Stamp Tax on Properties Over €1M: CAAD Rules on Vertical Ownership and VPT Calculation (432/2015-T)

ARBITRAL DECISION

Arbitrator Raquel Franco, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to constitute the single arbitral tribunal established on 14 September 2015, decides as follows:

I. REPORT

1. On 13-07-2015, the company "A… – …, SA", NIPC …, filed a request for constitution of a single arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (AT) is the respondent.

2. The request for constitution of the Arbitral Tribunal was accepted by the Excellent President of CAAD and automatically notified to AT on 16-07-2015.

3. Pursuant to the provisions of subparagraph a) of article 6, paragraph 2, and subparagraph b) of article 11, paragraph 1, of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

4. On 28-08-2015 the parties were duly notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrator pursuant to the combined provisions of article 11, paragraph 1, subparagraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

5. Thus, pursuant to the provisions of subparagraph c) of article 11, paragraph 1, of Decree-Law no. 10/2011, of 20 January, as amended by Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 14-09-2015.

6. In the present proceeding, the Claimant seeks that the Arbitral Tribunal declare the illegality and unconstitutionality of the following stamp duty tax assessments made under heading 28.1 of the General Table of Stamp Duty (TGIS), relating to the year 2014 and to the urban property registered in the urban property matrix of the Union of Parishes of ... and ..., in Loures, under article ….º:

2014 …, 2015 …, 2014 …, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015….

1. The grounds presented by the Claimant are as follows:

• The property on which the assessments are levied is located at Rua …, no. …, ..., in Loures, being composed of twelve floors which constitute divisions with independent use, the property being in full ownership.

• Each of the independent divisions are designated for residential use and have a VPT (Taxable Patrimonial Value) assigned and separately determined in accordance with subparagraph b) of article 7, paragraph 2, of the Code of Municipal Property Tax (CIMI).

• None of its parts or floors with residential designation has a taxable patrimonial value greater than €1,000,000.00.

• The property is in vertical ownership, having a total VPT of €5,261,570.00.

• It was based on the total taxable patrimonial value that AT assessed, pursuant to sub-subparagraph i) of subparagraph f) of article 6, paragraph 1, the stamp duty of heading 28.1 of the General Table, as amended by article 4 of Law no. 55-A/2012, of 29 October, at the rate of 1%.

• The subjection to stamp duty of heading 28.1 of the General Table annexed to the Stamp Duty Code (CIS) results from the combination of two facts, namely, the residential designation and the taxable patrimonial value of each urban property registered in the matrix being equal to or greater than €1,000,000.00.

• The Claimant understands that the criterion of AT of considering that it is the global VPT of the property that determines its subjection to stamp duty is illegal because there should only be incidence of this tax pursuant to heading 28.1 of the TGIS if any of the parts, floors or divisions with independent use presented a VPT equal to or greater than €1,000,000.00.

• And this is because AT cannot establish as the reference value for incidence of stamp duty the total value of the property when the legislator established a different rule under the CIMI, being that the applicable rule to matters not regulated in the CIS with respect to the incidence of heading 28.1 of the TGIS.

• The Claimant further contends that the interpretation that AT gives to heading 28.1 of the TGIS is unconstitutional as it violates the principle of equality, provided for in article 13 of the Constitution, and, furthermore, as it violates the provisions of article 104, paragraph 2, of the Constitution.

• The Claimant also requests payment of indemnification interest, owing to the fact that illegal tax assessments have been paid due to error attributable to the services, in accordance with paragraph 1 of article 43 of the General Tax Code (LGT).

1. The Respondent responded to the Claimant's claim as follows:

• It was the wealth arising from real estate property that Law no. 55-A/2012, in an innovative manner, came to tax, subjecting stamp duty to property and other real rights over urban properties whose VPT proved to be equal to or greater than €1,000,000.

• AT has consistently held that, if the building is constituted in full ownership with parts or divisions susceptible of independent use (so-called full ownership), it integrates the tax law concept of "property", that is, a single unit, and the taxable patrimonial value thereof is determined by the sum of the parts with residential designation, and being this equal to or greater than €1,000,000.00, there is subjection to stamp duty of heading 28 of the General Table annexed to the CIS. According to AT, this position has the following grounds:

• In the CIS there is no definition of the concepts of urban property, so it must apply the provisions of the CIMI, to assess the possible subjection to stamp duty (cf. article 67, paragraph 2 of the CIS as amended by Law no. 55-A/2012);

• Article 2, paragraph 1 of the CIMI defines the concept of property;

• Article 2, paragraph 4 of the CIMI makes an exception for autonomous fractions of properties constituted under the horizontal property regime, which it considers, exceptionally, as properties;

• On the contrary, being a property constituted in full ownership with parts or divisions susceptible of independent use, it is the property in its entirety, and no longer each of those parts, which integrates the concept of "property", for purposes of IMI and stamp duty, by reference to article 1, paragraph 6 of the CIS;

• This is not hindered by the fact that each floor/division appears separately in the property registry entry, and with the respective taxable patrimonial values, as such discrimination is only relevant, for tax purposes, in view of the concept of property matrices contained in article 12 of the CIMI and in the matter regulated in this Code for the organization of matrices;

• The requirement to organize matrices in this way is due to the need to recognize the autonomy that, within the same property, belongs to each of its parts, which may be functionally and economically independent;

• This autonomization is only justified because in the same property may occur use for commerce or residential purposes, with or without lease, which is decisive in the rules of tax evaluation within the CIMI, in view of the different use coefficients provided for in article 41 of that code.

• To advocate an understanding to the contrary, according to AT, is to confuse realities that are teleologically distinct, full ownership, on the one hand, and horizontal ownership, on the other, whose distinction finds its foundation in civil law from the outset.

• The Claimant, for purposes of IMI and also of stamp duty, by force of the wording of that heading, is not the owner of autonomous fractions, but rather of a single property, AT considering that this is the understanding that best accords with the principle of legality inherent in article 8 of the LGT, to which all its activity is devoted.

• It further states that AT is bound by the principle of pursuing the public interest while respecting the rights and legally protected interests of taxpayers, and must act toward all with the same adequacy and proportionality, especially since in a Rule of Law state, the principle of tax equality is a constitutive element of tax law, which expresses the idea that all citizens are bound to the duty to pay taxes assessed by the same criterion – taxable capacity – and this is assessed by the legislator taking into account indicators that ascertain its economic strength, and consequently identify its capacity to pay them.

II. PRELIMINARY EXAMINATION

1. The Tribunal is competent and is regularly constituted, pursuant to articles 2, paragraph 1, subparagraph a), 5 and 6, all of the RJAT.

2. The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

3. The proceeding does not suffer from defects that would invalidate it.

III. FACTUAL MATTERS

Before addressing the legal questions, it is necessary to present the factual matters relevant to its understanding and decision, which, having examined the documentary evidence and the administrative proceeding (PA) attached to the case file and taking into account the facts alleged, is determined as follows:

III.1. Proven Facts

a. The Claimant is the owner of the urban property in full ownership registered in the urban property matrix of the Union of Parishes of ... and ..., in Loures, under article ….º;

b. The property is composed of twelve floors which constitute divisions with independent use, being constituted in full ownership;

c. The independent divisions are designated for residential use and have a VPT assigned and separately determined in accordance with subparagraph b) of article 7, paragraph 2, of the CIMI.

d. None of its parts or floors with residential designation has a taxable patrimonial value equal to or greater than €1,000,000.00.

e. The property has a total VPT of €5,261,570.00.

f. AT issued the stamp duty tax assessments nos. 2014 …, 2015 …, 2014 …, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015… on the property referred to in the preceding points, with reference to the fiscal year 2014.

g. The said assessments were paid by the Claimant.

III.2. Unproven Facts

There are no facts relevant to the decision that have been determined to be unproven.

IV. THEMA DECIDENDUM

The essential question at issue in the present proceeding is to determine, with reference to an urban property not constituted under the horizontal property regime, comprised of various areas with independent use, with residential designation, whether the VPT relevant for purposes of taxation under stamp duty under heading 28.1 of the TGIS should be the one corresponding to the sum of the taxable patrimonial value attributed to the different parts or independent floors or whether, on the contrary, for purposes of incidence of stamp duty under heading 28.1 of the TGIS the VPT attributed to each floor or division with independent use should be taken into account.

V. LEGAL GROUNDS

Heading 28 of the TGIS provides as follows:

1. "Property, usufruct or surface rights of urban properties whose taxable patrimonial value appearing in the matrix, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than (euro) 1,000,000 - on the taxable patrimonial value used for purposes of IMI:

28.1 For property with residential designation – 1%

28.2 – For property, when the taxable persons that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, appearing in the list approved by ordinance of the Minister of Finance – 7.5%."

In the present proceeding it is necessary to decide whether the VPT relevant as a criterion for incidence of stamp duty pursuant to heading 28.1 of the TGIS is the one corresponding to the sum of the taxable patrimonial value attributed to the different parts or floors (global VPT) or, rather, the VPT attributed to each of the parts or residential floors.

This question has already been addressed in various tax arbitration proceedings, and no reason is apparent to adopt an understanding different from that which was adopted in decisions rendered previously[1].

Thus:

Pursuant to paragraph 2 of article 67 of the CIS, regarding "matters not regulated in the present code relating to heading 28 of the General Table, the CIMI applies subsidiarily." As the rule of incidence of heading 28.1 of the TGIS refers to urban properties, it is necessary to seek the concept of urban property in the CIMI.

The CIMI establishes, in article 2, paragraph 1, the concept of property. It defines it as "any fraction of territory, including waters, plantations, buildings and constructions of any kind incorporated therein or erected thereon, with a permanent character, provided that 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 circumstances above, endowed with economic autonomy in relation to the land on which they are situated, although located in a fraction of territory that constitutes an integral part of assets other than or does not have a patrimonial nature".

Article 4 of the CIMI establishes that urban properties are "all those which should not be classified as rustic, without prejudice to the provisions of the following article".

In turn, article 6 of the same Code proceeds to classify the various types of urban properties, distinguishing them, in paragraph 1, into four subcategories: "a) Residential; b) Commercial, industrial or service; c) Land for construction; d) Other". In turn, paragraph 2 establishes the criterion used for this distinction, defining that "Residential, commercial, industrial or service buildings are buildings or constructions licensed for such purpose or, in the absence of a license, which have each of these purposes as their normal destination".

Regarding the specific question subject to the present decision, it is important to heed article 12, paragraph 3, of the CIMI, pursuant to which "each floor or part of property susceptible of independent use is considered separately in the property registry entry, which also discriminates the respective taxable patrimonial value."

Finally, pursuant to article 119, paragraph 1 of the CIMI, "The services of the Directorate-General of Taxes send to each taxable person, until the end of the month prior to payment, the competent assessment document, with discrimination of the properties, their parts susceptible of independent use, respective taxable patrimonial value and the tax payable to each municipality of the location of the properties."

As doctrine recognizes, the tax law concept of property differs from the civil law concept of property, contrary to what the Respondent contends, in that "For tax purposes, paragraph 1 of this article [2 of the CIMI] provides for the existence of three requirements necessary for there to be the concept of property, namely, physical structure, patrimonial character and economic value."

(Cf. J. Silvério Mateus and L. Corvelo de Freitas, Taxes on Real Estate Property, Stamp Duty, Annotated and Commented, Engifisco, 1st edition, 2005, p. 101).

Thus, "the physical element is defined by the reference to 'any fraction of territory', including waters, plantations and constructions of any kind incorporated therein or erected thereon with a permanent character. On the legal plane, importance is attributed to patrimonial character. The property, in the physical sense, must be capable of integration into the assets of a natural or legal person. (…) The requirement of economic value is naturally associated with the requirement of patrimonial character, resulting therefrom the susceptibility of generating income or other types of benefits for its holder." (op.cit.).

In the concrete case, it appears to us that all three requirements mentioned are met, in so far as the parts or divisions susceptible of independent use object of the assessment acts in question have physical correspondence with reality, are integrated into the assets of the Claimant and possess an economic value which, at the very least, derives from the VPT that was assigned to them through the assessment carried out by AT.

Thus, it appears to us that the parts or divisions susceptible of independent use, meeting all the requirements to be qualified as "property", in economic, physical and patrimonial terms, should be considered autonomously for purposes of the incidence of heading 28.1 of the TGIS.

Furthermore, in the rule of incidence contained in heading 28.1 of the TGIS, the legislator did not deem it relevant to distinguish between properties in horizontal ownership and properties in vertical ownership. And this, in our view, is because what is ultimately relevant is the economic purpose of the real estate, as also results from article 6 of the CIMI, in light of the constitutional principles inherent in articles 103, paragraph 1 and 104, paragraph 3 of the Constitution of the Portuguese Republic (CRP). In fact, in terms of economic substance, there is no difference whatsoever between a building in horizontal ownership and a building in vertical or full ownership constituted by parts or divisions susceptible of independent use, justifying itself, therefore, in terms of rules of incidence – and in particular, in the rule contained in heading 28.1 of the TGIS – the equal treatment of these two situations. Furthermore, the tax legislator itself prescribes such equal treatment, in article 119 of the CIMI, when it establishes that the tax should be assessed individually on each part or division susceptible of independent use, taking into consideration the VPT of each part or division susceptible of independent use, considered individually.

It follows from the foregoing that the rule contained in heading 28.1 of the TGIS should be applied indistinctly, whether to urban residential properties constituted in horizontal ownership or those in full or vertical ownership, with the tax applying to the VPT attributed by the Respondent, through general assessment, to each of the parts or divisions susceptible of independent use (moreover, the Respondent issued, in the case subject to the present proceedings, as many assessment acts as there were parts or divisions susceptible of independent use designated for residential use).

In light of the foregoing, and given that none of the parts or divisions susceptible of independent use object of the challenged assessment acts has a taxable patrimonial value equal to or greater than €1,000,000.00, as was demonstrated in the present case, it is concluded that the Claimant's claim is well-founded, with the challenged assessment acts being considered illegal, due to error as to the factual and legal premises and violation of article 1, paragraph 1 of the Stamp Duty Code and heading 28.1 of the TGIS, and the said acts should be annulled.

As for indemnification interest, article 43 of the LGT stipulates that "indemnification interest is due when it is determined, in gracious request or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due".

As for the existence, in this case, of error attributable to the services, it is considered as verified, according to consistent jurisprudence of the Superior Administrative Court (STA) (see, to this effect, the STA Judgments of 22-05-2002, Case no. 457/02; of 31.10.2001, Case no. 26167 and of 2.12.2009, Case no. 0892/09).

Thus, there is no doubt that the Claimant is entitled to be compensated through receipt of indemnification interest, calculated in accordance with article 43, paragraph 1 of the LGT and article 61, paragraphs 2, 3 and 5, on the amounts paid relating to the annulled assessments.

VI. DECISION

In accordance with what is set out above, it is decided:

(i) To judge well-founded the request for arbitral pronouncement and, as a consequence, to declare the illegality of the challenged stamp duty tax assessments, with the consequent annulment of those same assessments;

(ii) To condemn the Respondent to payment of indemnification interest.

Value: in accordance with the provisions of paragraph 2 of article 315 of the Code of Civil Procedure (CPC), combined with subparagraph a) of paragraph 1 of article 97-A of the Code of Tax Procedure (CPPT) and with paragraph 2 of article 3 of the Costs Regulation in Tax Arbitration Proceedings, the value of the proceeding is set at €52,615.70.

Costs: pursuant to the provisions of article 22, paragraph 4, of the RJAT and in accordance with Table I annexed to the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is set at €2,142.00, to be borne entirely by the Respondent in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and article 4, paragraph 4, of the cited Regulation.

Let it be registered and notified.

Lisbon, 22 November 2015

The Arbitrator,

Raquel Franco

[1] Cf. the decisions rendered in cases 50/2013T; 132/2013-T; 181/2013-T; 182/2013-T; 183/2013-T; 185/2013-T; 240/2013-T; 248/2013-T; 268/2013-T; 272/2013-T; 280/2013-T; 14/2014-T; 26/2014-T; 30/2014-T; 72/2014-T; 88/2014-T; 100/2014-T; 177/2014-T; 193/2014-T; 194/2014-T; 206/2014-T; 238/2014-T; 290/2014-T; 292/2014-T; 372/2014-T; 428/2014-T; 450/2014-T.