Stamp Tax on High-Value Properties: Vertical vs Horizontal Ownership Under Verba 28.1 TGIS

ARBITRAL DECISION

I. REPORT

A... (hereinafter referred to only as "Claimant"), married, holder of Citizen Card no. ..., valid until ..., with tax identification number ..., resident at Rua de Campolide no. ..., 2nd Floor, Apt. Right side, in Lisbon, submitted a request for the constitution of a singular arbitral tribunal, pursuant to the provisions of item (a) of Article 2, no. 1 and Article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "RJAT"), with a view to declaring the illegality of the acts of assessment of Stamp Duty ("IS"), issued by the Tax and Customs Authority ("AT"), on the basis of item 28.1 of the General Table of Stamp Duty ("TGIS"), dated 17 March 2014 and relating to the year 2013 which appear in the collection documents nos. 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., attached to the request for arbitral pronouncement as docs. 1 to 12, in the amount of € 4,201.79 (corresponding to the first instalment of the tax assessed) and consequent annulment of those acts.

For this purpose, it alleges, in summary, that:

1. It is the owner of an urban property in vertical ownership, composed of 5 storeys and 12 divisions for independent use all intended for residential purposes and another three allocated to commercial use, located at Rua de..., no. ... to ..., and registered in the urban property matrix of the parish of Campolide, in Lisbon, with a total property value of € 1,244,948.15.

2. The IS assessments were levied at the rate of 1% on the sum of the property values corresponding to the storeys or divisions of independent use between themselves, notwithstanding the fact that each of those residential units has a tax-assessed property value of less than € 1,000,000, understanding that the AT incorrectly interprets the rule contained in item 28 of the TGIS, in that whether the property is registered in horizontal or vertical ownership, the taxable base subject to IMI was and is always the property value of each one of the divisions capable of independent use and rental, as required by no. 3 of article 12 of the CIMI, not accepting that, for purposes of Stamp Duty, "what has always been the golden rule regarding the autonomy of parts of urban properties capable of independent rental should now cease to be respected";

3. Because, this was already the case under the previous Property Contribution Code and the Tax on Agricultural Industry. The said autonomy given to the parts of properties is equally relevant under the IRS, when taxing the rents received from the rented parts, never requiring the formal constitution of horizontal ownership, treating the same property differently;

4. By acting as it did, the AT also violated the principle of equality and the prevalence of material truth, ending up giving relevance to form over substance;

5. The legislator, when adding item 28 to the TGIS, considered as the determining element of taxpaying capacity, urban properties with residential allocation of high property value, "luxury units", whose tax-assessed property value exceeded €1,000,000.00, as results from the discussion of law no. 96/XII in the Parliament of the Republic;

6. Because if that were not the legislator's intention, to tax the "luxury units" and of "high value" would be to disrespect not only the Principle of Good Faith, but also the Principle of Legal Certainty, the Principle of Confidence and the Principle of Cooperation;

If the legislator's intention had been to tax properties that were not in the horizontal ownership regime, with a tax-assessed property value or greater than €1,000,000.00, certainly it would not have failed to recommend to the AT that it notify the owners of properties in vertical ownership to, if they wished, constitute them in horizontal ownership, reinforcing the certainty and legal security that should exist between administration and administered;

1. The AT, by disregarding the tax-assessed property value of each one of the autonomous residential units of the property at issue in these proceedings, in the assessment of item 28 of the TGIS, clearly disrespected the "ratio legis" of the provision, which can only provide for the tax to apply to "luxury units" with a tax-assessed property value equal to or greater than €1,000,000;

2. Because subjecting such residential units to Stamp Duty solely because there is no legal instrument formalizing horizontal ownership is to completely deny the principle that governs Fiscal Law of "Prevalence of substance over form", being necessary to respect what is established in no. 3 of article 11 of the LGT and the AT being unable to apply that principle when it acts in its favor, assessing taxes and disregard it when its application distances tax incidences;

3. It is unequivocal that the tax-assessed property value, necessarily discriminated by each one of its parts capable of separate rental and with total economic autonomy between themselves, produces exactly the same effects, whether or not a deed of constitution of horizontal ownership is executed, both with respect to the 1% Stamp Duty, and with respect to IMI or in the taxation of each of the rented parcels under IRS;

It concludes with the illegality of the assessments contested, due to incorrect interpretation of the applicable rules, and the same should be annulled in their entirety and consequently the enforcement proceedings to which they gave rise be terminated.

The Claimant opted not to appoint an arbitrator, wherefore a sole arbitrator was appointed by the CAAD, in accordance with the provisions of no. 1 of article 6 and item (b) of no. 1 of article 11 of the RJAT.

The arbitral tribunal was constituted on 22-08-2014, in accordance with the provisions of item (c) of no. 1 of article 11 of the RJAT.

Duly notified, the Respondent Entity submitted its reply, in which it invokes, in summary:

i. as preliminary matters the non-presentation of documents by the Claimant capable of supporting the request for arbitral pronouncement, in accordance with item (d) of no. 2 of article 10 of the RJAT, and its reply took into account the facts alleged in the initial petition, further requesting that the value of the case be fixed based on the economic value of the stamp duty assessments contested, taking into account the discrepancy between the amount of € 4,210.79 indicated in the petition and the value of € 4,113.16 entered in the final request;

ii. "Item 28 of the TGIS provides that stamp duty is levied on the ownership, usufruct or surface right of urban properties whose property value shown in the matrix, in accordance with the CIMI, is equal to or greater than €1,000,000.00";

iii. According to the said item, in the case of urban properties with residential allocation, the tax is levied on the property value used for IMI purposes;

iv. The passive subjects of stamp duty are the passive subjects of IMI, in accordance with article 8 of the CIMI, these being the passive subjects who bear the burden of stamp duty;

v. The taxable fact of stamp duty of item 28.1 consists of the ownership, usufruct or surface right of urban properties whose tax-assessed property value shown in the matrix, in accordance with the CIMI is equal to or greater than €1,000,000.00;

vi. "The property value relevant for purposes of the incidence of the tax is, thus, the total property value of the urban property and not the property value of each one of the parts that comprise it, even when capable of independent use, there being no violation whatsoever of the literal wording of item 28.1 of the TGIS";

vii. Article 80, no. 2 of the CIMI provides that, to each property corresponds a single article registered in the matrix, save as provided in articles 84 and 92 of the same Code, that is, with the exception of mixed properties and properties constituted in the horizontal ownership regime, because to each building in the horizontal ownership regime corresponds a single matrix entry, despite in accordance with no. 4 of article 2 of the CIMI each autonomous fraction constituting an urban property;

viii. In accordance with no. 3 of article 12 of the CIMI, each storey or property capable of independent use is considered separately in the matrix entry, which also discriminates the respective tax-assessed property value, on which the IMI is assessed;

ix. The unity of the urban property in vertical ownership composed of various storeys or divisions is not affected by the fact that these are capable of independent economic and independent use, not ceasing to be a single property, its distinct parts therefore not being able to be equated to the autonomous fractions of a property constituted in horizontal ownership;

x. The tax-assessed property value on which the incidence of stamp duty of item 28.1 depends is the total property value of the property and not that of each one of its independent parts, this interpretation not ruling out the fact that the assessment of IMI is calculated based on the tax-assessed property value of each one of those parts;

xi. Any other interpretation would violate the letter and spirit of item 28.1 of the TGIS and the principle of legality of the essential elements of the tax, provided for in article 103, no. 2 of the CRP, having "surely" no expression whatsoever in the law;

xii. Being unconstitutional the interpretation of the said item 28.1, by offending the principle of tax legality, "in the sense that the property value on which its incidence depends is appraised globally and not storey by storey or division";

xiii. The taxation in question did not violate the principle of equality, as vertical ownership and horizontal ownership are differentiated legal institutes, the latter implying a mere legal alteration, not giving rise to a new valuation, the legislator being able to subject properties in horizontal and vertical ownership regimes to a distinct and discriminatory tax framework, "without such discrimination being necessarily considered arbitrary"; and,

xiv. It concludes that:

a) Item 28.1 of the TGIS applies to urban properties with residential allocation;

b) The property value equal to or greater than €1,000,000.00 on which the application of that legal rule depends is, as expressly results from its wording, the property value of each property and not of its distinct parts, even if capable of independent use;

c) Accordingly, the stamp duty of item 28 was correctly assessed."

Since it is a matter strictly of law, the arbitral tribunal decided to dispense with the holding of the meeting provided for in article 18 of the RJAT, as well as to dispense with the presentation of submissions, by proposal of the respondent entity and with the consent of the claimant, as it did not pronounce itself to the contrary.

The Arbitral Tribunal was regularly constituted and is materially competent, in accordance with the provisions of article 2, no. 1, item (a) of the RJAT.

The parties have juridical personality and capacity, are legitimate and are regularly represented, in accordance with the provisions of articles 4 and 10, no. 2 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March.

The case does not suffer from nullities and there are no exceptions that need to be addressed or that obstruct the examination of the merits of the case.

The Respondent Entity raises as preliminary matters the non-presentation of documents by the Claimant capable of supporting the request for arbitral pronouncement, in accordance with item (d) of no. 2 of article 10 of the RJAT, and its reply took into account the facts alleged in the initial petition, further requesting that the value of the case be fixed based on the economic value of the stamp duty assessments contested, taking into account the discrepancy between the amount of € 4,210.79 indicated in the petition and the value of € 4,113.16 entered in the final request.

Let us see.

Regarding the non-presentation of documents, the Claimant indicated 13 documents in its initial petition, and attached with its request for arbitral pronouncement the Stamp Duty assessments contained in the collection documents of the first instalment of that assessment, designated under documents nos. 1 to 12 and, by oversight, did not attach the document designated under no. 13, relating to the property record of the aforementioned property in full ownership, only doing so when notified.

The said documents, including the one designated under no. 13 constitute official documents, issued by the AT itself, contained in its computer system, to which the Respondent Entity naturally has access, knowing perfectly well their content, it not being for that reason that it failed to submit a reply and even as the entity itself alleges, because it was a matter strictly of law, which led it to request the dispensation of the arbitral meeting provided for in article 18 of the RJAT and the presentation of submissions.

Regarding the value of the case, considering the Claimant's petition, as well as the content of the collection documents that it attached under nos. 1 to 12 and given that it comes requesting the declaration of illegality of the assessment acts relating to the year 2013, contained in those documents and consequent annulment, although the party requests the part relating to the first instalment of the tax that was assessed to it, in the amount of 4,210.79 euros, the truth is that it contests the assessment acts of stamp duty, whose collection for the year 2013 appears in the said collection documents, totaling 12,449.49 euros, whose annulment it seeks.

In these terms, the value of the case is fixed at 12,449.49 euros, considering the provisions of article 97-A of the CPPT and no. 1 of article 306 of the CPC, applicable subsidiarily, by force of the provisions of item (a) and (e) of no. 1 of article 29 of the RJAT, dispensing with the exercise of the right to be heard, considering its manifest lack of necessity, in accordance with no. 3 of article 3 of the CPC, equally applicable subsidiarily, by force of the provisions of item (e) of article 29 of the RJAT.

II. GROUNDS

2.1. Facts

Based on the elements contained in the case and with interest for decision, the following facts are given as proven:

1. The Claimant is the owner of the property in full ownership (which is not constituted in the horizontal ownership regime) with 7 storeys and 14 storeys or divisions capable of independent use, located at Rua de..., no. ... to ..., parish of..., District of Lisbon, registered in the urban property matrix of the said parish under article..., with a total property value of €1,628,211.03.

(See Property record attached as document no. 13 to the request for arbitral pronouncement, the contents of which are given as reproduced.)

1. The aforementioned property in full ownership presents the following description: it is composed of Basement, Shop, porter's lodge and four storeys. It has openings per storey, being SHOP...-B E C- 7 divisions, 2 bathrooms, 2 rest rooms, and basement; 1st Right - 9 divisions; 1st Left - 9 divisions; 2nd Right - 9 divisions; 3rd Right - 9 divisions; 3rd Left - 9 divisions; 4th Right - 9 divisions; 4th Left 9 divisions; 5th - 2 divisions.

(See Property record attached as document no. 13 to the request for arbitral pronouncement, the contents of which are given as reproduced.)

1. The divisions with independent use Porter's lodge; 1st Right; 1st Left; 2nd Right; 2nd Left; 3rd Right; 3rd Left; 4th Right; 4th Left; 5th Left; 5th Pl and 5th P2 of the aforementioned property in full ownership are allocated to residential use, whose tax-assessed property values are, respectively €36,520.00; €133,495.13; €122,591.00; €132,675.50; €121,771.38; €132,675.50; €121,771.38; €132,675.50; €121,771.38; €71,452.63; €57,662.75 and €59,926.00.

(See Collection documents attached as documents nos. 1 to 12 and Property record attached as document no. 13 to the request for arbitral pronouncement, the contents of which are given as reproduced.)

1. The Claimant was notified of the assessment of Stamp Duty for the year 2013, with the assessment date of 2014-03-17, contained in the collection documents for payment relating to the first instalment of the tax assessed for each storey or division with independent use allocated to residential use, with the payment deadline in April 2013, as detailed below:

(See Collection documents attached as documents nos. 1 to 12 to the request for arbitral pronouncement, the contents of which are given as reproduced.)

1. In the 12 Stamp Duty collection documents appears as Property Value of the Property - total subject to Tax: 1,244,948.15.

(See Collection documents attached as documents nos. 1 to 12 to the request for arbitral pronouncement, the contents of which are given as reproduced)

1. The IS assessments above were effected on the basis of item 28.1 of the TGIS.

(See Collection documents attached as documents nos. 1 to 12 to the request for arbitral pronouncement, the contents of which are given as reproduced)

1. A Stamp Duty collection for the year 2013 was computed, in the total amount of 12,449.49 euros, the first instalment of this assessed tax being the amount of 4,210.79 euros.

(See Collection documents attached as documents nos. 1 to 12 to the request for arbitral pronouncement, the contents of which are given as reproduced).

1. On 2014.06.16, the Claimant submitted a request for constitution of the present arbitral tribunal.

(See Electronic application sent to the CAAD)

Given the positions assumed by the parties and given that the issue to be decided by this arbitral tribunal is strictly one of law (identified below), the factual matrix was based on the request for arbitral pronouncement, the reply submitted by the Respondent and the official documents, indicated in each of the points of the factual matter, which were not contested.

There are no other facts unproven with interest for decision of the case.

On the Law

The issue to be decided in the present arbitral proceedings is to know whether the tax acts of assessment of Stamp Duty are illegal, due to incorrect interpretation of item no. 28.1 of the TGIS, added by Law no. 55-A/2012, of 29 October, when it is considered that the tax-assessed property value ("VPT") of an urban property in full ownership (which is not constituted in the horizontal ownership regime), with storeys or divisions of independent use allocated to residential use, which is relevant for purposes of the incidence of that item is constituted by the sum of the VPT attributed to each one of those storeys or divisions.

On the issue subject of the present proceedings, the present Arbitral Tribunal has already pronounced itself, namely in the decisions handed down in proceedings nos. 50/2013-T; 132/2013-T and 194/2014-T, whose arbitral jurisprudence we follow.

As results from the established factual situation, the AT services assessed IS to the Claimant, at the rate of 1%, by considering that the VPT of the property in full ownership, of which it is the owner, is greater than €1,000,000, considering the sum of the VPT of the 12 divisions with independent use allocated to residential use, which compose that property, framing it in item 28.1, using for this purpose the VPT of each one of those divisions.

The Claimant argues that the AT is incorrectly interpreting item 28 of the TGIS, because, whether the property is registered in the property matrix in horizontal ownership or in vertical ownership, the taxable base subject to IMI was and is always the property value of each one of the said divisions with independent use, all the more so because, for purposes of the latter tax, the collection has always been calculated on the property value of each one of those divisions, as if the property in question were registered in the property matrix in the horizontal ownership regime and not the total VPT of the urban property.

For its part, the Respondent maintains, in summary, that the VPT that is relevant for purposes of the incidence of item 28.1 of the TGIS is the total VPT of the urban property and not the VPT of each one of the parts that compose the property in vertical ownership, even if capable of independent use.

Let us see.

Article 4 of Law no. 55-A/2012, of 29 October added to the TGIS item no. 28, with the following wording:

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

28.1 - For property with residential allocation - 1%;

28.2 - For property, when the passive subjects that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance - 7.5%."

(italics in original)

Article 6 of the aforementioned Law provides as to the year 2013 that, "the assessment of stamp duty provided for in item no. 28 of the respective General Table must be levied on the same tax-assessed property value used for purposes of assessment of municipal property tax to be effected in that year."

At the time of the facts, the prerequisites for the incidence of item 28.1 of the TGIS are thus urban properties, with residential allocation, whose VPT shown in the matrix, in accordance with the CIMI, is equal to or greater than €1,000,000.00.

As regards item no. 28 added by the Law in reference, this also came to establish various changes to the CIS, namely as to its assessment and payment, expressly referring to the rules provided for in the CIMI (see article 23, no. 7, article 44, no. 5, article 46, no. 5, article 49, no. 3 of the CIS) with the necessary adaptations, providing that, in no. 2 of article 67 of the CIS, in the version altered by that Law, "To matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply, subsidiarily."

From the said rules, it is noted that the concept of "property with residential allocation" provided for in the aforementioned item no. 28, no. 1 is not defined in the CIS, nor in the cited Law, nor in the CIMI, whose rules are of subsidiary application, as provided in no. 2 of article 67 of the CIS.

In the interpretation of item 28.1 of the TGIS, attention shall thus be paid to the provisions of article 9 of the Civil Code, applicable by force of the provisions of no. 1 of article 11 of the LGT. On this question, the present Arbitral Tribunal has already pronounced itself in the decision handed down in proceedings no. 53/2013-T, which we follow here, in understanding that a "property with residential allocation" would have "to be a property that already has effective allocation to that purpose".

It is unequivocal that a property in full ownership or in the vertical ownership regime constitutes an urban property, in accordance with the provisions of articles 2 and 4 of the CIMI, applicable subsidiarily by force of the provisions of article 67 of the CIS, and it is certain too that, both for purposes of the incidence of item 28.1 of the TGIS, and for purposes of classification of urban properties, in accordance with the provisions of article 6 of the CIMI (also of subsidiary application), the legislator does not make a distinction between properties constituted in vertical ownership and in the horizontal ownership regime (as mentioned in the arbitral decisions handed down in proceedings nos. 50/2013-T and 132/2013-T), the tax prerequisite of item 28.1 being urban properties that are already effectively allocated to residential use.

What then will be the tax-assessed property value relevant in the case of properties in full ownership composed of storeys or divisions capable of independent use with "residential allocation", for purposes of the incidence of item 28.1?

The tax-assessed property value of each property is determined in accordance with article 38 and following of the CIMI. In the case of a property in the full or vertical ownership regime, each storey or division with independent use that comprises it is likewise subject to valuation, in accordance with the provisions of articles 12, 38 and following of that legal provision, a tax-assessed property value being attributed to each one of those divisions with independent use.

In fact, no. 1 of article 12 of the CIMI establishes that "property matrices are registers which contain, in particular, the characterization of properties, their location and their tax-assessed property value, the identification of the owners (...)", providing its no. 3 that 12 of the CIMI, "Each storey or part of property capable of independent use is considered separately in the matrix entry, which also discriminates the respective tax-assessed property value", and, in accordance with the provisions of no. 1 of article 119 of the CIMI, it is on that property value separately considered that the IMI will be computed and assessed in relation to each storey or part with independent use that comprise an urban property in the vertical or full ownership regime, considering the autonomy of each one of those parts.

As written by Silvério Mateus and Freitas Corvelo (in "Real Property Taxes and Stamp Duty, Annotated and Commented", 1st Edition, Engifisco, pages 159 and 160), "Another aspect that should be highlighted in the matrix concerns the need to bring out the autonomy that, within the same property, can be assigned to each one of its parts, functionally and economically independent. In these cases, the matrix entry must not only make reference to each one of these parts but must make express reference to the property value corresponding to each one of them.

An example that can illustrate this situation is the case of an urban property, not constituted in the horizontal ownership regime and which is composed of several storeys. (...) However, as each one of these units can be the subject of rental or any other use by its respective owner, the matrix must evidence these units and a property value must be assigned to each one of them."

As evidenced in the Arbitral Award handed down in proceedings no. 194/2014-T, which we follow here, "the IMI Code enshrines, both as to the matrix entry and discrimination of the respective tax-assessed property value, and as to the assessment of the tax, the autonomization of parts of urban property capable of independent use and the segregation/individualization of the VPT relating to each storey or part of property capable of independent use.

Thus, to each property, in terms conceptually defined by article 2 of the CIMI, corresponds a single article in the matrix (no. 2 of article 82 of the CIMI) but, according to no. 3 of article 12 of the same Code, referring to the concept of property matrix (...), "each storey or part of property capable of independent use is considered separately in the matrix entry, which also discriminates the respective tax-assessed property value (...).

As to the assessment of IMI - application of the rate to the taxable base - article 119, no. 1 provides that "the competent collection document" contains the "discrimination of properties, their parts capable of independent use, respective tax-assessed property value and the collection (...)".

That is to say, the rule is the autonomization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, capable of independent use, in accordance with the concept of property defined at the outset in no. 1 of article 2 of the CIMI: property is any fraction (of land, comprising waters, plantations, buildings and constructions of any nature incorporated therein or based thereon, with a permanent character) provided it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy."

Thus, when no. 4 of article 2 provides that "For purposes of this tax, each autonomous fraction, in the horizontal ownership regime, is deemed to constitute a property", it does not properly enshrine an exceptional or special regime for properties in horizontal ownership.

After all, each building in horizontal ownership (article 92 of the CIMI) has only one single matrix entry (no. 1), describing the building generically and mentioning the fact that it is in the horizontal ownership regime (no. 2) and matrix autonomy is achieved in the attribution to each one of the autonomous fractions, described in detail and individualized, of a capital letter, according to alphabetical order (no. 3). This seems to be the specificity of buildings in horizontal ownership; in other cases, of properties in vertical or full ownership, divisions or storeys with autonomy but without the status of horizontal ownership, the matrix also enshrines autonomy but evidencing the units with indication of the type of storey/floor."

(italics in original)

In fact, when an urban property constituted in full ownership passes to the horizontal ownership regime it maintains the same matrix article number, likewise maintaining the tax-assessed property value that was attributed to each one of its autonomous parts or storeys, those fractions coming to be identified by letters of the alphabet, since there is no place for a new valuation, with only a mere legal alteration of the property regime occurring.

Considering thus that in light of the CIMI the rules and principles are the same, both for properties constituted in horizontal ownership, and for properties constituted in full or vertical ownership, namely as to what is provided as to valuation and determination of the VPT, entry in the matrix and assessment of IMI, each storey or division with independent use being treated the same way as an "autonomous fraction", necessarily, the rules will have to be the same under Stamp Duty, by subsidiary application, as imposed by no. 2 of article 67 of the CIS.

In conformity, and, on the assumption that the legislator in question "enshrined the most accurate solutions and knew how to express its thinking in adequate terms" (in accordance with the provisions of no. 3 of article 9 of the Civil Code, by referral of article 11 of the LGT), only the storeys, parts or divisions with independent use with residential allocation, whose VPT shown in the matrix, is equal to or greater than €1,000,000.00, are covered by the rule of incidence of item 28.1 of the TGIS.

As stressed in the arbitral decision handed down in proceedings no. 132/2013-T, "The uniform criterion that is required is, thus, the one that determines that the incidence of the rule in question only takes place when any one of the parts, storeys or divisions with independent use of property in horizontal or full ownership with residential allocation, possesses a VPT greater than €1,000,000.00" (underlined in original) and not when this VPT results from the sum of the VPT attributed to each storey or division with independent use.

As also mentioned in the arbitral decision handed down in proceedings no. 50/2013-T "The criterion sought by the AT, to consider the value of the sum of the VPT attributed to the parts, storeys or divisions with independent use, with the argument that the property is not constituted in the horizontal ownership regime, does not find legal support and is contrary to the criterion that results applicable under the CIMI and, by referral, under IS.

To which is added the fact that the law itself expressly establishes, in the final part of item 28 of the TGIS, that the IS to be levied on urban properties of value equal to or greater than €1,000,000.00 - "on the tax-assessed property value used for IMI purposes."

Thus, the adoption of the criterion defended by the AT violates the principles of legality and fiscal equality, as well as that of the prevalence of material truth over juridical-formal reality."

(italics in original)

In view of the aforestated, we cannot agree with the Respondent Entity in asserting that the interpretation here accepted and defended by the Claimant violates the principle of tax legality, provided for in no. 2 of article 103 of the CRP, by allegedly offending the letter and spirit of item 28.1 of the TGIS. Well, on the contrary, the AT is the one that violates the principle of tax legality, putting into question the principle of legal certainty and protection of confidence.

The Respondent Entity itself, in making a brief overview of the rules of the previous Property Contribution Code and the Tax on Agricultural Industry, Municipal Contribution and the rules contained in the C.I.M.I. recognizes the relevance of the autonomy that "within the same property, can be assigned to each one of its parts, economically and functionally independent", for purposes of entry in the property matrix.

So much so that, the AT, to assess item 28.1 of the TGIS, at issue here, starts from each one of those storeys or divisions with independent use, making the 1% rate incide on the tax-assessed property value attributed to each one of those divisions with residential allocation, in accordance with the rules of the CIMI, similar to what happens with the "autonomous fractions", to then sum that tax-assessed property value, disregarding that the property in question is composed of more divisions with independent use allocated to commercial and service purposes.

The interpretation to the effect that what is relevant in the rule of incidence of item 28.1 of the TGIS is the VPT attributed to each one of the autonomous parts or divisions with independent use with residential allocation and not the value resulting from the sum of those VPT's is the one that equally results from its ratio legis, as imposed by no. 1 of article 9 of the Civil Code, applicable by force of the provisions of article 11 of the LGT.

In this regard, we follow the arbitral decision handed down in proceedings no. 50/2013-T in stating that "The legislator, in introducing this legislative innovation, considered as the determining element of taxpaying capacity urban properties, with residential allocation, of high value (luxury), more rigorously, of value equal to or greater than €1,000,000.00, on which a special rate of stamp duty came to be levied, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or surface right of urban properties of luxury with residential allocation. For this reason, the criterion was the application of the new rate to urban properties with residential allocation, whose VPT is equal to or greater than €1,000,000.00.

This very conclusion is reached from the analysis of the discussion of draft law no. 96/XII in the Parliament of the Republic, available for consultation in the Diário da Assembleia da República, I series, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated "special tax on habitational urban 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 residential purposes to contribute in a more intensive manner, the new special rate being levied on "houses of value equal to or greater than 1 million euros."

Clearly the legislator understood that this value, when attributed to a residential property (house, autonomous fraction or storey with independent use) reflects a taxpaying capacity above the average and, as such, susceptible to determining a special contribution to ensure the fair apportionment of the fiscal effort."

(italics in original)

In accordance with the established factual situation, the VPT of each one of the twelve storeys or divisions with independent use allocated to residential use, which comprise the property in full ownership of which the Claimant is the owner, and which was determined according to the rules of the CIMI, does not exceed €1,000,000.00, therefore, the prerequisites for taxation of item 28.1 of the TGIS are not met.

In fact, as correctly alleged by the Claimant, if it had opted to constitute the aforementioned property in the horizontal ownership regime, the truth is that the 12 parts or autonomous fractions would not each be subject to item 28.1 of the TGIS, there being thus no place for the assessment of Stamp Duty.

The AT cannot thus, contrary to what it argues, arbitrarily and in a discriminatory manner sum the VPT of each of the parts or divisions with independent use that comprise the property in full ownership with residential allocation, when the legislator itself does not make a distinction between properties constituted in full ownership and constituted in the horizontal ownership regime, nor does that legislator determine the obligation to constitute horizontal ownership, under penalty of violating the principle of fiscal equality. Therefore, the Respondent Entity's argument is not correct when it alleges that the taxation conducted by the AT does not violate the principle of tax equality, defending that the legislator can subject properties in the horizontal and vertical ownership regime to a distinct fiscal-tax framework, without such discrimination being necessarily considered arbitrary, because, in proceeding as it did, it ends up differentiating and negatively discriminating against the Claimant based on the legal situation of the property, because if this were constituted in the horizontal ownership regime there would be no place for the assessment of Stamp Duty, despite it being the same physical reality.

In fact, the Respondent Entity itself admits that the regime of constitution in horizontal ownership constitutes only a mere legal alteration of the property, since there is no place for a new valuation, the tax-assessed property value of the autonomous parts that comprise it thus not being altered.

All the more so because the property in question is composed of other storeys or divisions with independent uses allocated to other purposes, such as commercial and service, the respondent entity being unable, in an arbitrary manner, to reiterate, to sum only the VPT of the independent divisions with residential allocation, to reach a tax-assessed property value equal to or greater than €1,000,000.00. Because, following the reasoning of the AT, in defending that it is a prerequisite for the incidence of item 28.1 of the TGIS the total property value of the property and not that of each one of its parts, then it cannot assess the tax, given that the property of which the Claimant is the owner is composed of storeys or divisions with independent use that are allocated to residential use, commerce and services, totaling a tax-assessed property value of €1,628,211.03, the prerequisites of fact and of law for the incidence of item 28.1 of the TGIS thus not being met, since its storeys are not allocated solely to residential use.

In view of the foregoing, considering the factual matter given as proven, as the tax-assessed property value of each one of the storeys or divisions with independent use of the property, allocated to residential use, is less than €1,000,000.00, they do not fall within item 28.1 of the TGIS.

Therefore, the acts of assessment of IS, subject of the present proceedings for arbitral pronouncement, suffer from the defect of violation of the provisions of item 28.1 of the TGIS, due to error as to its legal prerequisites, declaring thus the illegality of those assessment acts, with the consequent annulment of the same.

The examination of the other questions raised by the Claimant is thus made unnecessary, because the illegality of the aforementioned assessments has been declared, due to a defect which prevents the renewal of the acts, in accordance with the provisions of article 124 of the CPPT, subsidiarily applicable by force of the provisions of no. 1 of article 29 of the RJAT.

III. DECISION

In these terms and on the grounds set out, the present Arbitral Tribunal decides to uphold the request for declaration of illegality of the assessment acts of Stamp Duty, contained in the collection documents no. 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., 2014..., with the consequent annulment of the same.

The value of the case is fixed at € 12,449.49, in accordance with the provisions of item (a) of no. 1 of article 97-A of the CPPT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, as well as article 306 of the CPC.

Costs to the charge of the Respondent Entity, in the amount of € 918.00, in accordance with the provisions of no. 4 of article 22 of the RJAT and no. 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to the same Regulation.

Notify.

Lisbon, 20 February 2015.

The Arbitrator,

(Conceição Pinto Rosa)