Summary
Full Decision
ARBITRAL DECISION[1]
CAAD: Tax Arbitration
Case No. 433/2014 – T
Subject: Stamp Duty – Item 28.1 of the GSDR – Vertical Ownership
- REPORT
A – General
1.1. A... Real Estate, Ltd., a company with tax identification number ... and registered office at ... Street (hereinafter referred to as the "Claimant") filed, on 18.06.2014, a request for the establishment of a single arbitral tribunal in tax matters, which was accepted, seeking the declaration of illegality of the stamp duty assessment acts for the year 2013 and dated 18.03.2013, relating to item 28.1 of the General Stamp Duty Rate Table (hereinafter "GSDR"), relating to a property of which it is the owner, as will be better seen below, as well as recognition of the right to compensatory interest.
1.2. Pursuant to the provisions of subparagraph (a) of paragraph 2 of Article 6 and subparagraph (b) of paragraph 1 of 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 Deontological Council of the Administrative Arbitration Centre appointed Nuno Pombo as arbitrator, and the parties, after being duly notified, did not express opposition to such appointment.
1.3. By order of 26.06.2014, the Tax and Customs Authority (hereinafter referred to as the "Respondent") proceeded to appoint ... and ... to intervene in this arbitral proceeding, in the name and representation of the Respondent.
1.4. In accordance with the provision of subparagraph (c) of paragraph 1 of 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 arbitral tribunal was constituted on 22.08.2014.
1.5. On 16.09.2014, the head of the Respondent's service was notified to, if willing, present a response within 30 days and request production of additional evidence.
1.6. On 16.10.2014, the Respondent filed its response.
B – Position of the Claimant
1.7. The Claimant received, dated 18.03.2014, three notifications of three stamp duty assessments (hereinafter referred to as "Stamp Duty" or "SD") which are listed in Article 1 of the request for arbitral ruling (attached as documents 1 to 3 to said request, whose contents are deemed reproduced), which were based on Article 1 of the Stamp Duty Code (hereinafter the "SDC"), on item 28.1 of the GSDR, added by Article 4 of Law No. 55-A/2012, of 29 October, and on sub-item i) of item f) of paragraph 1 of Article 6 of the same Law, whose payment deadline refers to the end of April 2014.
1.8. The aforementioned assessments refer to the property of which the Claimant is the sole owner, which is held under a regime of full ownership, with three floors capable of independent use, located at ..., on ... Street, registered in the urban property register of ..., under article ..., with a total property value of € 1,020,514.00 (one million, twenty thousand, five hundred and fourteen euros), which corresponds to the property record attached to the request as document 4, whose contents are deemed reproduced (the Property).
1.9. The Claimant filed the IMI model 1 declaration on 31.12.2010, and was duly notified of the appraisal to which that declaration gave rise, and the Property was assigned a total property value of € 969,610.00 (nine hundred and sixty-nine thousand, six hundred and ten euros).
1.10. After the notification referred to in the preceding paragraph, the Claimant was not notified of any further appraisal or update of the Property's property value, and therefore has no knowledge of any other appraisal or update that may have been carried out and that gave rise to the total property value that served as the basis for the disputed assessments.
1.11. The Claimant therefore believes that the circumstance of not being notified of any new appraisal or update, in particular the legal reasons and the valuation criteria that were used, invalidates the disputed assessments, which are marred by the defect of lack of grounds.
1.12. The Claimant further contends that even if the validity of the tax property values (hereinafter "TPV") that served as the basis for the disputed assessments is admitted, it is manifest that the TPV of each of the three independent units is less than € 1,000,000.00 (one million euros), the amount referred to in item 28 of the GSDR, and therefore the conditions for the application of item 28 of the GSDR are not met.
1.13. The Claimant further advocates that item 28 of the GSDR, interpreted in the sense and scope intended by the Respondent, which arbitrarily distinguishes properties that have been constituted in horizontal property and properties in full ownership with floors or parts capable of independent use, is materially unconstitutional by violation of the principles of equality and contributive capacity.
1.14. The Claimant finally contends that item 28 of the GSDR further violates the constitutional principles of equality and contributive capacity "in that the subjection to tax is limited to properties with residential use, not affecting, in an unequal and unjustified manner, properties with different uses".
1.15. The Claimant, although dissatisfied with the assessments in question, proceeded to pay the first installment of the tax that was required of it, in the total amount of € 3,401.74 (three thousand, four hundred and one euros and seventy-four cents), as evidenced by documents 1 to 3, attached to the request for arbitral ruling, whose contents are deemed reproduced.
C – Position of the Respondent
1.16. The Respondent, in its response, states that the TPV of each of the three floors or divisions capable of independent use was determined separately, in accordance with Article 7, paragraph 2, subparagraph b), of the MPTC, and that the "sum [of the TPV] of the floors and divisions devoted to residential use amounts to € 1,020,514.00" (one million, twenty thousand, five hundred and fourteen euros), a value exceeding that referred to in item 28 of the GSDR, and therefore the taxation is due.
1.17. For the Respondent, what is relevant for the purposes of the tax's incidence is the total TPV of the urban property, which constitutes a legal unit, and not the TPV of each of the parts that compose it, even if capable of independent use.
1.18. According to the Respondent's understanding, any other interpretation would violate the letter and spirit of item 28.1 of the GSDR and the principle of legality of the essential elements of the tax provided for in Article 103, paragraph 2, of the Constitution of the Portuguese Republic.
D – Conclusion of the Report
1.19. As the Respondent proposed that the meeting provided for in Article 18 of the Legal Framework for Tax Arbitration (LFTA) be dispensed with, and in the absence of opposition from the Claimant, the arbitral tribunal, by order of 30.10.2014, found no procedural utility in holding said meeting, since the parties had already brought into the proceeding the facts necessary and sufficient for the rendering of the decision, which was expected to be rendered by 01.12.2014.
1.20. The arbitral tribunal is materially competent, in accordance with the provisions of Article 2, paragraph 1, subparagraph a) of the LFTA.
1.21. The parties have legal personality and capacity and have standing in accordance with Article 4 and paragraph 2 of Article 10 of the LFTA, and Article 1 of Ordinance No. 112-A/2011, of 22 March.
1.22. The joinder of claims effected in this request for arbitral ruling, in deference to the principle of procedural economy, is justified since the contested assessment acts are based on the same factual basis and call for the application of the same legal rules.
1.23. The proceeding is not affected by any nullity nor did the parties raise any objections that would prevent the consideration of the merits of the case, and thus the conditions are met for the rendering of the arbitral decision.
- MATERIAL FACTS
2.1. Proven Facts
2.1.1. The Claimant is the rightful owner of the Property (doc. 4, attached with the request for arbitral ruling).
2.1.2. The Property is constituted in full or vertical ownership, with floors or divisions capable of independent use (doc. 4, attached with the request for arbitral ruling).
2.1.3. The Property has floors or divisions not devoted to residential use (doc. 4, attached with the request for arbitral ruling).
2.1.4. The Respondent, for purposes of applying item 28.1 of the GSDR, proceeded to arithmetically sum the tax property values of each of the floors or divisions capable of independent use, which in the respective property record are shown as being devoted to residential use (docs. 1 to 4, attached with the request for arbitral ruling).
2.1.5. Thus, the Respondent assigned to the Property, for purposes of applying item 28.1 of the GSDR, the "tax property value of the property – total subject to tax" of € 1,020,514.00 (one million, twenty thousand, five hundred and fourteen euros) – (docs. 1 to 4, attached with the request for arbitral ruling).
2.1.6. The Claimant was notified of the stamp duty assessments mentioned in Article 1 of the request for arbitral ruling (docs. 1 to 3, attached with the request for arbitral ruling).
2.1.7. The Claimant proceeded to pay the first installment of the tax that was required of it, in the total amount of € 3,401.74 (three thousand, four hundred and one euros and seventy-four cents) - (docs. 1 to 3, attached with the request for arbitral ruling).
2.2. Unproven Facts
There are no facts relevant to the consideration of the merits of the case that should be considered as unproven.
- LEGAL MATTERS
3.1. Question to be Decided
It follows from what has been stated above that the question to be considered is, in essence, whether a property constituted in full or vertical ownership, but with floors or divisions with independent uses, is a "property with residential use" for purposes of applying Article 1 of the SDC and item 28.1 of the GSDR, added by Article 4 of Law No. 55-A/2012, of 29 October.
3.2. Item 28.1 of the GSDR
Law No. 55-A/2012, of 29 October, among several amendments it made to the SDC, added, by its Article 4, item 28 to the GSDR, which has the following wording:
"28 - Ownership, usufruct or right of surface of urban properties whose tax property value as stated in the register, in accordance with the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 - on the tax property value used for purposes of the Municipal Property Tax:
28.1 - For property with residential use - 1%;
28.2 - For property, when the non-individual taxpayers are residents of a country, territory or region subject to a clearly more favorable tax regime, as set out in the list approved by ordinance of the Minister of Finance - 7.5%."
With the heading "transitional provisions", Article 6 of Law No. 55-A/2012, of 29 October, and with relevance to what must be decided, established the following:
1 — In 2012, the following rules must be observed by reference to the assessment of stamp duty provided for in item No. 28 of the respective General Rate Table:
a) The taxable event occurs on 31 October 2012;
b) The taxpayer is the one mentioned in paragraph 4 of Article 2 of the Stamp Duty Code on the date referred to in the preceding subparagraph;
c) The tax property value to be used in the assessment of the tax corresponds to what results from the rules provided in the Municipal Property Tax Code by reference to the year 2011;
d) The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;
e) The tax must be paid, in a single installment, by taxpayers by 20 December 2012;
f) The applicable rates are as follows:
i) Properties with residential use assessed in accordance with the Municipal Property Tax Code: 0.5%;
ii) Properties with residential use not yet assessed in accordance with the Municipal Property Tax Code: 0.8%;
iii) Urban properties when non-individual taxpayers are residents of a country, territory or region subject to a clearly more favorable tax regime, as set out in the list approved by ordinance of the Minister of Finance: 7.5%.
As can be seen, item 28.1 refers to "properties with residential use". Now, not only is this concept not defined in any provision of the SDC, but it is also not used in the MPTC, an instrument to which Article 67, paragraph 2 of the SDC expressly refers when matters not regulated in the SDC concerning item 28 are at issue.
3.3. "Vertical Ownership" and the Application of Item 28.1 of the GSDR
Notwithstanding the interest, not merely dogmatic, of establishing the meaning and scope of the concept of "property with residential use," it is necessary, first and foremost, to answer the question of whether, for purposes of applying item 28.1 of the GSDR, the TPVs of each of the floors or divisions with independent use of a given building can be summed, as the Respondent did with respect to the Property.
a) The property register of immovable property in full or vertical ownership and the collection of the Municipal Property Tax
It should be noted immediately that "each floor or part of a property capable of independent use is considered separately in the property registration, which also specifies its respective tax property value," as can be read in paragraph 2 of Article 12 of the MPTC. Also, the Municipal Property Tax, in properties subject to the regime of full ownership, gives typical relevance to each floor or part of a property capable of independent use (Article 119, paragraph 1 of the MPTC).
In other words, it is clear that the legislature, in the MPTC, did not intend to adhere strictly to the legal formality of the real rights affecting properties, but rather to the use to which they are put, particularly in cases where a property, legally speaking, is composed of different floors or parts capable of independent use.
It might be said, not without reason, that the legislature, for purposes of taxation under the Municipal Property Tax, opted to grant autonomy and independence to each part or each floor of a single property, as long as they show themselves to be capable of independent use, to the point of providing for individual registration of each of these independent parts in the register and imposing on taxation under the Municipal Property Tax an autonomous collection as well. Despite the legal existence of a single property, it is the legislature itself that not only recommends but requires the autonomous consideration of each of the independent parts, for purposes of taxation of assets.
b) The application of item 28.1 of the GSDR to each of the independent parts
If this is the case for the Municipal Property Tax, as has been shown, it cannot but also be so for the Stamp Duty, specifically for purposes of applying item 28.1 of the GSDR.
Indeed, this problem, if the tax, Municipal Property Tax or Stamp Duty, were purely proportional, would not exist or would be harmless, since the sum of the parts would necessarily correspond to the whole. However, this is not the case in the present proceeding.
As has been seen, the Stamp Duty referred to in item 28.1 of the GSDR is only due with respect to properties with residential use and, in these, only to those presenting a TPV equal to or greater than € 1,000,000.00 (one million euros).
The Respondent, in an exercise that is understandable, perceived the absurdity that would result from the application of the tax rate to the TPV of a property, if it were calculated on the basis of the sum of all the independent parts that compose it. It therefore purged, in the case at hand, the parts that were registered as being devoted to non-residential purposes, succeeding in achieving, for purposes of item 28.1, a TPV different from that which results from the application of the criteria for determining the taxable matter for purposes of taxation under the Municipal Property Tax.
To say that the exercise carried out by the Respondent is understood does not, however, mean concluding that it is correct, since the disregard of the autonomy of each of the parts capable of independent use of the Property appears to be improper, imposing, for purposes of applying item 28.1 of the GSDR, a unity that, while indisputable in terms of real rights, is not so in the taxation of immovable property assets.
Considering the letter and spirit of the law, it is not apparent that it is the legislature's intent to apply item 28.1 of the GSDR to each of the parts of a property when only from the sum of all of them results a TPV equal to or greater than the legal threshold.
c) The ratio legis of item 28.1 of the GSDR
What has been stated above does not ignore the confessed purpose of the proponent of the aforementioned legislative amendment. The interpretation adopted herein is in harmony with what appears to have been the unequivocal intent of the Government, author of the proposal that resulted in this legislative intervention.
When presenting and discussing, in Parliament, bill No. 96/XII (2nd), the State Secretary for Tax Affairs expressly stated[2]:
"The Government proposes the creation of a special tax on high-value residential urban properties. It is the first time in Portugal that a special taxation has been created on high-value properties intended for residential use. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at € 1 million or more."
Now, the State Secretary for Tax Affairs presents this bill referring, unambiguously, to the term "houses." "Houses valued at € 1 million or more," it should be noted.
Thus, despite the clumsiness of the legislative technique adopted, it is clear that item 28.1 of the GSDR cannot be interpreted in the sense that it includes each of the floors, divisions or parts capable of independent use of a property, when only from their respective sum results a TPV equal to or greater than that provided for in the same item. In fact, none of the "houses" of the Property to which we have been referring presents, on its own, "value equal to or greater than 1 million euros."
d) Conclusion
Based on the foregoing, it is the understanding of the arbitral tribunal that the assessment of stamp duty based on item 28.1 of the GSDR with respect to each of the floors or parts capable of independent use of the Property is tainted with illegality, since item 28.1 cannot be interpreted to mean that it can be applied to floors or parts capable of independent use of a property in full or vertical ownership, when only from the sum of each of those floors or parts can a TPV equal to or greater than € 1,000,000.00 (one million euros) be obtained, with the TPV of each of the said floors or parts not exceeding that legal threshold.
3.4. Moot Questions
The Claimants raised the question of the unconstitutionality of the provisions of sub-item i) of item f) of paragraph 1 of Article 6 of Law No. 55-A/2012, of 29 October, and of item 28.1 of the GSDR, in the wording given to it by the same law, if they were to be interpreted in the sense that the Stamp Duty provided for therein could apply to each of the independent floors or parts of the Property.
Since the arbitral tribunal did not accept the understanding of the applicability of item 28.1 of the GSDR to the present case, the consideration of that question becomes moot and procedurally irrelevant, as well as that of the other defects alleged by the Claimants.
- DECISION
In the terms and on the grounds set out above, the arbitral tribunal decides to uphold the request for arbitral ruling with the consequent annulment of the disputed assessments, with all legal consequences.
- VALUE OF THE PROCEEDING
In accordance with the provisions of paragraph 2 of Article 315 of the Code of Civil Procedure, subparagraph a) of paragraph 1 of Article 97-A of the Code of Tax Procedure, and also paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 8,054.48 (eight thousand, fifty-four euros and forty-eight cents).
- COSTS
For the purposes of the provisions of paragraph 2 of Article 12 and paragraph 4 of Article 22 of the LFTA and paragraph 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), in accordance with Table I annexed to said Regulation, to be borne entirely by the Respondent.
Lisbon, 26 September 2014
The Arbitrator
Nuno Pombo
[1] The wording of this arbitral decision follows the spelling prior to the 1990 Orthographic Agreement.
[2] See DAR I Series No. 9/XII - 2, of 11 October, p. 32.