applicant to submit the evidentiary elements in question, which were the object of the request and submitted at the time of its filing, and did not reject the request formulated by the Respondent for exemption from submission of the administrative file.

Additionally, it requested the CAAD services to confirm that such documents were available to all parties for consultation, which confirmed that the documents which the Tax and Customs Authority considers, in the "Preliminary Issue" section of its Arguments, not to have been submitted by the Applicant, are available in the Case Management System, in the "Request" section (Summary of Submitted Request), in the "Subject of the Request" field, in the "Act(s)" subfield, and can be consulted by all parties to the arbitration proceedings.

Whereby, without prejudice to the new submission made by the Applicant in its arguments, it is clear that the preliminary issue raised is without merit for lack of foundation.

III. GROUNDS

III.A Factual Matters

Bearing in mind the procedural principles inherent in article 16 of RJAT and, likewise, the full and unconditional acceptance by the Respondent of all the documentary evidence adduced by the Applicant, the following facts are proven:

The Applicant is the owner of the urban property described in the Land Registry Office of …, under no. … of the parish of …, registered in the urban property matrix of the same parish under no. …(former no. … of …), municipality of Lisbon (the "Property").

The property consists of 11 divisions with independent use, with the following allocation:

On 8 February 2013, evaluation notifications of the divisions were issued through Offices nos. …, …, …,…, …, …, …, …, …, … and ….

On 5 February 2014 the AT proceeded to the assessment of IS, pursuant to item 28.1 of TGIS, for the year 2012, regarding the divisions identified above, through tax acts …1, …2, …3, …4, … 5, …6, …7, ... 8, …9, …11 and …12.

On 7 March 2014 the AT, likewise regarding the divisions and the year 2012, proceeded to issue tax acts of Demonstration of Stamp Duty Assessment (Item 28) …12, …13, …14, …15, …16, …17, …18, …19, …20, …21 and …22.

On 19 May 2014 the AT proceeded to issue the compensation tax act …30, with reference to the assessment act …22, through which it compensated the amount € 149.52 with € 1,495.29, having assessed the amount of IS due at € 1,345.68.

On 17 March 2014 the AT proceeded to the assessment of IS, pursuant to item 28.1 of TGIS, for the year 2013, regarding the divisions identified above, through tax acts …23, …24, …25, …26, …27, …28, …2.

The rate of IS applied was 1% in all the tax acts mentioned.

On 29 April 2014, and as a result of the IS assessments that were notified to it, the Applicant proceeded to pay IS in the following amounts:

On 26 December 2012 the property, composed of the 11 divisions, had a total tax property value of € 176,535.98, which had been determined in 2009.

The conviction of the factuality proven was based on the documentary evidence attached to the case by the Applicant, as well as by the Respondent, to which is added the mutual acceptance by the parties of the same.

III.B Legal Matters

By the Respondent it was briefly argued that an urban property composed of floors or divisions subject to IS is determined based on the total TPV of the property, and not based on the property value of each floor or division. This is, in the view of the Respondent, the only admissible interpretation in light of the literal wording of item 28.1 of TGIS.

In fact, the Respondent alleges that item 28 of the General Table provides that stamp duty is levied on the ownership, usufruct or right of surface of urban properties whose tax property value contained in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00, adding that according to item 28.1, in the case of urban properties with residential use, the tax is levied on the tax property value used for the purposes of municipal property tax (IMI).

The Respondent concludes that the property value relevant for the purposes of the tax incidence is, thus, the total property value of the urban property and not the property value of each of the parts that compose it, even when capable of independent use, which, in the understanding of the Respondent, is corroborated by no. 2 of article 80 of the IMI Code, according to which each property corresponds to a single entry in the matrix.

It further adds that the fact that IMI was calculated based on the tax property value of each part of property with independent economic use does not equally affect the application of article 28, no. 1, of the General Table and that to admit another interpretation would violate, moreover, the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in article 103, no. 2, of the Constitution of the Portuguese Republic (CRP).

Finally, the Respondent, in articles 46 and following of its arguments, recognizes the transitional provisions of article 6 of Law no. 55-A/2012, of 29 October, which provides that in the first year of validity of the new tax (in 2012) the taxable fact occurs on 31 October, with assessment by the end of November 2012, the TPV to be considered being that of 2011, with a reduced rate to be applied relative to the rate provided for in item 28 – 0.5% or 0.8%, depending on whether the properties were assessed or not assessed in accordance with the IMI Code.

For the Applicant, the Respondent's understanding is illegal, since the assessments in question suffer from various defects.

Firstly, alleges the Applicant, the following were breached: (i) paragraph c) of no. 1 of article 6 of Law no. 55-A/2012, of 29 October, in that the IS assessments for 2012 were based on the property valuation of 2013 and not of 2011; (ii) paragraphs d) and e) of the referred provision, in that the IS assessments for 2012 should have been made by the end of November 2012, having only been carried out in February 2014; and (iii) point i) of paragraph f) of the same provision, since the rate of 1% was applied when the rate of 0.8% should have been applied.

Further alleges the Applicant that IS was assessed on three divisions, named "Cave F", "Cave 1" and "Cave 2", whose use is not residential.

With regard to the 2013 assessments, the Applicant equally alleges that these are illegal in that they failed to comply with the provision in no. 2 of article 6 of Law no. 55-A/2012, of 29 October, since the notifications of the new TPV date from 8 February 2013, nor does this have the value considered for the purposes of IMI assessment for that period.

These are, in short, the positions presented by the parties. It is therefore necessary to decide.

Article 1, no. 1 of the Stamp Duty Code, in the version in force at the time, provides that:

"Article 1
Objective Incidence

1 - Stamp duty is levied on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property.

(...)"

For its part, item 28 of TGIS, in the version in force at the time, provided:

"28 Ownership, usufruct or right of surface of urban properties whose tax property value contained in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - based on the tax property value used for the purpose of IMI:

28.1 Per property with residential use: 1%

(...)"

Whereby, it results from the cited provisions that, as a result of Law no. 55-A/2012, of 29 October, all urban properties, with residential use whose TPV contained in the matrix is equal to or greater than € 1,000,000.00, are subject to IS at the rate of 1%, having as the basis of incidence the tax property value used for the purpose of IMI.

Since, according to article 6 of Law no. 55-A/2012, of 29 October, which enshrines the transitional provisions,

Article 6

Transitional Provisions

1 – In 2012, the following rules must be observed with reference to the assessment of the stamp duty provided for in item no. 28 of the respective General Table:

a) The taxable fact occurs on 31 October 2012;

b) The passive subject of the tax is the one mentioned in no. 4 of article 2 of the Stamp Duty Code on the date referred to in the preceding paragraph;

c) The tax property value to be used in the assessment of the tax corresponds to that which results from the rules provided for in the Municipal Property Tax Code with reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be made by the end of November 2012;

e) The tax must be paid in a single installment by the passive subjects by 20 December 2012;

f) The applicable rates are as follows:

i. Properties with residential use assessed in accordance with the IMI Code: 0.5%;

ii. Properties with residential use not yet assessed in accordance with the IMI Code: 0.8%;

iii. Urban properties when the passive subjects who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by ordinance of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of the stamp duty provided for in item no. 28 of the respective General Table must be based on the same tax property value used for the purposes of the municipal property tax assessment to be carried out in that year. 3 – (...)."

From the proven facts it is clear that the property in question is urban, being composed of 11 divisions with independent use, 3 of which without residential use.

In this context it is essential to determine whether in the present case, of property in full ownership with divisions with independent use, the TPV to be considered for the purposes of applying the cited item 28.1 of TGIS should correspond to the TPV of each floor or division with residential use or to the total TPV of the property.

Thus, taking into account that in accordance with no. 2 of article 67 of the Stamp Duty Code, in the version in force at the time:

"Article 67
Matters not Regulated

1 – (...)
2 - To matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI are subsidiarily applied."

It should therefore be considered that according to paragraph b) of no. 2 of article 7 of the IMI Code, in the version in force at the time, if the different parts are economically independent, each part is assessed by applying the corresponding rules, and the value of the property is the sum of the values of its parts and that, in accordance with no. 3 of article 12 of the same code, each floor or part of property capable of independent use is considered separately in the property registration, which also discriminates its respective tax property value.

Without such autonomization – of the economically independent parts – implying the constitution of the property under the regime of horizontal property ownership. Especially since it should always be considered that both realities, that of divisions with independent use and autonomous fractions, in meeting the requirements enshrined in article 1415 of the Civil Code, are substantively identical realities.

In fact, this same autonomization is clear in the formula for determining the TPV, provided for in article 38 of the IMI Code, which includes indices that vary depending on the use assigned to each of these parts.

Moreover, it should always be considered that such autonomization is enshrined not only in the segregation of the property registration and discrimination of TPV, but also in the tax assessment act itself.

In fact, in accordance with no. 1 of article 119 of the IMI Code, the collection document must contain the discrimination of the properties, their parts capable of independent use and their respective TPV. Thus, the assessment of IMI does not take as a basis the sum of the TPV attributed to the parts or divisions with independent use, but the individual TPV of each of them.

Thus, the express reference to the property value considered for the purposes of IMI inherent in item 28 of TGIS cannot refer to any other reality than that contained in the regime provided for in the IMI Code regarding each part or division of urban property capable of independent use. And not to the global value of a property in full ownership but composed of fractions capable of independent use.

The aforementioned is sufficient to conclude that the assessments in question are defective due to breach of law, by error in the legal prerequisites, justifying the declaration of their illegality and annulment.

The knowledge of the other issues raised is thus prejudiced, in particular the fact that 3 divisions with independent use named as "Cave F", "Cave 1" and "Cave 2" do not, either, have residential use, and the breach of the provisions of article 6 of Law no. 55-A/2012, of 29 October.

In this context, it is also important to note that, in accordance with no. 2 of article 2 of RJAT, arbitral courts decide in accordance with the law as constituted, and resort to equity is prohibited; and that, in accordance with no. 3 of article 8 of the Civil Code, in the decisions to be rendered, the judge shall take into account all cases that merit similar treatment, in order to obtain a uniform interpretation and application of the law.

Such provision thus establishes a guiding principle of the judicial function, seeking to prevent the justice of the particular case from being in disagreement with the justice of the general principle, with the aim of harmonizing the application of laws.

It was not, therefore, nor could it be, a matter of indifference to this court the unanimity that the case law established in CAAD has had on this matter, in the scope of the 26 decisions handed down in the scope of cases 50/2013T, 132/2013T, 144/2013T, 181/2013T, 182/2013T, 183/2013T, 185/2013T, 191/2013T, 205/2013T, 225/2013T, 247/2013T, 248/2013T, 262/2013T, 268/2013T, 272/2013T, 280/2013T, 14/2014T, 26/2014T, 30/2014T, 88/2014T, 100/2014T, 177/2014T, 193/2014T, 194/2014T, 206/2014T and 72/2014.

Among which the decision in case 181/2013T stands out, according to which it is to be concluded that for the purposes of the assessment of Stamp Duty provided for in item 28.1 of TGIS the TPV determined in accordance with the IMI Code should be taken into consideration, that is, in the particular case of properties in full ownership with floors or divisions of independent use, the individual TPV of each of the floors or divisions of independent use.

In the same sense, the decision rendered in case 248/2013T states that as, moreover, is reflected in the assessments that are questioned in the present request for arbitration pronouncement: the Tax Administration, after, without legal support, performing the sum of the tax property values of the various autonomous parts of the property to extract therefrom the quantitative premise for the incidence of stamp duty, performs the assessment with reference to each of these parts, even though individually none of them reaches that value. And the same decision adds that the issue in this case is entirely identical to those which were raised and decided in cases 50/2013T and 132/2013T, CAAD, to whose conclusion regarding the illegality of the decision of the Tax Administration to subject to taxation the residential parts of a property in full ownership, based on the global TPV of the property and not on what is effectively assigned to each part, full agreement is given.

To which agreement is given, with regard to the legal issues coinciding here.

IV. INDEMNITY INTEREST

As for the indemnity interest claimed by the Applicant, it should be taken into account that, according to paragraph b) of article 24 of RJAT, with no appeal or challenge to the arbitral decision being available, the same binds the AT, which must restore the situation that would have existed if the tax act subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for this purpose.

Likewise, article 100 of LGT provides, applicable by virtue of paragraph a) of no. 1 of article 29 of RJAT, that the tax administration is obliged, in the event of total or partial merit of the claim, judicial challenge or appeal in favor of the passive subject, to immediate and full restoration of the legality of the act or situation which is the subject of the litigation, including the payment of indemnity interest, if applicable, from the date the execution of the decision is due.

The process of judicial challenge admits the condemnation of the AT in the payment of indemnity interest, in accordance with article 43 of LGT and, likewise, with article 61 of CPPT.

In this context, it being decided regarding the illegality of the acts of additional assessment by a fact attributable to the AT, in accordance with the cited articles 43 of LGT and article 61 of CPPT, indemnity interest shall be due to the Applicant, from the date it made the payment.

V. DECISION

In these terms and with the grounds set out herein, the Arbitral Court decides to uphold the request for arbitral pronouncement, with the consequent declaration of illegality and annulment of the questioned assessments, condemning the AT to proceed with the reimbursement of the amounts unduly paid by the Applicant, as well as the payment of the respective indemnity interest, at the legal rate, from the date of its payment until full reimbursement of the amounts in question.

VI. VALUE OF THE CASE

In accordance with the provision in paragraph a) of no. 1 of article 97-A of CPPT applicable by virtue of no. 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings, the value of the case is set at € 23,072.22 (twenty-three thousand and seventy-two euros and twenty-two cents).

VII. COSTS

In accordance with no. 4 of article 22 of RJAT, the amount of costs is set at € 1,224.00 (one thousand, two hundred and twenty-four euros), in accordance with Table I annexed to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the AT.

Lisbon, 16 January 2015.

The Arbitrator

(Tiago dos Santos Matias)

Text prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by referral of article 29, no. 1, paragraph e) of RJAT.

The wording of this arbitral decision is governed by the orthography prior to the Orthographic Agreement of 1990.