Stamp Tax Verba 28 TGIS: Properties in Total Ownership with Independent Fractions Below €1M

ARBITRAL DECISION

The arbitrator Francisco Carvalho Furtado (arbitrator in a Single Arbitral Tribunal), appointed by the Deontological Council of CAAD, to constitute the Arbitral Tribunal formed on 14 September 2015, decides as follows:

A) Report

1. On 13 July 2015, A.., S.A., legal entity no. …, with registered office in …, hereinafter identified as Claimant, submitted a request for arbitral pronouncement, in accordance with the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as RJAT), in conjunction with paragraph a) of article 99 and paragraph d) of no. 1 of article 102 of the Code of Tax Procedure and Process (CPPT), applicable by virtue of article 10, no. 1, paragraph a), of Decree-Law no. 10/2011, of 20 January.

2. In the aforementioned request for arbitral pronouncement, the Claimant seeks that the Arbitral Tribunal declare:

a) the illegality of the Stamp Tax assessment acts issued by the Tax and Customs Authority with reference to the year 2014 in the total amount of €53,340.14 (fifty-three thousand, three hundred and forty euros and fourteen cents); and,

b) the condemnation of the Tax and Customs Authority to reimburse the Stamp Tax amount paid, plus default interest and compensatory interest.

1. The request for constitution of the arbitral tribunal was accepted on 15 July 2015 by His Excellency the President of CAAD and was notified to the Tax and Customs Authority (hereinafter identified as Respondent) on the same date.

2. The Claimant did not proceed to appoint an arbitrator, whereby, under the provisions of article 6, no. 1, of RJAT, the undersigned was appointed by the President of the Deontological Council of CAAD to be a member of this Single Arbitral Tribunal, the appointment having been accepted as legally provided for. The Tribunal was constituted, in accordance with the provisions of article 11 of RJAT, on 14 September 2015.

3. On 12 October 2015, the Respondent submitted its Reply.

4. The parties waived the holding of the meeting provided for in article 18 of RJAT and, likewise, the submission of arguments.

The Claimant supports its claim, in summary, as follows:

a) The Claimant is the owner of urban properties, in full ownership, consisting of various fractions with independent use;

b) The Tax Patrimonial Value of each of the fractions with independent use individually considered is less than €1,000,000.00 (one million euros);

c) The aggregate value of the said fractions is, in each of the properties of which it is the owner, greater than €1,000,000.00 (one million euros);

d) For purposes of Municipal Property Tax, each of the fractions with independent use was evaluated individually, having its own Tax Patrimonial Value;

e) The Stamp Tax assessment acts were also practiced individually in relation to each of the fractions with independent use;

f) Thus, the Claimant considers that the tax acts were practiced in error as they had as a premise the consideration of the TPV of €3,584,779.98 (three million, five hundred and eighty-four thousand, seven hundred and seventy-nine euros and ninety-eight cents) and €1,889,100.00 (one million, eight hundred and eighty-nine thousand and one hundred euros), resulting from the sum of the Tax Patrimonial Values of each of the fractions with residential allocation in each of the buildings above identified;

g) The Claimant considers therefore that, being the Tax Patrimonial Value of each of the fractions with independent use, individually considered, less than €1,000,000.00 (one million euros), item 28.1 of the General Table of Stamp Tax is not applicable;

h) Being fractions with independent use, the same shall be subsumed in the concept of "urban property" for purposes of application of item 28.1 of the General Table of Stamp Tax;

i) The Claimant further contends that the concept of relevant property is that resulting from article 2, no. 1, of the Code of Municipal Property Tax, whereby the legislator considered relevant was the normal use of the property and not the legal-formal rigor of the concrete situation;

j) Thus, whenever we are dealing with a property composed of independent fractions under a vertical ownership regime, it is on the TPV of each fraction that the Municipal Property Tax falls, and this is also the value relevant for purposes of the application of item 28.1 of the General Table of Stamp Tax (and not the sum of the TPVs of all of them);

k) The Claimant further considers that the Stamp Tax assessments under analysis violate the constitutional principles of fiscal legality and tax equality, inherent in articles 103, no. 2, and 104, no. 3, of the Constitution of the Portuguese Republic;

l) Likewise, the Claimant considers the principles of tax equality and capacity to contribute to be breached;

m) The Claimant concludes that the Stamp Tax assessment acts in question are defective due to violation of law (constitutional and sub-constitutional), which is why they should be annulled;

n) Finally, given the payment of the tax, the Claimant petitions the condemnation of the Tax and Customs Authority to the payment of compensatory interest.

In its Reply, the Respondent invoked, in summary, the following:

a) The assessments in question result from the application of item 28.1 of the General Table of Stamp Tax, which translates into objective elements without any subjective or discretionary assessment;

b) For purposes of implementing the concept of property, it is important to pay attention to article 2, nos. 1 and 4 of the Code of Municipal Property Tax;

c) Thus, a property in full ownership with floors or divisions capable of independent use is distinct from property under a condominium ownership regime, consisting of autonomous fractions;

d) The Respondent understands that if the building is constituted in full ownership with parts or divisions capable of independent use (so-called full ownership), it integrates the legal tax concept of "property", that is, a single unit, and the tax patrimonial value thereof is determined by the sum of the parts with residential allocation, and being this equal to or greater than €1,000,000.00, there is subjection to Stamp Tax under item 28 of the General Table annexed to the Stamp Tax Code;

e) The understanding defended is based on the following premises:

§ In the Stamp Tax Code there is no definition of the concepts of urban property, so the provisions of the Municipal Property Tax Code must be applied to assess the possible subjection to Stamp Tax (See article 67, no. 2 of the Stamp Tax Code as worded by Law no. 55-A/2012);

§ Article 2, no. 1 of the Municipal Property Tax Code defines the concept of property;

§ Article 2, no. 4 of the Municipal Property Tax Code safeguards the autonomous fractions of properties constituted under a condominium ownership regime, which it considers, exceptionally, as properties;

§ On the contrary, being a property constituted in full ownership with parts or divisions capable of independent use, it is the property as a whole, and no longer each of those parts, that integrates the concept of "property", for purposes of Municipal Property Tax and Stamp Tax, by referral of article 1, no. 6 of the Stamp Tax Code;

§ This is not precluded by the fact that each floor/division appears separately in the property registration, with their respective tax patrimonial values, as such discrimination is only relevant, for tax purposes, given the concept of property registers contained in article 12 of the Municipal Property Tax Code and in the matters regulated in this Code for the organization of the registers;

§ The requirement to organize the registers in this way is due to the need to reflect the autonomy that, within the same property, applies to each of its parts, which can be functionally and economically independent;

§ This autonomization is only justified because within the same property there can occur use for commerce or residence, with or without lease, which is determinant in the rules of fiscal valuation within the Municipal Property Tax Code, given the different allocation coefficients provided for in article 41 of that Code.

f) The Respondent further states that advocating a contrary understanding is to confuse teleologically distinct realities, full ownership on one hand, and condominium ownership on the other, whose distinction finds its foundation from the outset in civil law;

g) Full ownership and condominium ownership are realities of fact and law that are distinct and deserve differentiated tax treatment, as only this path is favored by the principle of closed typology;

h) We are dealing with a rule of incidence, whereby one cannot, through the interpretative route, lead to a result that is not provided for in the law;

i) For purposes of Municipal Property Tax and also Stamp Tax, by virtue of the wording of the said item, the Claimant is not the owner of autonomous fractions, but rather of a single property, and this is the understanding that best accords with the principle of legality inherent in article 8 of the General Tax Law;

j) Finally, concluding by the legality of the assessment acts and the non-verification of the prerequisites for recognition of the right of the Claimant to be reimbursed the tax paid and to be compensated through the payment of compensatory interest.

B) Preliminary Ruling

The Tribunal is competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6, all of RJAT. The parties have legal personality and legal capacity, are legitimate and are represented, in accordance with articles 4 and 10 of RJAT and article 1 of Order no. 112-A/2011, of 22 March.

There are no irregularities and preliminary questions that affect the entire proceeding, whereby it is now necessary to decide on the merits of the claim.

C) Object of the Arbitral Pronouncement

The following questions are submitted to the Tribunal, in accordance with the descriptions above:

a) Should item 28.1 of the General Table of Stamp Tax be interpreted as providing within its scope properties with residential allocation, in full ownership with fractions capable of independent use, which are characterized by the fact that none of the divisions capable of independent use has a Tax Patrimonial Value exceeding €1,000,000.00 (one million euros), but the sum of the individual Tax Patrimonial Values is greater than the indicated value of €1,000,000.00 (one million euros)?

b) In the present case, are the prerequisites on which the Law makes the Claimant's right to compensatory interest dependent verified?

D) Facts

D.1 – Proven Facts

The following facts with relevance to the decision are considered proven, based on the documentary evidence submitted with the case:

a) The Claimant is the owner of the urban property in vertical/full ownership located in …, … registered in the urban property register under article U-….º- see document 1 attached to the "initial petition";

b) The property consists of twelve floors intended for residence which integrate divisions with independent use - see document 1 attached to the "initial petition";

c) The urban property was subject to valuation, with each of its fractions being individually considered and evaluated in that procedure, with the Tax Patrimonial Value determined separately - see Document 1 attached to the "initial petition");

d) The property registration, article U-….º, identifies separately each of the divisions with independent use - see document 1 attached to the initial petition;

e) Each of the divisions with independent use has the following Tax Patrimonial Value - see document 1 attached to the initial petition:

f) The Claimant is the owner of the urban property in vertical/full ownership located in …, …, registered in the urban property register under article ….º - see document 2 attached to the initial petition;

g) The property consists of eleven floors intended for residence which integrate divisions with independent use - see document 1 attached to the initial petition;

h) The urban property was subject to valuation, with each of its fractions being individually considered and evaluated in that procedure, with the Tax Patrimonial Value determined separately - see Document 2 attached to the initial petition);

i) The property registration, article U-….º, identifies separately each of the divisions with independent use - see document 2 attached to the initial petition;

j) Each of the divisions with independent use has the following Tax Patrimonial Value - see document 2 attached to the initial petition:

k) With reference to the property registered in the register under article U-….º, the Claimant was notified of the Stamp Tax assessment acts concerning the year 2014 identified in the collection documents 2015..., 2015..., 2015..., 2015..., 2015..., 2015 ..., 2015 ..., 2015..., 2015 ..., 2015 ..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015 ..., 2015 ..., 2015 ..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015 ..., 2015 ..., 2015 ..., 2015 ..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015 ..., 2015 ..., 2015..., 2015 ..., 2015 ..., 2015 ..., 2015 ..., 2015..., 2015 ...; practiced by the Tax and Customs Authority, liquidated, in accordance with item 28.1 of the General Table of Stamp Tax ("GTST") individually, in relation to each division with independent use - see documents 3 to 49 attached to the initial petition;

l) With reference to the property registered in the register under article U-….º, the Claimant was notified of the Stamp Tax assessment acts concerning the year 2014 identified in the collection documents nos. 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015 ..., 2015..., 2015 ..., 2015 ..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015..., 2015 ..., 2015...; practiced by the Tax and Customs Authority, liquidated, in accordance with item 28.1 of the General Table of Stamp Tax ("GTST") individually, in relation to each division with independent use - see documents 50 to 90 attached to the initial petition;

m) On 29 April 2015, the Claimant proceeded to payment of the 1st installment of the tax assessed, in the total amount of €20,791.03 - See document 91, lines 99 to 186 attached to the initial petition;

n) On 13 July 2015, the Claimant submitted the petition that gave rise to the present arbitral proceeding.

As to the proven facts, the Tribunal's conviction was based on the documentary evidence referred to, attached to the case and in the attached administrative proceeding.

No other facts capable of affecting the decision on the merits were proven, in light of the possible legal solutions, and which consequently is important to record as not proven.

E) Legal Reasoning

As appears from the pertinent procedural documents, the question to be decided concerns the interpretation of item 28.1 of the General Table of Stamp Tax, namely the question of whether it is intended to apply to properties with residential allocation, in full ownership, with divisions capable of independent use, which are characterized by the fact that none of those divisions has a Tax Patrimonial Value exceeding €1,000,000.00 (one million euros), but the sum of the individual Tax Patrimonial Values exceeds the indicated value of €1,000,000.00 (one million euros).

In accordance with the general canons of legal hermeneutics, particularly in light of the provisions of no. 1 of article 9 of the Civil Code, applicable to the interpretation of tax law by virtue of no. 1 of article 11 of the General Tax Law, "interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative thinking, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied." It is therefore this interpretive exercise that is now important to undertake.

First and foremost, with attention to the rules of legal exegesis, it is important to pay attention to the literal element of the relevant norms and, from the outset, item 28 of the General Table of Stamp Tax, introduced by Law no. 55-A/2012, of 29 October and which came into force on 30 October 2012. Thus:

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

28.1 — For residential property or for land for construction whose building, authorized or planned, is for residence, in accordance with the provisions of the Municipal Property Tax Code — 1%;

28.2 — For property, when the taxable persons who 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%."

From the analysis of the literal element it is concluded, therefore, that the tax fact relevant for the purpose of applying the item of the General Table of Stamp Tax under analysis is based on the rights described, constituted over:

a) urban properties;

b) residential;

c) whose tax patrimonial value is equal to or greater than €1,000,000.00;

d) and that tax patrimonial value should be the one used for purposes of Municipal Property Tax.

It is also important to bear in mind the provisions of article 23, no. 7 of the Stamp Tax Code, which determines that: "In the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI." Likewise, no. 2 of article 67 of the Stamp Tax Code determines that "To matters not regulated in this Code concerning item no. 28 of the General Table, the provisions of the CIMI apply subsidiarily."

With relevance to the decision it is also important to bear in mind article 12, no. 3 of the Code of Municipal Property Tax, which determines that "each floor or part of property capable of independent use is considered separately in the property registration, which also discriminates the respective tax patrimonial value." Finally, article 119, no. 1 of the Code of Municipal Property Tax prescribes that "The services of the General Directorate of Taxes send to each taxable person, by the end of the month prior to the month of payment, the competent collection document, with discrimination of the properties, their parts capable of independent use, the respective tax patrimonial value and the collection assessed to each municipality of the location of the properties."

It results therefore from the letter of the Law that the intention of the legislator was to create a tax whose incidence is assessed by the economic destination of the urban property and by the Tax Patrimonial Value used for purposes of Municipal Property Tax, with assessment carried out in the same terms as the said Municipal Property Tax.

Having analyzed the literal element of the legal norms, it is now important to also analyze the teleological element (cf. articles 9, no. 1, of the Civil Code and 11 of the General Tax Law).

In order to ascertain the intention of the legislator with this tax innovation, we may avail ourselves of the records of the debate that underlies this legislative initiative. As appears from the discussion of Bill no. 96/XII (Journal of the Assembly of the Republic, Series I, no. 9/XII/2, of 11 October 2012), which underlies Law no. 55-A/2012, of 29 October, the aim is to create special taxation on high-value properties intended for residence. This measure is part of a set of other measures whose goal is to create a fairer and more equitable tax system in which taxpayers are called to contribute according to their real capacity to contribute. It was thus stated that: "This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses valued at or above 1 million euros." and also that "These measures, Mr. President, Ladies and Gentlemen Members of Parliament, represent a decisive step in achieving a fairer and more equitable tax system in the demanding circumstances the Country faces. By broadening the tax base, demanding an increased effort from taxpayers holding high-value real estate properties, as well as from company shareholders, and strengthening the powers of the tax administration in monitoring manifestations of wealth and transfers to tax havens, the Government fulfills its program and creates the conditions for a more just distribution of tax burden." (cf. Journal of the Assembly of the Republic, Series I, no. 9, of 10 October 2012, p. 32). On the other hand, from reading the intervention of the Members of Parliament from various parties, it appears that, without exception, mention is made, in this regard, of the taxation of luxury real estate assets and that aims to reach the wealthy: See in this sense the intervention of Member of Parliament Pedro Filipe Soares who states: "The thing is that luxury assets are not limited to real estate assets (...)." Likewise, Member of Parliament Paulo Sá referred that "(...) as the Communist Party has proposed several times, particularly with regard to the taxation of luxury real estate assets." (cf. Journal of the Assembly of the Republic, Series I, no. 9, of 10 October 2012, pp. 36, 38, 39 and 40).

For all these reasons, from the interpretive exercise carried out, it results that the intention of the legislator was unequivocally to tax those who reveal the possession of increased capacity to contribute through the ownership, usufruct or holding of the right of surface of luxury homes. Now the use of the word house by the State Secretary immediately refers to the concept of physical space used for residential purposes by its owner/usufructuary/holder of the surface right. That is, it suggests that the legislator intends that the incidence of this tax manifests itself in taxpayers who hold urban properties (houses) whose configuration and physical characteristics suggest their use, as a whole, by the holder of the right, for residential purposes (without prejudice to, in the meantime, having included in the rule of incidence the realities qualifying as land for construction). Now this will not occur in the situation of the case, as the configuration of property composed of fractions with independent use does not suggest unitary residential use thereof, but rather residential use division by division. It does not therefore seem that it was the intention of the legislator to tax through item 28 of the General Table of Stamp Tax properties in full ownership composed of divisions capable of independent use, in which each of the divisions, individually considered, does not have the Tax Patrimonial Value equal to or greater than €1,000,000.00 (one million euros). The intention will be to tax urban properties with residential allocation, whose physical and economic unit, also in accordance with the Municipal Property Tax Code, has Tax Patrimonial Value exceeding €1,000,000.00 (one million euros).

Given this and taking as a basis the applicable legal provisions, starting from the literal analysis and moving to its spirit, it is important to determine with precision the meaning and scope of the concept of property and respective Tax Patrimonial Value, determinant of the application of item 28 of the General Table of Stamp Tax. From the outset, it seems safe to state that the concept of property is not univocal, either in the various branches of law or in the various existing taxes, taking on in each case specific contours and characteristics (cf. GOMES, Nuno de Sá, The Fiscal Concepts of Property, Science and Tax Technique no. 101, May 1967). Thus, it is important to delimit the concept for purposes of application of item 28 of the General Table of Stamp Tax. In taxes on assets only the Code of Municipal Property Tax establishes, or seeks to establish, this concept, although without precisely defining the respective contours. Thus, and as correctly noted by the Administrative Supreme Court (2nd Section) in the Decisions delivered in Resources 1109/11 and 1004/11, on 30 May 2012 and 27 June 2012, respectively, "In accordance with art. 2 of the CIMI the concept of property is based on three elements: an element of physical nature (fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or standing therein, with a permanent character), an element of legal nature (requirement that the thing - movable or immovable - be part of the patrimony of a natural or legal person) and an element of economic nature (requirement that the thing have economic value in normal circumstances). This is a concept of property that differs both from the concept of property contained in no. 3 of art. 8 of the Personal Income Tax Code (However, for Rui Duarte Morais ("On the Personal Income Tax Code," 2nd edition, Almedina, 2008, p. 116) the Personal Income Tax Code does not define what property is, whereby in a systematic interpretation, we believe we should resort to the notion contained in the CIMI. This is because "In reality, no. 3 of art. 8 of the Personal Income Tax Code presents the definitions of rustic, urban and mixed property, for purposes of this tax. Besides such notions, as they are overly simplistic, they do not proceed to a rigorous delimitation of these concepts (cf. arts. 3 to 6 of the CIMI), there are property realities not capable of being inserted in any of these categories (as would be the case of properties that do not have as a physical component a fraction of soil)." and from that contained in no. 2 of art. 204 of the Civil Code. (In this respect, cf. Nuno Sá Gomes, "The Fiscal Concepts of Property," in Notebooks of Science and Tax Technique, no. 54 (and also published in Science and Tax Technique nos. 101 and 102 – May and June 1967), a study that although relating to the legislative development that culminated in the old Property Contribution Code, retains some relevance.)"

With regard to the physical and legal components, as they are defined by the Administrative Supreme Court, there does not seem to be any quarrel. Indeed, in the case at hand, the cause of action was structured by the Claimant in the sense of arguing that the divisions capable of individual use have economic value, whose constituent elements influence their own Tax Patrimonial Value, which implies that they be considered autonomously for purposes of the application of item 28 of the General Table of Stamp Tax. Now, the value/economic destination of properties has been determinant in the delimitation of the various fiscal concepts of property. Indeed, article 6, no. 2 of the Code of Municipal Property Tax, whose rules should be applied here as we have seen, distinguishes various concepts of urban properties in accordance with their respective economic destination. Indeed, that norm determines the concept starting from the physical structure and correcting it through its economic destination. Now, in the case at hand, there is no doubt that the divisions capable of independent use have economic value in normal circumstances, which is revealed in the very assignment of a concrete and autonomous Tax Patrimonial Value. On the other hand, it is verified that the tax legislator made no distinction between condominium ownership and vertical or full ownership. In fact, as correctly noted in the Arbitral Decision handed down in proceeding no. 50/2013-T, to whose reasoning we adhere, "from the perspective of the legislator, what matters is not the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose for which the property is intended. We further conclude that for the legislator the situation of the property in vertical or condominium ownership was not relevant, as no reference or distinction is made between one and the other. What is relevant is the material truth underlying its existence as an urban property and its use."

And with regard to the determination of the Tax Patrimonial Value, the criterion used by the legislator is also decisively influenced by the economic destination of the real estate asset. That is, here too the legislator disregarded the legal-formal reality in favor of material truth. A solution that is well understood in light of the constitutional principles inherent in articles 103, no. 1 (fair distribution of wealth) and 104, no. 3 (taxation of assets as a guarantee and contribution to equality among citizens), both of the Constitution of the Portuguese Republic. Now, equality among citizens is only achieved if, more than to formal reality, taxation, in this case of assets, is based on material truth, on the facts of real life. Now, in material terms there is no difference between a building in condominium ownership and a building (physical element of the concept) in vertical or full ownership composed of divisions with independent use. In fact, and as has already been mentioned, the tax law also makes no distinction, either at the level of property registration (articles 12 and 91 et seq. of the Municipal Property Tax Code), or at the level of taxation, with article 119 of the Municipal Property Tax Code mandating that the tax be assessed individually on each division with independent use and based on the concrete Tax Patrimonial Value (of each of the divisions with independent use) – which, in compliance with the Law, occurred in the case at hand. That is, taking the same building as a basis, both the property registration, evaluation, and assessment of Municipal Property Tax are carried out in the same way – division by division.

As José Maria Pires argues (Lessons on Taxes on Assets and Stamp Tax, Almedina, 2010) with respect to the determination of the tax patrimonial value of real estate assets, the legislator adopted pragmatic criteria that are linked to the effective use of properties, with this pragmatism being more evident in cases, such as the present case, of properties with autonomous parts capable of independent use. "In these cases the evaluation will necessarily have to reflect the existence of more than one allocation given that this multifunctionality is relevant in the determination of the value of these properties, regardless of the purpose for which they are licensed. (...) In this second case, naturally it is the actual use of each of the parts capable of independent use that is relevant in the determination of the allocation coefficient (....). Here too the legislator followed a principle of pragmatism in valuing the actual functionality of each property. (...) In truth, in these cases, the Municipal Property Tax Code provides that the evaluation of each of the parts capable of independent use be valued separately and, moreover, that each of those parts be registered autonomously in the property registers. This autonomization, although integrated in the same property registration number covers also the tax patrimonial value, the Law providing that each of those parts have its own value. The Law goes further still, establishing that in the very assessment of Municipal Property Tax, this must be carried out separately for each of those parts capable of independent use, as article 119 of the CIMI provides" (PIRES, José Maria, Lessons on Taxes on Assets and Stamp Tax, Almedina 2010, pp. 84 and 85). That is, the evaluation, which is carried out concretely for each of the divisions with independent use, is influenced by material truth (actual economic destination of the asset) and not by formal reality.

Thus, from the interpretive exercise carried out, it results that the essential criterion of the legislator in the sphere of taxes on assets was that of the material substance of the asset. That is, more than legal-formal rigor, what is at issue is the actual use of buildings and their component parts. And this pragmatic criterion and material truth manifests itself in the determination of tax patrimonial value which is made individually by reference to each of the divisions capable of individual use, just as occurs in a building in condominium ownership.

In this way, the Tax Patrimonial Value that constitutes the incidence of item 28, no. 1 of the General Table of Stamp Tax is that which results from the letter and ratio of the combined application of articles 2, 6, no. 1, paragraph a), 12 and 119 of the Municipal Property Tax Code and item 28, no. 1 of the General Table of Stamp Tax, that is, that which results from the material truth of the configuration and use of the property.

As we have already seen, the criteria for determining the Tax Patrimonial Value relevant to assessing the incidence of Stamp Tax provided for in item 28 of the respective General Table must necessarily be those provided for in the Municipal Property Tax Code, not only because it is the regulation subsidiarily applicable (cf. articles 23, no. 7 and 67, no. 2 of the Stamp Tax Code), but essentially because the said item of the General Table of Stamp Tax mandates attention to the "tax patrimonial value used for purposes of Municipal Property Tax." Now, having analyzed the Municipal Property Tax Code, it appears that it makes no distinction between urban properties with residential allocation under the form of condominium ownership and urban properties with residential allocation under the form of full or vertical ownership. In truth, both are provided for in no. 2 of article 6 of the Municipal Property Tax Code under the designation of residential urban properties, and as we have already seen, the rules of property registration are single. And single too are the rules for assessment of Municipal Property Tax (and therefore for Stamp Tax provided for in item 28 of the General Table of Stamp Tax), which is assessed on the Tax Patrimonial Value of each of the divisions capable of independent use. Now, it was precisely this that occurred in the concrete case, there being – correctly – as many assessments as there are divisions with independent use allocated to residence.

Given the above, as the Municipal Property Tax Code determines that the assessment of that tax be made individually on each of the divisions capable of independent use – which occurred as we have seen – the same criterion must be used for the assessment of Stamp Tax provided for in item 28, no. 1 of the respective General Table. The incidence of Stamp Tax (provided for in item 28, no. 1 of the General Table of Stamp Tax) should therefore be assessed in light of the Tax Patrimonial Value of each of the divisions capable of independent use. Indeed, if the legal criterion of Municipal Property Tax – which is the one applicable when item 28 of the General Table of Stamp Tax is at issue – imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, assessments based on the concrete Tax Patrimonial Value of each of the divisions with independent use, it is that concrete Tax Patrimonial Value that is relevant for the assessment of the incidence of Stamp Tax.

And this conclusion, in light of the interpretive exercise carried out, is supported both by the literal element and the ratio of the relevant legal norms. Indeed, on one hand, the literal element mandates attention to the Tax Patrimonial Value used for purposes of Municipal Property Tax (which is the concrete tax patrimonial value of each division with independent use), and the legislator has always manifested the intention to tax the owners/usufructuaries/holders of the surface right of houses of high value, thus reaching those who through their ownership used for residential purposes is indicative of increased capacity to contribute.

In light of what is set out above, it is important to assess whether any of the divisions capable of independent use has a tax patrimonial value exceeding €1,000,000.00 (one million euros). From the proof made in the case it results that this is not the case, whereby, inevitably, it must be concluded that the assessment acts in question are illegal due to error regarding the prerequisites and violation of article 1, no. 1 of the Stamp Tax Code and item 28, no. 1 of the General Table of Stamp Tax, imposing the declaration of illegality and annulment thereof, as requested.

Finally, the Claimant requests the reimbursement of amounts paid, plus compensatory interest, in accordance with the provisions of article 43 of the General Tax Law. Against this claim the Respondent objects, considering the assessment acts practiced to be legal, with no culpability being attributable to the services. Let us therefore examine:

Article 43 of the General Tax Law determines that the taxpayer shall have the right to be compensated through compensatory interest whenever the unduly paid tax is attributable to error of the services.

"Error attributable to the services that carried out the assessment is demonstrated when they proceed to file a administrative complaint or to contest that same assessment and the error is not attributable to the taxpayer (for example, there will be annulment due to error attributable to the taxpayer when the assessment is based on incorrect factual prerequisites, but the error is based on incorrect information in the statement that the taxpayer submitted)." (Campos, Diogo Leite de; Rodrigues, Benjamim Silva, Sousa, Jorge Lopes de, General Tax Law, Annotated and Commented, 4th Ed. 2012 Writing Meeting, Lisbon, p. 342). Also the Administrative Supreme Court specifies the concept of error attributable to the services (although by reference to article 78 of the General Tax Law, but which here has full application) as any illegality regardless of proof of fault of any of the persons or entities that compose it. "As stated in the Decision of 12/12/2001, rec. 26.233: "where there is error of law in the assessment, by application of national norms that violate community law and being it carried out by the services, it is to the tax administration that this error is attributable, always provided that the erroneous application of the law is not based on any information from the taxpayer. On the other hand, this attributability to the services is independent of the fault of any of its officials in carrying out assessment affected by error" since "the tax administration is generically obliged to act in conformity with the law (arts. 266, no. 1 of the Constitution and 55 of the General Tax Law), whereby, regardless of proof of fault of any of the persons or entities that compose it, any illegality not resulting from an action of the taxable person shall be attributable to the fault of the services themselves".
Cf., in the same sense and by all, the Decisions of 06/02/2002 rec. 26.690, 05/06/2002 rec. 392/02, 12/12/2001 rec. 26.233, 16/01/2002 rec. 26.391, 30/01/2002 rec. 26.231, 20/03/2002 rec. 26.580, 10/07/2002 rec. 26.668." (cf. Decision of the Administrative Supreme Court – 2nd Section, handed down in Resource no. 1009/10, on 22 March 2011, Reporting Judge Her Excellency Dr. Isabel Marques da Silva, available at:

http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/b1e7cc04381b03af802578620046b202?OpenDocument&ExpandSection=1).

In the case at hand, the Stamp Tax assessment acts are illegal because carried out with error of fact and law and breach of the applicable norms and legal principles, and such error does not emerge from any conduct of the Claimant, whereby it is attributable to the Services.

In light of the above, the claim for condemnation of the tax administration to payment to the Claimant of compensatory interest, calculated on the value that was proven to have been paid, of €20,791.03, in accordance with the provisions of article 43, no. 1, of the General Tax Law, is warranted.

Finally, the Claimant petitions the condemnation of the Respondent to default interest. Now, such interest aims to compensate the creditor for delay, for default of the debtor. In the case at hand, and at the moment when the claim is being assessed, there is no default in the proper sense given that the deadline for the Respondent to comply with the judgment only begins with the finality of the present arbitral decision (cf. article 146, no. 2 of the Code of Tax Procedure and Process). As the prerequisites are not met, the Claimant's claim fails in this respect.

Decision

Given the above, this Arbitral Tribunal decides to judge the claim partially granted and consequently:

a) Declare the illegality of the Stamp Tax assessment acts, annulling them;

b) Condemn the Respondent to reimburse the amounts unduly paid plus compensatory interest (calculated on the amount of €20,791.03);

c) Judge unfounded the claim for condemnation to payment of default interest; and,

d) Condemn both the Claimant and the Respondent to payment of costs, in the proportion of the failure which is fixed at 95% for the Respondent and 5% for the Claimant.

The value of the action is fixed at €53,340.14 (fifty-three thousand, three hundred and forty euros and fourteen cents), in accordance with the provisions of article 97-A, no. 1, paragraph a), of the Code of Tax Procedure and Process, applicable by virtue of article 29, no. 1, paragraph a), of RJAT.

The value of the Arbitration Fee is fixed at €2,142.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Claimant (5%) and the Respondent (95%), in the proportion of the failure, in accordance with articles 12, no. 2, 22, no. 4 of RJAT and 4 of the said Regulation.

Let it be notified.

Lisbon, 5 July 2016.

The Arbitrator,

Francisco de Carvalho Furtado
(Sole Arbitrator)

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

The text of this decision is governed by the spelling prior to the Orthographic Agreement.