Stamp Tax on Property (Verba 28.1 TGIS) – Total or Vertical Ownership Challenged at CAAD

ARBITRAL DECISION

1. Report

1.1 A…, hereinafter referred to as the "Claimant", taxpayer no. …, resident at Avenue …, no. …, …, in Lisbon, requested the establishment of a single arbitral tribunal pursuant to the combined provisions of article 2, no. 1, subparagraph a) and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT") and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (AT) is the Respondent.

1.2 The petition for arbitral decision, filed on 21 July 2017, seeks the declaration of illegality and consequent annulment of the stamp duty tax assessments (IS) referenced below, provided for in item 28.1 of the respective General Table of Stamp Duty (TGIS), in the amount of €11,309.70 (eleven thousand, three hundred and nine euros and seventy cents), relating to the year 2015.

1.3 It further seeks the condemnation of the Respondent to reimburse the amounts paid in respect of said assessments, increased by the respective compensatory interest, pursuant to articles 43, no. 1 of the General Tax Law (LGT) and 61 of the Code of Tax Procedure and Process (CPPT), calculated from the date of the unduly paid tax until the date of processing of the respective credit note.

1.4 The Claimant chose not to appoint an arbitrator.

1.5 The petition for constitution of the arbitral tribunal was accepted by the President of the CAAD and notified to the AT on 24 July 2017.

1.6 The undersigned was appointed by the President of the Deontological Council of the CAAD as arbitrator of the single arbitral tribunal, pursuant to the provisions of article 6 of the RJAT, and acceptance of the appointment was communicated within the applicable time limit.

1.7 On 12 September 2017, the Parties were notified of this appointment and did not object to it, pursuant to the combined provisions of article 11, no. 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the CAAD Deontological Code.

1.8 Accordingly, in compliance with the provision of article 11, no. 1, subparagraph c) of the RJAT, the single arbitral tribunal was constituted on 27 September 2017.

1.9 The Respondent was notified, by arbitral order of the same date, pursuant to article 17, no. 1 of the RJAT, to present its answer, if it wished, within the period of 30 days and to request the production of additional evidence.

1.10 It was further notified to present, within the same period, the administrative file (PA) referred to in article 111 of the CPPT.

1.11 On 26 October 2016, the Respondent filed its Reply, defending itself by contestation, arguing for the dismissal of the petition for arbitral decision.

1.12 On the same date it attached to the record the respective administrative file.

1.13 Considering that the Parties did not request the production of any evidence other than the documentary evidence that the Claimant attached to the petition for arbitral decision, the Arbitral Tribunal, in light of the principles of autonomy in the conduct of the proceedings, expediency, simplification and procedural informality, inherent in articles 16 and 29, no. 2 of the RJAT, by order of 26 October 2017, waived the holding of the meeting provided for in article 18 of the same act as well as the presentation of submissions by the Parties, in accordance moreover with what was requested by the AT.

1.14 In the same order it was determined that the arbitral decision would be rendered within ten days.

1.15 The Parties were notified of this order on 27-10-2017.

2. Sanitation

2.1 The Parties have judicial personality and capacity, prove themselves to be legitimate and are regularly represented (articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

2.2 The proceedings do not suffer from any nullities.

2.3 The Arbitral Tribunal is regularly constituted and is materially competent to hear and decide the petition, cf. article 2, no. 1, subparagraph a) of the RJAT.

2.4 There are no other circumstances that prevent the consideration of the merits of the case.

3. Position of the Parties

3.1 Of the Claimant

The Claimant sustains its petition for arbitral decision, in summary, as follows:

It alleges that the stamp duty tax assessments that are the subject of the petition for arbitral decision are illegal due to violation of the rule of incidence of item 28.1 of the TGIS.

It considers that, as the property is held in full (or vertical) ownership, divided into ten floors or divisions capable of independent use, allocated for residential purposes, the AT cannot, as it did, sum the tax property values (VPT) of said floors or divisions, as none of them, on its own, has a VPT equal to or greater than €1,000,000.

And that the rule of incidence, in the interpretation put into practice by the AT, is unconstitutional due to violation of the principle of tax legality, inherent in articles 103, nos. 2 and 3 of the Constitution of the Portuguese Republic and 8 of the LGT.

It concludes, arguing for the allowance of the petition for arbitral decision and consequently for the annulment of the contested assessments with all the consequences provided by law.

3.2 Of the Respondent

Defending itself by contestation, it invokes the following arguments:

That the property is described in the register in the regime of full or vertical ownership, consisting of divisions or floors capable of independent use, this type of ownership and horizontal ownership being differentiated institutions. The constitution of this determines the division of full ownership, without the need for new assessment, and the independence or autonomy of each of the fractions that constitute it, coming to be considered as properties, cf. article 2, no. 4 of the Urban Property Tax Code (CIMI). However, this does not prevent the legislator from being able to subject properties under horizontal and vertical ownership regimes to a distinct, and therefore discriminatory, legal tax framework, benefiting the legally more evolved institute of horizontal ownership, without such discrimination necessarily having to be considered arbitrary.

That the petition for declaration of illegality, and consequent annulment of the contested assessments, should be judged as unfounded, given that it argues that, although the assessment of IS, under the conditions provided for in item 28.1 of the TGIS, is processed in accordance with the rules of the Urban Property Tax Code (CIMI), the truth is that the legislator saves the aspects that require the necessary adaptations.

It understands that such is the case for properties in full ownership, even though with floors or divisions capable of independent use, because, although the IMI (Municipal Property Tax) is assessed in relation to each part capable of independent use, for purposes of IS what is relevant is the property in its entirety.

It concludes, arguing for the total dismissal of the petition for arbitral decision and acquittal of the Respondent, since the contested assessments constitute a correct interpretation and application of law to the facts, suffering from no defect of violation of law.

4. Subject Matter of the Dispute

The question that constitutes the thema decidendum boils down to whether, in a property not subject to the horizontal ownership regime, subjection to stamp duty, pursuant to item 28.1 of the TGIS, is determined by the tax property value (VPT) corresponding to each of the parts of the property that are economically independent and with residential allocation, as the Claimant argues, or whether, on the contrary, it is determined by the global VPT of the property, which would correspond to the sum of all the VPTs of the floors or divisions of independent use and with residential allocation that compose it, as the AT argues.

5. Legal Reasoning

5.1 Proven Facts

With relevance for the assessment and decision of the issue of merit raised, the following facts are taken as established and proven:

5.1.1 The Claimant is the owner of the urban property located at Street …, no. …, parish of … (former …), in Lisbon, described in the respective Land Registry Office of Lisbon under no. …/… and registered in the respective register under article … (previous …), consisting of ten floors or divisions with independent use (full or vertical ownership) intended for residential purposes, cf. docs. nos. 32 and 33 attached to the petition for arbitral decision.

5.1.2 The property is not constituted in the regime of horizontal ownership, provided for in articles 1414 et seq. of the Civil Code.

5.1.3 The tax property value (VPT) of the property, in the global amount of €1,130,970.00, was ascertained separately for the various floors or divisions with independent use, pursuant to the provisions of article 7, no. 2, subparagraph b) of the CIMI.

5.1.4 Separately, the VPT of each floor or division with independent use is less than €1,000,000.00, varying between €112,470.00 and €118,740.00.

5.1.5 The stamp duty tax assessments (item 28.1 of the TGIS) to which the present record relates concern the year 2015 and were made on 05 April 2016, for payment in three instalments during the months of April, July and November 2016, containing the respective collection notes the following identification elements, as per docs. nos. 2 to 31 attached to the petition for arbitral decision.

5.1.6 The first instalment was paid on 29-04-2016; the second on 28-07-2016; and the third on 28-11-2016.

5.1.7 The assessments now contested were the subject of a request for revision, pursuant to article 78, no. 1 of the LGT, subsequently converted into a gracious complaint, as per gracious complaint proceedings no. …2016…, dismissed on its merits by order of the Chief of the Administrative Justice Division of the Finance Directorate of Lisbon, of 18-04-2017, issued pursuant to delegation of powers.

5.1.8 Such order of dismissal was notified to the representative of the Claimant through official letter no. … of the Finance Directorate of Lisbon, of 24-04-2017, received on the 27th of the same month and year, cf. doc. no. 1 attached to the petition for arbitral decision.

5.2 Unproven Facts

There are no facts relevant to the decision of the case that should be considered as unproven.

5.3 Motivation

Regarding the factual matter, the Tribunal has no duty to rule on all the facts alleged, but rather the duty to select those that matter for the decision, taking into account the cause (or causes) of action that grounds the petition filed by the claimant [cf. articles 596, no. 1 and 607, nos. 2 to 4 of the Code of Civil Procedure (CPC), applicable by reference under article 29, no. 1, subparagraphs a) and e) of the RJAT)] and to record whether it considers it proven or unproven (cf. article 123, no. 2 of the CPPT).

According to the principle of free appraisal of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the proceedings and in accordance with its experience of life and knowledge of people (cf. article 607, no. 5 of the CPC). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents, cf. article 371 of the Civil Code) does the principle of free appraisal not prevail in the appraisal of the evidence produced.

Thus, the conviction of the Tribunal was based on the set of documents attached to the record as well as on the positions assumed by the parties.

5.4 Matter of Law (Legal Reasoning)

Questions to be decided:

• The (il)legality of the contested assessments; and
• The request for payment of compensatory interest.

On the (il)legality of the contested assessments -

Law no. 55-A/2012, of 29 October, amended article 1 of the Stamp Duty Code and added to the General Table of Stamp Duty, Item 28, creating a new taxable matter, consisting of the ownership, usufruct or surface right of urban properties whose tax property value shown in the register, pursuant to the Urban Property Tax Code (CIMI), is equal to or exceeding €1,000,000.00.

As the Supreme Administrative Court has repeatedly stated[1], "The concept of 'urban property (with residential allocation)' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the IMI Code, to which no. 2 of article 67 of the Stamp Duty Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is in light of it that the scope of the objective incidence of the new taxation is delimited –, had a short life, as it was abandoned when the Budget Law for 2014 came into force (Law no. 83-C/2013, of 31 December), which gave new wording to said item 28 of the General Table, and which now delimits its scope of objective incidence through the use of concepts that are legally defined in article 6 of the IMI Code.

Nothing unequivocal results from the letter of the law, moreover, as it itself, by using a concept it did not define and which was also not defined in the act to which it referred on a subsidiary basis, lent itself, unnecessarily, to ambiguities, in a matter – of tax incidence – where certainty and legal security should also be paramount concerns of the legislator.

And from its "spirit", apprehensible in the explanatory memorandum of the bill that is at the origin of Law no. 55-A/2012 (Bill no. 96/XII – 2nd, Journal of the Parliament, series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more emerges than the concern of garnering new tax revenues, from sources of wealth "spared" in the past from the fiscal voracity more than labour income, in particular income from capital, securities gains and property, motives which bring no relevant contribution to the clarification of the concept of "urban properties with residential allocation", as they give it as settled, without any concern to clarify it. Such clarification is likely to have emerged – as reported in the Arbitral Decision rendered on 12 December 2013, in proceedings no. 144/2013-T, available in the CAAD database –, when the presentation and discussion in Parliament of that bill occurred, in the words of the Secretary of State for Tax Affairs, who is said to have stated expressly, as gathered from the Journal of Parliament (DAR I Series no. 9/XII – 2, of 11 October, p. 32) that: "The Government proposes the creation of a special rate on high-value residential urban properties. This is the first time in Portugal that a special tax has been created on high-value properties intended for housing. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or exceeding 1 million euros" (our emphasis), from which it may be understood that the reality to be taxed in mind are, after all, and despite the terminological imprecision of the law, "residential urban properties", in current language "houses", and not other realities.

As was stated in the decision rendered in Proceedings no. 724/2014-T of the Administrative Arbitration Center (CAAD)[2], which we follow, "When the CIMI is consulted, it is found that its article 6 only indicates the different types of urban properties, among which it mentions residential properties (…)

From this we can conclude that, in the view 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 to which the property is intended.

We further conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between them. What matters is the material truth underlying its existence as an urban property and its use.

(…) Using the criterion that the law itself introduced in article 67, no. 2 of the Stamp Duty Code, "to matters not regulated in this code relating to item 28 of the General Table the Urban Property Tax Code shall be applied subsidiarily".

That is, taking into account that the registration in the property register of properties in vertical ownership, for purposes of the Urban Property Tax Code, follows the same registration rules as properties constituted in horizontal ownership, the respective IMI as well as the new IS, being assessed individually in relation to each part, it does not appear, to the present tribunal, that there is any doubt that the legal criterion for defining the incidence of the new tax must be the same.

In this context, if the law requires, with respect to the IMI, the issuance of individualized assessment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it will require, in the same terms, with respect to the rule of incidence of Item 28 of the TGIS.

Therefore, the IS, under Item 28 of the TGIS, could only apply to a particular fraction if this, possibly, had a VPT greater than €1,000,000.00.

And, furthermore, that was also the understanding adopted by the ATA (Tax Authority).

Indeed, it (the ATA) also issued individualized assessment notices, relating to each of the fractions capable of autonomous use, demonstrating that, in its opinion, said fractions, despite not being legally constituted in horizontal ownership, would be, for all purposes, independent of each other.

However, the ATA overlooked that it could not, by virtue of the framework previously set out, proceed to sum the individual VPTs of the previously mentioned fractions, seeking a value that would already fall within the base of incidence of Item 28 of the TGIS.

This when the legislator himself established a different rule under the Urban Property Tax Code that, as previously mentioned, is the Code applicable to matters not regulated in the Stamp Duty Code, as regards Item 28 of the TGIS.

In summary, the criterion established by the ATA, of considering the value of the sum of individual VPTs attributed to the parts, floors or divisions with independent use, making use of the fact that the property is not constituted in a regime of horizontal ownership, does not find, in the eyes of the present tribunal, legal support, being, namely, contrary to the criterion applicable under the IMI and, by reference (as mentioned above), under the IS.

In this context, the present tribunal considers that the criterion defended by the ATA violates the principles of legality and fiscal equality, and also that of the prevalence of material truth over legal-formal reality.

In parallel, note that article 12, no. 3 of the Urban Property Tax Code does not make any distinction as to the regime of properties that are in horizontal or vertical ownership. Therefore, since if the property were in a regime of horizontal ownership, none of its residential fractions would be subject to the incidence of the new tax, the ATA cannot treat materially equal situations differently.

In this regard, see what was said on this subject in the arbitral decision rendered in Proceedings no. 132/2013-T, of 16 December, whose understanding the present tribunal adopts.

"Indeed, it makes no sense to distinguish in law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Moreover, to distinguish, in this context, between properties constituted in horizontal and full ownership would be an "innovation" without associated legal support, all the more so because, as has been stated here, nothing suggests, either in item 28 or in the provisions of the CIMI, a justification for that particular differentiation.

Note, by way of example, what article 12, no. 3 of the CIMI states: each floor or part of a property capable of independent use is considered separately in the registration in the property register, which also distinguishes its respective tax property value.

The uniform criterion that is necessary is, therefore, the one that determines that the incidence of the rule in question takes place only when any of the parts, floors or divisions with independent use of a property in horizontal or full ownership with residential allocation, possesses a VPT exceeding €1,000,000.00.

To set as the reference value for the incidence of the new tax the global VPT of the property in question, as the respondent argued, finds no basis in the applicable legislation, which is the CIMI, given the reference made by said article 67, no. 2 of the Stamp Duty Code.

(…) Moreover, admitting the differentiation of treatment could produce results incomprehensible from a legal perspective and contrary to the objectives that the legislator said it had for adding item 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now respondent: a citizen who is the owner of a property constituted in full ownership intended for residence, with the global value of the autonomous units equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, is subject to an annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who owns a property with the exact same characteristics as the previous one but which has been constituted in horizontal ownership, also with the global value of the autonomous fractions equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, will not be subject to taxation pursuant to item 28.

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for taxation purposes, their respective VPTs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 fractions has a VPT less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the global VPT exceeded that value; whereas another citizen with identical 20 fractions distributed across 5, 10 or 20 properties would not be subject to any taxation pursuant to said item 28.

If this line of reasoning makes sense – justifying, therefore, the non-aggregation of VPTs of fractions of properties in horizontal ownership – one does not see a plausible reason why the same should not be applied to autonomous units of properties in full ownership.

Observing now the case under analysis, it is noted that the VPTs of the floors (autonomous units) of the property with residential allocation vary between (…), so that any one of them is less than €1,000,000.00.

From this it is concluded, as a result of what has been stated, that the IS referred to in item 28 of the TGIS cannot apply to them, and therefore the acts of assessment contested by the claimant are illegal".

One last point worth highlighting (not that the prior framework is sufficient to recognize the illegality of the assessment acts carried out by the ATA), is based on the understanding advocated, both by the legislator and by the government itself, when Item 28 was added to the TGIS.

In this regard, let us focus now on the arbitral decision rendered in proceedings no. 48/2013-T, of 9 October, which extensively analyzes the objectives underlying the addition of said item.

"Law no. 55-A/2012, of 29/10, has no preamble whatsoever, hence from it one cannot extract the legislator's intent.

This law of the Parliament originated from bill no. 96/XII (2nd), which, in its explanatory memorandum, refers to the introduction of tax measures inserted in a broader set of measures to combat budget deficit.

In the explanatory memorandum of said bill, it is stated that, "these measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live from the income of their work. In accordance with this objective, this act expands the taxation of capital and property, equitably covering an expanded set of sectors of Portuguese society".

In that explanatory memorandum it is also stated that, besides the increase in taxation of income from capital and securities gains, a rate is created under the stamp duty tax applying to urban residential properties whose tax property value is equal to or exceeding one million euros.

That is, in such explanatory memorandum, neither is it clarified what is meant by urban properties with residential allocation.

In his intervention in Parliament, in the presentation and discussion of said bill, the Secretary of State for Tax Affairs stated as follows:

"The Government has chosen as the priority principle of its tax policy social equity.

This is even more important in times of rigor as a way to ensure the fair distribution of the tax burden.

In the demanding period the country is going through, during which it is obliged to comply with the program of economic and financial assistance, it becomes even more pressing to affirm the principle of equity. It cannot always be the same – wage earners and pensioners – who bear the tax burden.

For the tax system to be fairer it is decisive to promote the expansion of the tax base requiring an increased effort from taxpayers with higher incomes and thereby protecting Portuguese families with lower incomes.

For the tax system to promote more equality it is fundamental that the effort of budget consolidation is distributed among all types of income, covering with special emphasis income from capital and high-value properties. This matter, it should be recalled, was extensively addressed in the Constitutional Court judgment.

Finally, for the tax system to be more equitable, it is crucial that everyone be called upon to contribute according to their contributive capacity, giving the tax administration enhanced powers to control and supervise situations of fraud and tax evasion.

In this sense the Government presents, today, a set of measures that effectively reinforce a fair and equitable distribution of the adjustment effort by an expanded and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties with a value exceeding 1 million euros; the increase in taxation of income from capital and securities gains and the strengthening of the rules to combat fraud and tax evasion.

First, the Government proposes the creation of a special rate on high-value residential urban properties. This is the first time in Portugal that special taxation has been created on high-value properties intended for residence. This rate will be 0.5% to 0.8% in 2012, and 1%, in 2013, and will apply to houses with a value equal to or exceeding 1 million euros. With the creation of this additional rate the tax burden required of these owners will be significantly increased in 2012 and 2013".

Next, it is necessary to gather the conclusions that will allow, without room for doubt, deciding on the subject under discussion (i.e., whether, for purposes of applying Item 28 of the TGIS, in cases where a property with various autonomous fractions, capable of independent use, is not constituted in horizontal ownership, the relevant VPT is ascertained by summing the individual VPTs, or, alternatively, is individually considered).

In this sense, it should be noted, first, that the present subject matter is, from the outset due to article 67, no. 2 of the Stamp Duty Code, subject to the rules of the Urban Property Tax Code, "to matters not regulated in this code relating to item 28 of the General Table the Urban Property Tax Code shall be applied subsidiarily".

As such, and as has been mentioned many times, in the understanding of the present tribunal, the mechanism for determining the relevant VPT for purposes of said item, is that which is established in the Urban Property Tax Code.

Now, article 12, no. 3 of the Urban Property Tax Code establishes that "each floor or part of a property capable of independent use is considered separately in the registration in the property register, which also distinguishes its respective tax property value".

With the legislator disregarding, in the terms previously mentioned, any prior constitution of horizontal or vertical ownership.

Indeed, for this (the legislator), what matters is the material truth underlying its existence as an urban property and its use.

It should be noted that the ATA itself appears to agree with the criterion set out, which is why the assessments it issues are very clear in their essential elements, from which it follows that the incidence value corresponds to the VPT of each of the floors and the assessments are individualized.

Therefore, if the legal criterion imposes the issuance of individualized assessment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax.

Thus, there would only be place for the incidence of IS (under Item 28 of the TGIS) if any of the parts, floors or divisions with independent use presented a VPT exceeding €1,000,000.00.

The ATA cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator himself established a different rule under the Urban Property Tax Code (and, as previously mentioned, this is the code applicable to matters not regulated regarding Item 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, therefore the action of the ATA translates into an arbitrary and illegal discrimination.

Indeed, the ATA cannot distinguish where the legislator himself understood not to do so, at the risk of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in article 103 of the Constitution of the Portuguese Republic, and also the principles of justice, equality and fiscal proportionality.

In the case in hand, the property (properties) in question was (were), at the date relevant to the facts, constituted in full ownership and had […] fractions with independent use, as results from the documents […].

Since none of these fractions have tax property value equal to or exceeding €1,000,000.00, as results from the documents attached to the record, it is concluded by the non-verification of the legal assumption of incidence".

In the same sense, we now transcribe part of the decision rendered in Proceedings no. 512/2014-T, of 20-01-2015, of the Administrative Arbitration Center (CAAD)[3], with which we also agree:

"Before the positions in confrontation, it will be noted first that the AT is right to refer that a property constituted in horizontal ownership is a distinct legal-tax reality from an urban property in "full" or "vertical" ownership.

The rules of interpretation oblige this, which have the text as their starting point, having the function of eliminating any sense that has no support in the letter of the law[4].

Already, because no. 4 of article 2 of the CIMI establishes the legal fiction that each of the autonomous fractions of a property constituted in horizontal ownership constitutes a property, while a part of independent use, of an urban property not constituted in horizontal ownership, remains just that – a part of a property and not a property, as the AT itself recognizes in its submissions, by stating that "horizontal and vertical ownership are differentiated legal institutes".

So much suffices to conclude that, having the legislator fixed distinct tax qualifications for legally differentiated realities (properties and parts of properties), it will not be legitimate that the applicator of the norm, in the name of the "necessary adaptations" to which article 23, no. 7 of the Stamp Duty Code refers, creates a new rule of incidence of that tax, determining the taxation of parts of properties, as it is a matter submitted to the principle of fiscal legality, inherent in article 103, no. 2 of the Constitution of the Portuguese Republic (CRP), according to which the essential elements of taxes – incidence, rate, tax benefits and guarantees of taxpayers – are established by law of Parliament, unless legislative authorization to the Government (article 165, no. 1, subparagraph i) and no. 2 of the CRP).

Now, item 28 of the TGIS, added by article 4 of Law no. 55-A/2012 of 29 October, determined in its original wording, applicable to the case in hand, the objective incidence of stamp duty on urban properties with residential allocation (and not, as the AT understands, on parts of properties), whose tax property value for purposes of IMI is equal to or exceeding €1,000,000.00, by establishing that stamp duty applies to:

"28 — Ownership, usufruct or surface right of urban properties whose tax property value shown in the register, pursuant to the Urban Property Tax Code (CIMI), is equal to or exceeding €1,000,000 — on the tax property value used for IMI purposes:

28.1 — For property with residential allocation — 1%;

28.2 — For property, when the passive subjects who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the ordinance approved by the Minister of Finance — 7.5%."

Also here the literal element of the norm must be the starting point for its interpretation and, "in the absence of other elements that induce the election of the less immediate sense of the text, the interpreter should opt in principle for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely to its legal-technical meaning, in the assumption (not always exact) that the legislator knew how to express his thought with correctness[5]".

In support of the thesis that the VPT relevant for the incidence of Stamp Duty of item 28.1 of the TGIS, is the global VPT of the property not constituted in horizontal ownership, the AT argues that each and every one of its divisions of independent use were "assessed pursuant to art. 12, no. 3, of the C. I. M. I", a norm which, according to the Respondent, corresponds to the "body of art. 232, rule 1, of the Code of Property Contribution and Tax on Agricultural Industry (…), which provided that each dwelling or part of property be taken automatically (sic) for purposes of determination of the collectible income on which the assessment should apply", in which case "the collectible income necessarily had to correspond to the sum of the rent or rental value of each component of the property with economic autonomy".

However, the transposition of the interpretation given under the Code of Property Contribution and Tax on Agricultural Industry (CCPISIA), approved by Decree-Law no. 45 104, of 1 July 1963 and, for the most part, repealed by Decree-Law no. 442-C/88, of 30 November, to the Urban Property Tax Code, in which there is no provision identical to article 232 of the Code first cited, does not appear viable for various reasons, in particular, because the old Property Contribution was configured as a tax on income, real or presumed, as results from its respective preamble, in which it is stated that "As regards urban properties, the principle of taxing whenever possible real income always applied, principle that (…) in this case necessarily had to be restricted to leased properties. (…) As for non-leased properties, (…) only had to maintain taxation on the basis of estimated income (…)", while the Municipal Property Tax is a tax on patrimony.

Indeed, § 1 of article 232 of the CCPISIA provided that "Each new dwelling or part of a property capable of separate lease will be taken autonomously for purposes of determination of the collectible income on which the assessment is to apply," (our emphasis), but such autonomy was only relevant for purposes of entering in the items and respective single assessment, and not for purposes of registration in the property register, which was single for each property not constituted in horizontal ownership, differently from what is currently determined by article 12, no. 3 of the CIMI.

The objective of the autonomy referred to in § 1 of article 232 of the CCPISIA was, as is still the objective of autonomous registration in the property register for each floor or division capable of independent use, the control of the income generated by it, in case of lease; however, that income is now taxed under Personal Income Tax (category F).

As regards the determination of the value of properties not constituted in horizontal ownership, article 7, no. 2 of the CIMI applies, but only for "urban properties with parts that can be classified in more than one of the classifications of no. 1 of the preceding article", in which case, in accordance with its subparagraph b) "(…) each part is assessed by application of the corresponding rules, and the value of the property is the sum of the values of its parts".

Pursuant to no. 1 of article 6 of the CIMI, urban properties are divided into a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others.

From the combination of the provisions of no. 2 of article 7 and no. 1 of article 6, both of the CIMI, it follows that, if an urban property not constituted in horizontal ownership, consists exclusively of parts or divisions of residential allocation (which is not the case of the instant matter, as the Claimant argues, although the value taken into account in the assessments made by the AT was the sum of the VPT of the divisions intended for residence), the value of the property does not equal the sum of its parts.

The same as saying that each of the parts is autonomous and that, regardless of the VPT that has been attributed to it, is excluded from the incidence of the stamp duty provided for in item 28 of the TGIS.

Having reached this point, it is appropriate to question the subjection to stamp duty of item 28 of the TGIS, of a part or division of independent use, with residential allocation, of a property not constituted in horizontal ownership, in which parts or divisions of independent use are integrated, classifiable in another of the classifications of no. 1 of article 6 of the CIMI, for example, divisions intended for commerce, industry or services, as is the case in hand, in which, of the 21 floors/divisions of independent use, only 16 are intended for residence.

Now, the answer must be negative, notwithstanding the provision of subparagraph b) of no. 2 of article 7 of the CIMI, according to which the value of the property is the sum of the values of its parts or divisions of independent use, classifiable in more than one of the classifications of no. 1 of article 6 of the same Code.

That is here, note well, one is not comparing two legally distinct realities, as are the parts or divisions of independent use of an urban property not constituted in horizontal ownership with the autonomous fractions of properties submitted to that regime, which, for purposes of IMI, are themselves properties.

Here, what is in confrontation are realities in every way identical, that is, parts or divisions of independent use and residential allocation, integrated in urban properties not constituted in horizontal ownership.

And the answer to the question must be negative, as nothing would justify that the legislator intended to tax parts or divisions of independent use and residential allocation of an urban property not constituted in horizontal ownership, integrated by other parts or divisions of independent use intended for other purposes and did not tax parts or divisions of independent use and residential allocation of an urban property not constituted in horizontal ownership, integrated exclusively by parts or divisions of independent use, intended for residence. If the legislator intended to treat unequally realities in every way identical, one would then have to conclude by a flagrant violation of the principle of equality.

Not appearing to be such the legislative intent, one cannot accept that the AT formulates a rule of incidence ex novo, distinct from that which was created by the legislator, intending to tax parts of properties, even though economically and functionally independent and, as such, separately registered in the property register, which also distinguishes their respective tax property value (cf. no. 3 of article 12 of the CIMI), as the law is clear in subjecting to stamp duty of item 28.1 of the TGIS, urban properties with residential allocation, whose VPT for purposes of IMI is exceeding €1,000,000.00.

Different would be the case of a part or division of independent use and residential allocation, inserted in an urban property not constituted in horizontal ownership, but with a VPT, for purposes of IMI, equal to or exceeding €1,000,000.00, taking into account the ratio legis of the rule of incidence.

Indeed, as the Claimant refers in its submissions and has already served as the basis for other arbitral decisions, namely the one rendered in proceedings no. 50/2013-T, "The ratio legis underlying the rule of item 28 of the TGIS, introduced by Law no. 55-A/2012 of 29 October, in obedience to article 9 of the Civil Code, according to which the interpretation of the legal norm should not be limited to the letter of the law, but reconstitute from the texts and other elements of interpretation the legislative thought, taking into account the unity of the legal system, the circumstances in which it was elaborated and the specific conditions of the time in which it is applied.

The legislator in introducing this legislative innovation considered as the determining element of contributive capacity urban properties, with residential allocation, of high value, more precisely, of value equal to or exceeding €1,000,000.00, on which it then imposed a special stamp duty rate, intending to introduce a principle of taxation on the wealth expressed in the ownership, usufruct or surface right of urban properties of luxury with residential allocation. The criterion was the application of the new rate to urban properties with residential allocation, whose VPT is equal to or exceeding €1,000,000.00.

This logic seems to make sense when applied to "residence", whether it is a "house", "autonomous fraction" or "part of property with independent use" or "autonomous unit", because it presumes a contributive capacity above average and, to that extent, justifies the need for realization of an additional contributive effort, it would make little sense to then disregard the assessments "unit by unit" when only through the sum of the VPTs of the same, because held by the same individual, would one exceed one million euros.

This is concluded from the analysis of the discussion of Bill no. 96/XII in Parliament, available for consultation in the Journal of Parliament, I series, no. 9/XII/2, of 11 October 2012."

We thus have that, beyond the grammatical element of the interpretation of the rule of incidence contained in item 28.1 of the TGIS, also its rational or teleological element, the ratio legis or purpose pursued by the legislator in drawing up that norm, points in the direction of taxation falling on urban properties of high VPT and not on parts of urban properties, even though of independent use, with VPT of value less than legally determined".

On this matter there is extensive arbitral jurisprudence in the sense argued by the Claimant, which is believed to be settled and uniform[6], only in a different sense in Proceedings no. 743/2015, of 08-04-2016, whose decision was subsequently annulled by the judgment uniformizing jurisprudence of the STA, of 29-03-2017 (Proceedings no. 0593/16), thus summarized:

"I - Item 28 of the General Table of Stamp Duty (TGIS) added by art. 4 of Law no. 55-A/2012, of 29/10, does not apply to urban properties, with one register article but constituted by parts with allocation and independent use to which independent VPTs were attributed, each of these of value less than one million euros.

II - Item 28 of the General Table not having made any distinction between properties in horizontal and full/vertical ownership regimes and referring to the tax property value used for purposes of IMI, it will not be incumbent on its applicator to introduce any distinction, all the more so because it is a rule of incidence.

III - If it was the legislator's intention to tax properties which having a single register article, because they are constituted by parts capable of independent use have assigned various tax property values, and intended that for purposes of taxation under stamp duty, in this case, the sum of these various tax property values was taken into account, it would not have added the final part of the provision: on the tax property value used for purposes of IMI.

IV - Nothing in the law imposing the consideration of any sum of all or part of the VPTs assigned to the various parts of a property with a single register article, also shows itself not in conformity with the law to make such arithmetic operation only for purposes of the taxation provided for in item 28 of the General Table of Stamp Duty".

As for the jurisprudence of the STA, this higher tribunal, called for the first time to rule on the same question, decided in the sense to which we incline, cf. judgment of 09-09-2015, rendered in Proceedings no. 047/15, thus summarized:

"I - With respect to properties in vertical ownership, for purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), subjection is determined by the combination of two factors: residential allocation and the VPT shown in the register equal to or exceeding €1,000,000.

II - In the case of a property constituted in vertical ownership, the incidence of IS should be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors capable of independent use (individualized in the register article), but by the VPT assigned to each of those floors or divisions intended for residence".

In the same sense extensive and settled jurisprudence of the Supreme Administrative Court can be seen[7].

In light of the foregoing, considering that none of the floors or divisions capable of independent use here in question and on which the assessments that are the subject of the present petition for arbitral decision fell, individually reach the value of €1,000,000.00, the alleged defect of violation of law due to error over the assumptions of law is considered verified, which determines the declaration of illegality and consequent annulment of the assessments made.

Thus, knowledge of the questions relating to the violation of the principles of fiscal legality and equality as well as the prevalence of material truth over legal-formal reality, is rendered unnecessary, since item 28.1 of the TGIS does not bear the interpretation that was given to it, in the case, by the Respondent, upon issuing the assessments that are the subject of the present petition for arbitral decision.

On the request for payment of compensatory interest –

The Claimant also requests that it be paid compensatory interest, for error of the services, pursuant to article 43, no. 1 of the LGT, having proved the payment of the assessed amount.

This provision, applicable subsidiarily to tax arbitral proceedings, by virtue of the provision of article 29, no. 1, subparagraph a) of the RJAT, refers "Compensatory interest is due when it is determined, in gracious complaint or judicial contestation, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due."

The existence of error attributable to the services is considered verified, according to settled jurisprudence of the STA[8], whenever there is verification of the allowance of the gracious complaint or judicial contestation of the assessment act (in the same sense, the decision in arbitral proceedings no. 218/2013-T).

Having demonstrated the wrong application of the rule of objective incidence contained in item 28.1 of the TGIS, which justifies the annulment of the contested assessments, the right of the Claimant to compensatory interest at the legal supplementary rate is recognized, pursuant to articles 43, nos. 1 and 4, and 35, no. 10 of the LGT, article 559, no. 1 of the Civil Code and Ordinance no. 291/2003, of 8 April, from the date of effective payment of each of the instalments in which the assessed amount was divided, until the date of processing of the respective credit note, in accordance with the provision of no. 5 of article 61 of the CPPT.

6. Decision

In light of the foregoing, it is decided:

a) To judge completely well-founded the petition for declaration of illegality of the stamp duty assessments of the year 2015, relating to item 28.1 of the TGIS, made on 05 April 2016, in the amount of €11,309.70, for defect of violation of law due to error over the assumptions of law and to annul the contested assessments, with the due legal consequences;

b) To judge well-founded the petition for annulment of the order of the Chief of the Administrative Justice Division of the Finance Directorate of Lisbon, of 18-04-2017, issued in gracious complaint proceedings no. …2016…, pursuant to delegation of powers; and

c) To judge well-founded the petition for condemnation of the Tax and Customs Authority to reimburse the amounts unduly paid by the Claimant, increased by interest, at the legal rate, from the date of payments until the date of processing of the respective credit notes.

7. Value of the Case

In accordance with the provisions of articles 306, no. 2 of the Code of Civil Procedure, 97-A, no. 1, subparagraph a) of the CPPT and 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT), the value of the case is set at €11,309.70.

8. Costs

Pursuant to article 22, no. 4 of the RJAT, the amount of costs is set at €918.00, pursuant to Table I, attached to the RCPAT, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 31 October 2017.

The Arbitrator,

(Rui Ferreira Rodrigues)

Text drawn up by computer, pursuant to the provision of article 131, no. 5 of the Code of Civil Procedure, applicable by reference under article 29, no. 1, subparagraph e) of the RJAT.

[1] Judgment of the STA of 09-04-2014 - Proc. 01870/13 (available at http://www.dgsi.pt/)

[2] Available at https://caad.org.pt/tributario/decisoes/

[3] Available at https://caad.org.pt/tributario/decisoes/

[4] MACHADO, J. Baptista, "Introduction to Law and Legitimate Discourse", Almedina, Coimbra, 1995, pp. 182 to 185.

[5] Ibid., p. 16

[6] Namely, and among many others, CAAD Proceedings with the nos. 164/2017, of 21-09-2017; 147/2017, of 14-07-2017; 123/2017, of 24-07-2017; 93/2017, of 26-06-2017; 82/2017, of 17-07-2017; 77/2017, of 08-09-2017; 712/2016, of 16-06-2017; 708/2016, of 31-05-2017; 697/2016, of 06-04-2017; 660/2016, of 20-04-2017; 453/2016, of 07-02-2017; 356/2016, of 04-11-2016; 355/2016, of 08-11-2016; 339/2016, of 03-11-2016; 327/2016, of 12-10-2016; 301/2016, of 15-11-2016; 298/2016, of 10-09-2016; 279/2016, of 15-11-2016; 257/2016, of 31-10-2016; 246/2016, of 02-11-2016; 214/2016, of 01-10-2016; 213/2016, of 07-11-2016; 211/2016, of 05-09-2016; 207/2016, of 06-10-2016; 203/2016, of 03-10-2016; 134/2016, of 20-10-2016; 115/2016, of 10-10-2016; 105/2016, of 01-07-2016; 104/2016, of 07-07-2016; 101/2016, of 21-09-2016; 86/2016, of 31-10-2016; 79/2016, of 25-10-2016; 20/2016, of 01-06-2016; 12/2016, of 27-06-2016; 10/2016, of 11-05-2016; 778/2015, of 31-10-2016; 366/2015, of 08-02-2016; 311/2015, of 30-10-2015; 236/2015, of 15-10-2015; 110/2015, of 27-08-2015; 104/2015, of 23-10-2015; 102/2015, of 23-06-2015; 713/2014, of 05-06-2015; 705/2014, of 30-03-2015; 638/2014, of 15-04-2015; 512/2014, of 30-01-2015; 385/2014, of 15-05-2015; 291/2013, of 14-07-2014; 183/2013, of 19-03-2014; 181/2013, of 10-02-2014; 132/2013, of 19-04-2016; and 50/2013, of 29-10-2013.

[7] Among others, the Judgments of the STA of 18-10-2017 (Proc. 0826/17); 27-09-2017 (Proc. 0820/17); 29-03-2017 (Proc. 593/16); 15-03-2017 (Proc. 0119/15); 15-02-2017 (Proc. 01219/16); 15-02-2017 (Proc. 01425/14); 01-02-2017 (Proc. 01069/16); 01-02-2017 (Proc. 0711/16); 30-11-2016 (Proc. 01097/16); 29-09-2016 (Proc. 0560/16); 29-06-2016 (Proc. 498/16); 29-06-2016 (Proc. 0408/15); 24-05-2016 (Proc. 01352/15); 24-05-2016 (Proc. 01344/15); 04-05-2016 (Proc. 0172/16); 04-05-2016 (Proc. 0166/16); 04-05-2016 (Proc. 01504/15); 27-04-2016 (P.01534/15); 02-03-2016 (Proc. 01354/16); and 09-09-2015 (Proc. 047/15).

[8] Judgments of the STA of 22-05-2002, Proc. no. 457/02; of 31.10.2001, Proc. no. 26167; of 2.12.2009, Proc. no. 0892/09