Summary
Full Decision
ARBITRAL DECISION
1. Report
A - General
1.1. A..., taxpayer number ..., resident in Lisbon, at Av. ..., ...-..., ...; B..., taxpayer number ..., resident in Lisbon at Rua ..., no. ..., ... and C..., taxpayer number ..., resident in Lisbon, at Av. ..., ..., ... (hereinafter referred to as "Claimants"), submitted, on 25.07.2016, a request for constitution of a singular arbitral tribunal in tax matters, which was accepted, seeking, on the one hand, the declaration of illegality of tax acts levying Stamp Tax for the year 2015, referring to item 28.1 of the General Table of Stamp Tax (hereinafter "TGIS"), relating to real property of which they are co-owners, as will be seen below, and, on the other hand, recognition of the right to indemnity interest for the improper payment of tax instalments.
1.2. Pursuant to the provisions of paragraph a) of paragraph 2 of art. 6º and paragraph b) of paragraph 1 of art. 11º of Decree-Law no. 10/2011, of 20 January, as amended by art. 228º of Law no. 66-B/2012, of 31 December, the Ethics Council of the Administrative Arbitration Centre (CAAD) appointed the undersigned as arbitrator, the parties, after being duly notified, having not expressed opposition to such appointment.
1.3. By order of 24.08.2016, the Tax and Customs Authority (hereinafter referred to as "Respondent") proceeded to appoint Mrs. D... and Mrs. E... to intervene in the present arbitral proceedings, in the name and representation of the Respondent.
1.4. In accordance with the provisions of paragraph c) of paragraph 1 of art. 11º of Decree-Law no. 10/2011, of 20 January, as amended by art. 228º of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 19.10.2016.
1.5. On the same day 19.10.2016, the head of the Respondent's services was notified to send to the Arbitral Tribunal a copy of the administrative file that might exist and, if desired, within 30 days, submit a reply and request the production of additional evidence.
1.6. On 16.11.2016 the Respondent submitted its reply.
B – Position of the Claimants
1.7. The Claimants are co-owners of the urban real property in the regime of vertical property located at Largo ..., no. ... to no..., Travessa ..., no. ... and no..., Travessa ..., no. ... to no..., parish of ..., municipality of Lisbon, described in the Property Register Office under no..., and registered in the urban property matrix of that parish, under article..., to which the property registration certificate and the property register book attached to the request for arbitral pronouncement refer as documents 1 and 2, whose contents are considered reproduced (hereinafter, the "Property").
1.8. The Property has 92 (ninety-two) divisions susceptible to independent use, not all allocated to residential purposes.
1.9. None of the floors and divisions susceptible to independent use allocated to residential purposes of the Property has a tax patrimonial value (hereinafter "TPV") equal to or greater than €1,000,000.00 (one million euros).
1.10. The Claimants were notified of the Stamp Tax (hereinafter referred to as "ST") levies mentioned in articles 10º to 12º of the request for arbitral pronouncement and to which the documents annexed thereto with nos. 3 to 218 refer, whose contents are considered reproduced, relating to the Property, which were based on art. 1º of the Stamp Tax Code (hereinafter the "STC"), on item 28.1 of the TGIS, whose payment deadlines are at the end of April, July and November 2016, in the total amount of €29,168.35 (twenty-nine thousand one hundred sixty-eight euros and thirty-five cents).
1.11. The Claimants proceeded to pay the collection notes of which they had been notified until the filing of the request for arbitral pronouncement, in the total amount of €24,873.24 (twenty-four thousand eight hundred seventy-three euros and twenty-four cents), wherefore they also request recognition of the right to receive indemnity interest.
1.12. The Claimants argue that the autonomization of the floors or fractions susceptible to independent use was necessary for purposes of Stamp Tax levy, with the law not resulting in a correspondence between the TPV of a property composed of several independent fractions and the sum of the TPV of the floors or divisions susceptible to independent use.
1.13. In the view of the Claimants, the Property is materially identical to a property under the regime of horizontal property, with no legal justification for differentiated treatment, which, should it exist, would be vitiated by unconstitutionality, by violation of the principles of equality, justice, legality and tax proportionality.
1.14. Since the law intends to tax high-value immovable property (luxury), the reasons that lead the Respondent to apply item 28.1 of the TGIS to fractions valued at much less than €1,000,000.00 (one million euros) are not understood.
C – Position of the Respondent
1.15. The Respondent expresses the view that the interpretation made by the Claimants of item 28.1 of the TGIS does not correspond to its wording, with the contested levies resulting from the direct application of the legal rule in question, resting on objective elements, without any subjective or discretionary assessment.
1.16. The Respondent argues that in properties under the regime of total property there are no autonomous fractions to which tax law can assign the qualification of property.
1.17. The subjection to Stamp Tax of item 28.1 of the TGIS results only from the combination of two facts: residential allocation and the patrimonial value of the urban property registered in the matrix being equal to or greater than €1,000,000.00 (one million euros), which applies to the Property.
1.18. Horizontal property and vertical property are differentiated legal institutions to which different civil-legal regimes correspond; tax law respects this same difference.
D – Clarification and Conclusion of the Report
1.19. By order of 21.02.2017, the arbitral tribunal dispensed with the meeting provided for in art. 18º of the Legal Regime for Arbitration in Tax Matters (hereinafter, "LRATM"), since the parties had already brought to the file the necessary and sufficient factual elements for the rendering of the decision, which was envisaged to take place by 27.03.2017.
1.20. By the same order of 21.02.2017, the arbitral tribunal granted the Claimants' request that the documents referred to in the Request presented by them on 25.11.2016 be attached to the case file, which are the collection documents relating to the second and third instalments of Stamp Tax relating to some units susceptible to independent use of which, at the date of filing the request for arbitral pronouncement, they had not yet been notified.
1.21. The arbitral tribunal is materially competent, pursuant to the provisions of articles 2º, paragraph 1, paragraph a) of the LRATM.
1.22. The parties possess legal personality and capacity and have standing pursuant to art. 4º and paragraph 2 of art. 10º of the LRATM, and art. 1º of Ordinance no. 112-A/2011, of 22 March.
1.23. The joinder of claimants is admissible, pursuant to the provisions of paragraph 1 of art. 3º of the LRATM.
1.24. The cumulation of claims made in the present request for arbitral pronouncement, in deference to the principle of procedural economy, is justified in that the contested levy acts rest on the same factual basis and call for the application of the same rules of law, it being equally acceptable in theory to accept the indemnification claim formulated inasmuch as art. 3º of the LRATM, by expressly admitting the possibility of "cumulation of claims even relating to different acts", accommodates, without hermeneutical abuse, the assessment of a claim that flows, in necessary terms, from the judgment that the arbitral tribunal makes regarding the validity of the levies put in question.
1.25. The case is not affected by any nullity nor have the Parties raised any exceptions that prevent the assessment of the merits of the case, so the conditions are in place for the rendering of the arbitral decision.
2. Factual Matter
2.1. Proven Facts
The following facts are considered proven:
2.1.1. The Claimants are co-owners of the Property (docs. nos. 1 and 2, attached with the request for arbitral pronouncement).
2.1.2. The Property has a total TPV greater than €1,000,000.00 (one million euros) – (docs. nos. 2 to 218, attached with the request for arbitral pronouncement and documents presented with the Claimants' Request of 25.11.2016);
2.1.3. None of the floors or divisions susceptible to independent use allocated to residential purposes has a TPV equal to or greater than €1,000,000.00 (one million euros) (docs. nos. 3 to 218, attached with the request for arbitral pronouncement and documents presented with the Claimants' Request of 25.11.2016);
2.1.4. The Respondent, for purposes of applying item 28.1 of the TGIS to the Property, proceeded to the arithmetic sum of the patrimonial values of each floor or division with residential allocation, excepting, therefore, floors or divisions without such residential allocation, fixing, with respect to the Property, a "Patrimonial Value of the Property – total subject to tax: €2,916,825.00 (two million nine hundred sixteen thousand eight hundred twenty-five euros) – (docs. nos. 3 to 218, attached with the request for arbitral pronouncement and documents presented with the Claimants' Request of 25.11.2016);
2.1.5. The Claimants were notified of the Stamp Tax levies to which docs. nos. 3 to 218 refer, attached with the request for arbitral pronouncement and the documents presented with the Claimants' Request of 25.11.2016; and
2.1.6. The Claimants proceeded to pay all the tax instalments that were demanded of them, in the total amount of €29,168.35 (twenty-nine thousand one hundred sixty-eight euros and thirty-five cents) (docs. nos. 3 to 218, attached with the request for arbitral pronouncement and the documents presented with the Claimants' Request of 25.11.2016).
2.2. Unproven Facts
There are no facts relevant to the assessment of the merits of the case that have been given as unproven.
2.3. Justification for the Determination of the Factual Matter
The facts were considered proven on the basis of the documents attached to the case file by the Parties and the positions assumed by them in the pleadings submitted.
3. Legal Matter
3.1. Questions to be Decided
It follows from what has been stated above that the questions to be assessed are, in essence, two:
a) Whether a property constituted in total or vertical property ownership, but with floors or divisions with independent uses, is a "residential property" for purposes of applying art. 1º of the STC and item 28.1 of the TGIS, added by art. 4º of Law no. 55-A/2012, of 29 October, as amended by Law no. 83-C/2013, of 31 December; and
b) To clarify whether, should the claim for declaration of illegality and consequent annulment of the contested levies be granted, the Claimants, within the scope of the present arbitral proceedings, may obtain the condemnation of the Respondent to pay indemnity interest relating to the amounts delivered by them to satisfy the tax illegally demanded by it.
3.2. Item 28.1 of the TGIS
Law no. 55-A/2012, of 29 October, among several amendments it made to the STC, added, by its art. 4º, item 28 to the TGIS, which, after the amendment introduced by Law no. 83-C/2013, of 31 December, now has the following wording:
"28 - Ownership, usufruct or right of superficies of urban real properties whose patrimonial tax value contained in the matrix, pursuant to the Municipal Real Estate Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the patrimonial tax value used for purposes of IMI:
28.1 - For residential property or for land for construction whose building, authorized or envisaged, is for residential purposes, as provided in the IMI Code - 1%;
28.2 - For property, when the tax subjects who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, as listed in the ordinance approved by the Minister of Finance - 7.5%."
As can be seen, item 28.1 today refers to "residential property" and, before the amendment introduced by Law no. 83-C/2013, of 31 December, referred to "property with residential allocation".
Now, neither of these concepts is defined in any provision of the STC, it being necessary, therefore, to interpret the said item of the TGIS in light of what the CIMI provides, a statute to which art. 67º, paragraph 2 of the STC expressly refers when matters not regulated in the STC are at issue relating to item 28.
Paragraph 1 of art. 6º of the STC divides urban properties into: i) residential; ii) commercial, industrial or for services; iii) land for construction and, finally, iv) others. Paragraph 2 clarifies that residential are buildings or constructions licensed for such purpose or, in the absence of license, that have that purpose as their destination.
It is therefore necessary to assess whether a building in vertical property ownership can be considered a "residential property" for purposes of what is provided in item 28.1 of the TGIS.
3.3. "Vertical Property" and the Application of Item 28.1 of the TGIS
Without prejudice to the interest, not merely dogmatic, of determining the meaning and scope of the concept of "residential property", it is necessary to answer the question of whether, for purposes of applying item 28.1 of the TGIS, the TPV of each floor or division with independent use of a given building can be summed and considered to be allocated to residential use, as the Respondent did with respect to the Property (excepting the parts allocated to a purpose other than residential).
a) The Property Matrix of Properties in Total or Vertical Ownership and the Collection of Municipal Real Estate Tax
It should be clarified from the outset that "each floor or part of property susceptible to independent use is considered separately in the property registration, which also discriminates the respective patrimonial tax value", as can be read in paragraph 3 of art. 12º of the CIMI. Also, the IMI, in properties subject to the regime of total property, gives typical relevance to each floor or part of property susceptible to independent use (art. 119º, paragraph 1 of the CIMI).
That is, it is clear that the legislator, in the CIMI, did not intend to adhere to the rigor of the legal form of the real rights affecting properties, but rather to the use given to them, particularly in cases where a property, from a legal standpoint, is composed of different floors or parts susceptible to independent use.
It can be said, not without reason, that the legislator, for purposes of taxation in the IMI tax, opted to grant autonomy, independence, to each of the parts or each of the floors of a single property, provided that they show independent use, to the point of providing for individualized registration in the matrix of each of these independent parts and imposing on taxation in IMI an also autonomous collection. Despite the legal existence of a single property, it is the legislator itself who not only recommends but imposes the autonomous consideration of each of the independent parts, for purposes of taxation of patrimonial assets.
b) The Application of Item 28.1 of the TGIS to Each of the Independent Parts
If this is the case for the IMI, as has been endeavored to be demonstrated, it cannot fail to be the same for the Stamp Tax, specifically for purposes of applying item 28.1 of the TGIS.
Indeed, this problem, if the tax, IMI or Stamp Tax, were purely proportional, would not exist or would be innocuous, inasmuch as the sum of the parts would necessarily correspond to the whole. However, this is not the case in the instant matter.
As has been seen, the Stamp Tax to which item 28.1 of the TGIS appeals is only due with respect to residential properties and, in these, only to those that present a TPV equal to or greater than €1,000,000.00 (one million euros).
There is no reason, in this context, for the functional, instrumental disregard of the autonomy of each of the parts susceptible to independent use of a property, nor can it be concluded that, for purposes of applying item 28.1 of the TGIS, a unity is required which, being indisputable in terms of real rights, is not so in taxation of real estate property.
We believe that this finding results from the necessary interpretive effort of item 28.1 of the TGIS. Paragraph 1 of art. 11º of the General Tax Law provides that in determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws shall be observed.
Now, paragraph 1 of art. 9º of the Civil Code expressly states that interpretation should not be confined to the letter of the law. The interpreter, starting from the source, should seek to capture the norm, that is, the manifestation of an intended duty to be. It is already clear that the literal expression is relevant. However, the interpreter may well feel the need to gather other hermeneutical elements to identify the norm. For this reason, the legislator opens the door to the possibility of reconstructing from the texts the legislative thought, 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. This legal opening does not authorize an interpretation that does not have in the letter of the law a minimum of verbal correspondence but aims, of course, to free the interpreter-applicator from a reading manifestly ill-suited and, therefore, unjust, especially because, as clarified in paragraph 3 of art. 9º of the Civil Code, the "interpreter will presume that the legislator adopted the most appropriate solutions".
In our view, having regard to the spirit of the law (which we believe is not contradicted by its letter), it is not evident that it is the legislator's intention to apply item 28.1 of the TGIS 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 that of the legal standard.
We know that the regime of properties in horizontal property ownership is not the same as those in vertical property ownership. However, what is at issue is not to note this difference, which is evident in terms of real rights. What matters here, it seems to us, is to determine whether that difference can support a different tax treatment, that is, to ascertain whether to that dissimilarity should be attributed a tax disparity that corresponds to a defensible and acceptable interest. If we do not discern an admissible criterion that allows us to identify the reason for the difference in tax regime between properties in horizontal property ownership and properties in vertical property ownership, we can only explain it on the basis of the arbitrariness of the legislator, which, in light of the rules by which normative interpretation should be guided, seems to us to be summarily rejected.
c) The Ratio Legis of Item 28.1 of the TGIS
What is stated above does not ignore the acknowledged purpose of the proponent of the aforementioned legislative amendment. The interpretation adopted here is in harmony with what appears to have been the unequivocal original intention of the Government, author of the proposal that resulted in this legislative intervention. Nor does it appear that the wording given by Law no. 83-C/2013, of 31 December sought to contradict this understanding.
When presenting and discussing, in Parliament, bill no. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated[1]:
"The Government proposes the creation of a special tax on high-value residential urban properties. It is the first time that in Portugal a special taxation has been created on high-value properties destined for residential purposes. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at equal to or greater than 1 million euros."
Now, the Secretary of State for Tax Affairs presented this bill referring, without hesitation, to the expression "houses valued at equal to or greater than 1 million euros", note.
Thus, despite the unfortunate legislative technique adopted, it emerges with crystal clarity that item 28.1 of the TGIS, even after the amendment introduced by Law no. 83-C/2013, of 31 December, cannot be interpreted to mean that it encompasses each of the floors, divisions or parts susceptible to independent use 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 present, in and of themselves, a TPV equal to or greater than 1 million euros.
d) Conclusion
For the foregoing reasons, it is the understanding of the arbitral tribunal that the levy of Stamp Tax based on item 28.1 of the TGIS is vitiated by illegality with respect to each of the floors or parts susceptible to independent use of the Property, inasmuch as the mentioned item cannot be interpreted to mean that it can be applied to floors or parts susceptible to independent use of a property in total or vertical property ownership, when only from the sum of each of these floors or parts is it possible to obtain a TPV equal to or greater than €1,000,000.00 (one million euros), with the TPV of each of the said floors or parts not exceeding that legal threshold.
3.4. Indemnity Interest
Paragraph b) of paragraph 1 of art. 24º of the LRATM provides that "the arbitral decision on the merits of the claim to which no recourse or challenge lies binds the tax administration from the expiry of the deadline provided for recourse or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the expiry of the deadline provided for voluntary execution of the decisions of tax courts, restore the situation that would have existed if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose".
It is not ignored that the legislative authorization granted to the Government by art. 124º of Law no. 3-B/2010, of 28 April, on the basis of which the LRATM was approved, determines that the tax arbitral process constitutes an alternative procedural means to the judicial challenge process and to an action for recognition of a right or legitimate interest in tax matters. Although paragraphs a) and b) of paragraph 1 of art. 2º of the LRATM founded the competence of arbitral tribunals in "declarations of illegality", it seems reasonable the understanding according to which there are included in its competences the powers that in judicial challenge proceedings are attributed to tax courts, it being certain that in judicial challenge proceedings, in addition to the annulment of tax acts, claims for indemnification may be assessed, including those relating to indemnity interest.
Indeed, the principle of cognoscibility of indemnification claims, in gracious reclamation or in judicial proceedings, is justified whenever the damage that is sought to be remedied results from fact attributable to the Tax and Customs Authority. We find manifestations of this principle in paragraph 1 of art. 43º of the General Tax Law and in art. 61º of the Code of Tax Procedure and Process.
Thus, having the Claimants paid the tax that was demanded of them by the contested levies, they have the right to indemnity interest counted from the date of the respective payment until its full reimbursement.
4. Decision
Pursuant to the foregoing reasons and grounds, the arbitral tribunal decides:
a) That the claim for arbitral pronouncement be granted with the consequent annulment of the contested levies, with all legal consequences, notably the reimbursement to the Claimants of all amounts paid by them, with respect to the levies now annulled;
b) That the claim for the condemnation of the Respondent to pay the Claimants indemnity interest be granted, at the legal rate, being counted from the date of the respective payment until its full reimbursement.
5. Value of the Case
In accordance with the provisions of paragraph 2 of art. 306º of the CPC, art. 97º-A of the CPPT and also paragraph 2 of art. 3º of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of €29,168.35 (twenty-nine thousand one hundred sixty-eight euros and thirty-five cents).
6. Costs
For purposes of the provisions of paragraph 2 of art. 12 and paragraph 4 of art. 22º of the LRATM and paragraph 4 of art. 4º of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,530.00 (one thousand five hundred thirty euros), pursuant to Table I attached to the said Regulation, to be borne entirely by the Respondent.
Lisbon, 13 March 2017
The Arbitrator
_______________________________
(Nuno Pombo)
Text drawn up by computer, pursuant to paragraph 5 of art. 131º of the CPC, applicable by force of paragraph e) of paragraph 1 of article 29º of the LRATM, observing the spelling prior to the said Orthographic Agreement of 1990.
[1] See DAR I Series no. 9/XII-2, of 11 October, p. 32.
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