Stamp Tax Verba 28.1 TGIS: Urban Property in Vertical Ownership with Independent Units – CAAD 439/2016-T

ARBITRAL DECISION

I. REPORT

1. On 26 July 2016, A…, as executor of the estate of B…, NIF…, resident at Avenue …, no. …, …, Lisbon (hereinafter, Claimant), filed a petition for establishment of an arbitral tribunal, under the combined provisions of articles 2(1)(a) and 10(1)(a) and (2) of Decree-Law no. 10/2011 of 20 January, which approved the Legal Framework for Tax Arbitration, as amended by article 228 of Law no. 66-B/2012 of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality and annulment of Stamp Duty assessments [item 28.1 of the General Table of Stamp Duty (hereinafter, TGIS)] relating to the year 2015 and concerning an urban property, in full ownership with apartments or divisions susceptible to independent use, registered under article … in the urban property register of the parish …, municipality and district of Lisbon, included in the undivided estate of B….

The Claimant attached 4 (four) documents and listed one witness, without requesting the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. In essence and in brief summary, the Claimant alleged the following:

• The aforesaid Stamp Duty assessments concern the urban property located at Avenue …, no.…, parish …, Lisbon, registered in the respective urban property register under article … and relate to the tax period of the year 2014;

• These assessments were issued with date 20 March 2015 and the deadline for payment of the 1st instalment falls at the end of April 2015 and of the 2nd instalment at the end of July 2015;

• In view of the provisions of article 103(3) of the Constitution of the Portuguese Republic, there is manifest absence of one of the legal requirements of the taxable event in the assessments in question, rendering them null, which is expressly invoked;

• Subsidiarily, those Stamp Duty assessments are deficient both as to the factual requirements and as to the tax rate applicable to the tax in question;

• The property in question is in full ownership and contains 12 parts, apartments or divisions with independent use, of which a large part (but not all) is intended for housing, and none of the apartments intended for housing has a tax value equal to or exceeding €1,000,000.00, whereby it must be concluded that the legal requirement for the application of Stamp Duty provided in item 28.1 of the TGIS is not met, rendering illegal, therefore, the assessment acts challenged;

• If the law requires the issuance of individual assessments for the autonomous parts of properties either in full or condominium ownership, the criterion for the application of the tax under item 28.1 of the TGIS must be the same, and this rule only applies if any of the parts, divisions or apartments with independent use has a tax value equal to or exceeding €1,000,000.00, which does not occur in the present case;

• The AT cannot consider the total value of the property for the application of this tax, as it would constitute manifest illegality and unconstitutionality to consider in the calculation of the value the sum of the tax values attributed to each apartment or independent division;

• The AT cannot distinguish between two situations (condominium and full ownership) where the legislator itself did not, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided in article 103(2) of the Constitution and also the principles of justice, equality (articles 13 and 104(3) of the Constitution) and tax proportionality;

• Although each autonomous unit in condominium ownership is considered a property, it is no less true that nothing in the law makes discrimination between properties in condominium ownership and properties in full ownership;

• Mere conversion to condominium ownership of a certain property cannot distinguish the subordination of its owner, usufructuary or superficiary to the application of the tax under item 28.1 of the TGIS;

• Item 28 of the TGIS, by opening the possibility of taxing in a differentiated manner the ownership of real property of equal value held by different persons based on criteria that may conflict, without the slightest justification, with, in particular, the principle of ability to pay, cannot fail to be considered unconstitutional, by violation of the principle of equality;

• The Claimant has paid the total amount of tax relating to the first instalments of the Stamp Duty assessments challenged, whereby it requests the respective reimbursement, plus indemnity interest, from the dates of payment until effective return.

The Claimant concludes its initial pleadings by requesting the following:

"Wherefore, in light of the grounds set out, it is requested of Your Excellency that the further legal procedures be followed so that finally:

a) the nullity of the tax acts which constitute its object, relating to the Stamp Duty assessment on item 28.1 of the General Table, for the year 2015, be declared;

b) as well as all assessments that the AT may issue reported to the present year for the property of the case and also within the same assumptions and application of the same law for subsequent years;

Or, should it not be understood thus, subsidiarily,

c) the annulment of the tax acts which constitute its object, relating to the Stamp Duty assessment on item 28.1 of the General Table, for the year 2015, with the other legal consequences;

In any case,

d) The sums paid by the claimant relating to the assessments made with respect to each one of the apartments or part of independent use in the total amount to date of 17,331.648 € be returned;

e) The Tax Administration be ordered to compensate the Claimant for the interest on such sums paid by the claimant relating to the 1st and 2nd instalments already paid or to be paid, at the legal rate and until effective return and all costs which in this proceeding it had to bear."

1. The petition for establishment of an arbitral tribunal was accepted and automatically notified to the AT on 19 August 2016.

2. The Claimant failed to nominate an arbitrator, whereby, under the provisions of article 6(1) and article 11(1)(a) of the RJAT, the President of the Deontological Council of the CAAD designated the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the appointment within the applicable time limit.

3. On 3 October 2016, the parties were duly notified of this designation and did not manifest the intention to refuse the arbitrator's designation, in accordance with articles 11(1)(b) and (c) of the RJAT and articles 6 and 7 of the CAAD Deontological Code.

4. Thus, in accordance with the provisions of article 11(1)(c) of the RJAT, the sole arbitral tribunal was constituted on 19 October 2016.

5. On 17 November 2016, the Respondent, duly notified for this purpose, filed its Response in which it specifically challenged the arguments put forward by the Claimant and concluded for the rejection of the present action, with its consequent dismissal of the claim.

The Respondent attached no documents and did not request the production of any other evidence.

On the same occasion, the Respondent attached to the file the respective administrative file (hereinafter, abbreviated as PA).

6.1. In essence and also in brief form, it is important to extract the most relevant arguments on which the Respondent based its Response:

• What is at issue here are assessments that result from the direct application of the legal rule, which translates into objective elements, without any subjective or discretionary assessment;

• The concept of property is defined in article 2(1) of the CIMI, and it is provided in its (4) that, under the condominium ownership regime, each autonomous unit is considered as constituting a property, whereby from the analysis of the normative provision it follows that a "property in full ownership with apartments or divisions susceptible to independent use" is, unequivocally, different from a property under the condominium ownership regime, consisting of autonomous units, that is, various properties;

• As regards the IMI assessment, where properties are in full ownership, the tax value that serves as the basis for its calculation will indisputably be the tax value that the Claimant defines as "global value of the property";

• Since the assessment is correct and the tax calculated is due, indemnity interest is not owed, firstly because there is no error attributable to the Services, which merely acted, as they should, in strict compliance with the legal rules;

• The thesis defended by the Claimant lacks legal support, for although the assessment of Stamp Duty, in the situations provided in item no. 28.1 of the TGIS, is processed in accordance with the rules of the CIMI, the truth is that the legislator reserves the aspects that require the necessary adaptations, namely those in which, as is the case with properties in full ownership, even though with apartments or divisions susceptible to independent use (although IMI is assessed with respect to each part susceptible to independent use) for purposes of Stamp Duty the property in its entirety is relevant since the divisions susceptible to independent use are not considered as property, but only the autonomous units under the condominium ownership regime, as provided in article 2(4) of the CIMI;

• The defect of breach of law due to error as to the legal requirements should be judged as unfounded, maintaining in the legal order the assessments challenged because they constitute a correct application of the law to the facts;

• The taxation for Stamp Duty purposes, here at issue, does not constitute any breach of the constitutional principle of tax equality and complies with the criterion of suitability, being applicable indistinctly to all holders of properties with residential use equal to or exceeding €1,000,000.00;

• Thus, the tax acts challenged did not violate any legal or constitutional principle, whereby they must be maintained;

• The error supporting the right to indemnity interest is not any defect or illegality but that which is concretized in defective assessment of relevant factuality or in erroneous application of the legal rules;

• Since, at the date of the facts, the AT made the application of the law in the terms to which as an executive body it is constitutionally bound, one cannot speak of error by the services under the provisions of article 43 of the LGT.

The Respondent concludes its pleadings as follows:

"In terms of the above and in other respects of Law which Your Excellency will duly supply, the present petition for arbitral decision should be judged as unfounded, given the legality of the assessment notices and assessments, absolving the Respondent entity of the claim."

1. On 23 November 2016, the Claimant, duly notified for this purpose, came to attach to the file the urban property register relating to the property in question, waiving the hearing of the witness it listed, the holding of the meeting referred to in article 18 of the RJAT and the presentation of submissions.

2. On 23 November 2016, taking into account the convergent positions adopted by the Parties in this respect, an order was issued waiving the holding of the meeting referred to in article 18 of the RJAT, as well as the presentation of any submissions and fixing 21 December 2016 as the time limit for the delivery of the arbitral decision.

II. PRELIMINARY EXAMINATION

The Arbitral Tribunal was duly constituted and is competent.

The proceedings do not suffer from any defects.

The parties have legal personality and capacity, are duly represented and are legitimate.

The cumulation of claims is admitted – various Stamp Duty assessment acts are at issue, and the declaration of illegality and annulment of each of them is requested – in view of the fact that the success of the claims formulated by the Claimant essentially depends on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law (cf. article 3(1) of the RJAT).

There are no other exceptions or preliminary questions that prevent knowledge of the merits and which it is necessary to address.

III. GROUNDS

III.1. FACTUAL GROUNDS

§1. FACTS ESTABLISHED

The following facts are considered established:

a) The undivided estate of B…, of which the Claimant is executor, includes the urban property, in full ownership with apartments or divisions susceptible to independent use, located at Avenue …, no.…, parish …, municipality and district of Lisbon, registered in the respective property register under article …. [cf. urban property register attached to the Claimant's petition, presented on 23.11.2016]

b) In that same year, the said urban property was thus described in the respective property register [cf. urban property register attached to the Claimant's petition, presented on 23.11.2016]:

"Type of Property: Property in Full Ownership with Apartments or Divisions Susceptible to Independent Use

Number of storeys of the article: 7

Number of apartments or divisions with independent use: 14

Total tax value: €1,799,126.98"

c) The apartments or divisions susceptible to independent use which are part of that same urban property have their own tax value, determined in accordance with the Code of Municipal Property Tax, and the apartments or divisions with independent use dedicated to housing were assigned, in 2015, the following individual tax values [cf. urban property register attached to the Claimant's petition, presented on 23.11.2016]:

d) In addition to those listed in the previous established fact, the said urban property also consists of the following apartments or divisions with independent use, whose tax values were also determined in the year 2015 [cf. urban property register attached to the Claimant's petition, presented on 23.11.2016]:

e) On 5 April 2016, the AT assessed Stamp Duty, relating to the year 2015 and concerning the apartments or divisions with independent use, dedicated to housing, listed in established fact c) [cf. documents attached to the petition for establishment of an arbitral tribunal]

f) The Stamp Duty assessments referred to in the previous established fact resulted from the application of item 28.1 of the TGIS to each and every one of the apartments or divisions with independent use, dedicated to housing, listed in established fact c). [cf. documents attached to the petition for establishment of an arbitral tribunal]

g) Following the Stamp Duty assessments referred to in established fact e), the following individual assessment notices were issued in the name of the Claimant [cf. documents attached to the petition for establishment of an arbitral tribunal and PA attached to the file]:

h) The Claimant voluntarily paid the amounts relating to the individual assessment notices, concerning the 1st and 2nd instalments of Stamp Duty, listed in the previous established fact. [cf. documents attached to the petition for establishment of an arbitral tribunal and PA attached to the file]

i) On 26 July 2016, the Claimant filed the petition for establishment of an arbitral tribunal that gave rise to the present proceedings. [cf. procedural management computer system of the CAAD]

§2. UNESTABLISHED FACTS

With relevance to the assessment and decision of the case, there are no facts that were not established.

§3. REASONING ON THE FACTUAL MATTER

The Tribunal's conviction was based on the facts presented by the Parties, whose correspondence to reality was not questioned, on the documents and on the administrative file attached to the proceedings.

III.2. LEGAL GROUNDS

In terms of the legal-tax grounds for the petition for arbitral decision, the Claimant begins by alleging that, in view of the provisions of article 103(3) of the Constitution of the Portuguese Republic, at the end – that is, no one can be obliged to pay taxes "whose assessment and collection are not made in accordance with the law" – there is "manifest absence of one of the legal requirements of the taxable event in the assessments in question, rendering them null".

Further on, the Claimant raises the question of the unconstitutionality of item 28.1 of the TGIS, by violation of the principle of equality and, in that sequence, reaffirms that the "assessments in question are therefore deficient, suffering from nullity".

First and foremost, it is important to clarify that the tax act always has at its base a concrete factual situation, which is provided for in the abstract and typically in the tax law as generating the right to the tax. It is precisely this factual and concrete situation that is defined as the taxable event, which only exists when all the legal requirements provided for such are met. The tax rules that contemplate the taxable event are those relating to real scope, which define its objective elements. Since the tax obligation arises only with the practice of the taxable event, the existence of the taxable event therefore constitutes a sine qua non condition for the determination of the tax base and of the assessment made.

That said.

If we correctly interpret the Claimant's allegation in the sense of the verification of the invoked nullity, it appears to us that it is based, primarily, on an alleged breach of the principle of tax legality by the AT, for having assessed and collected tax – in this case, Stamp Duty – without the adequate and necessary legal basis.

The illegal assessment of any tax entails an offense to the right of property, which is one of the fundamental rights (cf. article 62 of the Constitution). Now, in accordance with the provisions of article 161(2)(d) of the Code of Administrative Procedure, applicable ex vi article 29(1)(d) of the RJAT, null are acts that offend the essential content of a fundamental right.

However, as the Supreme Administrative Court has decided, in various judgments, only acts that offend the essential content of a fundamental right are null, and such acts are those that conflict with the rights, freedoms and guarantees of citizens – intending to protect, with the cited rule of the Code of Administrative Procedure, the so-called hard core originary and traditional nucleus of fundamental rights most immediately or directly implied by human dignity – but not those that conflict with the principle of legality which, therefore, are voidable and not null (in this sense, among others, the judgment of 19 May 2004, handed down in case no. 0514/04, and the judgment of 23 November 2005, handed down in case no. 612/05).

On the other hand, also as regards the principle of equality, the Supreme Administrative Court has decided that its mere breach generates voidability of the administrative act and not nullity, since one can only speak of a fundamental right and the consequent possibility of offense to its essential content, in cases where one is faced with discriminatory treatment based on one of the categories that article 13(2) of the Constitution expressly refers to as factors of constitutionally illegitimate discrimination, or other subjective categories constitutionally enumerated as "special equality rights" (in this sense, the judgment delivered on 8 March 2001, in case no. 046459).

Therefore, turning to the present case, the nullity alleged by the Claimant against the disputed Stamp Duty assessments is not verified, and is therefore judged as unfounded.

That being said.

The essential question to be resolved on the merits of the dispute concerns determining whether, for purposes of the application of item 28.1 of the TGIS, in cases of a property in full ownership with apartments or divisions susceptible to independent use, one should attend to the total value of the property resulting from the sum of the tax values of the various apartments or divisions with residential use, or whether instead one should give relevance to the tax value of each apartment or division with residential use.

In addition to the defect of breach of law, the Claimant also raises the question of the unconstitutionality of item 28.1 of the TGIS, by violation of the principles of legality and equality. However, we will only address this question – from the perspective of possible voidability of the disputed tax acts – if and insofar as it is determined that the situation sub judice is subsumed under item 28.1 of the TGIS, for if this is not the case, the assessment of the unconstitutionality of the rule will assume no relevance for the resolution of this dispute.

§1. ON THE INTERPRETATION AND DELIMITATION OF THE OBJECTIVE SCOPE OF APPLICATION OF ITEM 28.1 OF THE TGIS

At the epicenter of the disagreement that opposes the Parties in this proceeding is the tax scope rule contained in item 28.1 of the TGIS, whereby it is naturally imperative to begin by proceeding to the interpretation of this rule, with a view to ascertaining its purpose and, thereby, delimiting what is its field of application.

Law no. 55-A/2012 of 29 October introduced various amendments to the Stamp Duty Code and added to the TGIS item 28 (cf. article 4), with the following wording:

"28 — Ownership, usufruct or right of superficies of urban properties whose tax value stated 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 value used for IMI purposes:

28.1 — For property with residential use — 1%;

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

Subsequently, Law no. 83-C/2013 of 31 December (State Budget Law 2014) amended the wording of item 28.1 of the TGIS (cf. article 194), having it taken the following form [applicable ratione temporis to the situation sub judice]:

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

The interpretation of the tax scope rule contained in item 28.1 of the TGIS cannot fail to be carried out on the basis of the hermeneutic guidelines that derive from article 11 of the General Tax Code and article 9 of the Civil Code, rules which provide as follows:

"Article 11 [General Tax Code]

Interpretation

1. In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

2. Whenever, in tax rules, terms specific to other branches of law are used, these should be interpreted in the same sense as they have there, unless otherwise directly provided by law.

3. Should doubts persist regarding the meaning of the scope rules to be applied, account should be taken of the economic substance of the tax facts.

4. Gaps resulting from tax rules covered by the legislative reserve of the National Assembly cannot be filled by analogical interpretation."

"Article 9 [Civil Code]

Interpretation of law

1. Interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, taking above all into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied.

2. However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and was able to express his intent in adequate terms."

On the subject of this interpretive task, with respect, we appropriate here the following considerations set forth in the arbitral decision handed down in case no. 53/2013-T of the CAAD:

"The relevance of the text of the law is particularly emphasized in the matter of interpretation of Stamp Duty scope rules, which amount to an amalgam, under a common denomination, of an incongruous collection of taxes of completely distinct natures (on income, on expenditure, on property, on acts, etc.), which leaves no appreciable margin for application of the primary interpretive criterion, which is the unity of the legal system, which requires its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item no. 28.1, hastily included on the margins of the State Budget, by a tax legislator without perceptible overall tax guidance, who goes successively implementing tax increasing rules as the reverses of budget execution, the impositions of international institutional creditors (represented by the 'troika') and the oversight of the Constitutional Court.

In fact, although in the 'Statement of Reasons' of the Bill no. 96/XII/2nd, on which Law no. 55-A/2012 was based, reference is made to the laudable concern of the Government to 'reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment program' and its commitment 'to ensure that the distribution of these sacrifices will be made by all and not only by those living from the income of their work', it is manifest, on the one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the State Budget came into force and, on the other hand, that the scope of item no. 28.1, by additionally taxing properties with residential use and not also properties that do not have it, lets it be seen that the concerns of social equity and the proclaimed intention of distribution of sacrifices by all, reaches much more some than actually all.

In this context, there being no certain interpretive elements that allow detecting legislative coherence in the solution adopted in the said item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretive purposes in light of article 9(3) of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same article 9(3), that the legislator was able to express his intent in adequate terms."

That said. Having analyzed the wording – both the original and the current – of item 28.1 of the TGIS, we find that this rule has a fundamentally referential character, as its relevant regulatory content depends on the normative content provided in the Code of Municipal Property Tax.

In fact, both as to the objective scope, with the reference to "urban properties" and to the "tax value stated in the register, in accordance with the Code of Municipal Property Tax", and as to the determination of the tax base, with the reference to the "tax value used for IMI purposes", the regulatory content of this item 28 of the TGIS results from the delegation – pursuant to a general reference – to the regulatory body that is found in the Code of Municipal Property Tax.

Moreover, this aspect is reinforced by article 67(2) of the Stamp Duty Code, which provides that to matters not regulated in the Stamp Duty Code concerning item 28 of the TGIS, the provisions of the Code of Municipal Property Tax apply, subsidiarily.

In this framework, it is therefore necessary to bring together the rules of the Code of Municipal Property Tax that appear relevant to the understanding and, thus, to the application of item 28.1 of the TGIS.

In the Code of Municipal Property Tax, the concept of "property" is thus defined in article 2:

"1. For purposes of this Code, property is every fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or based thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of a different asset or does not have a patrimonial nature.

1. Buildings or constructions, even if movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.

2. The character of permanence is presumed when buildings or constructions are based in the same location for a period exceeding one year.

3. For purposes of this tax, each autonomous unit, under the condominium ownership regime, is deemed to constitute a property."

Subsequently, in articles 3-5 of the CIMI, the types of properties existing are enumerated, namely:

Rural properties (article 3):

"Rural properties are plots of land located outside an urban agglomeration that should not be classified as building land, pursuant to article 6(3), provided that:

a) They are devoted or, in the absence of specific devotion, have as normal destination a use generating agricultural income, such as is considered for purposes of the personal income tax;

b) Not having the devotion indicated in subparagraph a), they are not built or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Plots of land located within an urban agglomeration are also rural properties, provided that, by force of a legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are actually having this devotion.

3 – Also rural properties are:

a) Buildings and constructions directly devoted to the generation of agricultural income, when located on the plots referred to in the preceding paragraphs;

b) Waters and plantations in the situations referred to in article 2(1).

4 – For purposes of this Code, urban agglomerations are considered, besides those located within legally fixed perimeters, nuclei with a minimum of 10 units served by public roadways, their perimeter being delimited by points distanced 50 m from the axis of the roadways, in the transverse sense, and 20 m from the last building, in the direction of the roadways."

Urban properties (article 4):

"Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article."

Mixed properties (article 5):

"1. Whenever a property has rural and urban parts, it is classified, in its entirety, according to the main part.

1. If neither part can be classified as main, the property is deemed mixed."

Subsequently, in article 6 of the CIMI, the types of urban properties are indicated:

"1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Building land;

d) Other.

1. Residential, commercial, industrial or for services are buildings or constructions licensed for such by municipalities or, in the absence of licensing, which have as normal destination each of these purposes.

2. Building land is considered to be land located within or outside an urban agglomeration, for which a license or authorization has been granted, prior notice admitted or favorable prior information issued regarding a subdivision or construction operation, and also those which have been so declared in the title of acquisition, with the exception of land in which the competent entities prohibit any of those operations, in particular those located in green areas, protected areas or which, in accordance with municipal land-use plans, are devoted to public spaces, infrastructure or facilities.

3. The provision of subparagraph d) of paragraph 1 includes land located within an urban agglomeration that is not building land nor covered by the provisions of article 3(2) and also buildings and constructions licensed or, in the absence of licensing, which have as normal destination purposes other than those referred to in paragraph 2 and also those in the exception of paragraph 3."

On the "tax value", article 7 of the CIMI provides as follows:

"1. The tax value of properties is determined in accordance with this Code.

1. The tax value of urban properties with parts that can be classified under more than one of the classifications in article 6(1) is determined:

a) Where one part is main and the other or others are merely accessory, by applying the evaluation rules of the main part, taking into account the appreciation resulting from the existence of the accessory parts;

b) Where the different parts are economically independent, each part is evaluated by applying the corresponding rules, the value of the property being the sum of the values of its parts.

1. The tax value of mixed properties corresponds to the sum of the values of its rural and urban parts determined by applying the corresponding rules of this Code."

Under the heading "concept of property registers", article 12 of the CIMI provides as follows:

"1. Property registers are records which include, in particular, the characterization of properties, their location and tax value, the identity of the owners and, where applicable, usufructuaries and superficiaries.

1. There are two registers, one for rural property and one for urban property.

2. Each apartment or part of property susceptible to independent use is considered separately in the property registration, which also discriminates the respective tax value.

3. The registers are updated annually with reference to 31 December.

4. Property registrations for tax purposes alone constitute a presumption of ownership."

Still regarding property registers, it is important to note article 13(1) of the CIMI, from which it follows that "[t]he registration of properties in the register and its updating are carried out on the basis of a declaration presented by the tax subject".

Regarding the determination of tax value, it is important here to invoke article 38 of the CIMI, headed "Determination of tax value":

"1. The determination of the tax value of urban properties for housing, commerce, industry and services results from the following expression:

Vt = Vc x A x Ca x Cl x Cq x Cv

where:

Vt = tax value;

Vc = base value of built properties;

A = gross construction area plus area exceeding the implantation area;

Ca = allocation coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = obsolescence coefficient.

1. The tax value of urban properties calculated is rounded up to the nearest ten euros."

As rules densifying the values and coefficients referred to in this legal provision, we have articles 39 ("Base value of built properties"), 40 ("Types of areas of built properties"), 40-A ("Adjustment coefficient for areas"), 41 ("Allocation coefficient"), 42 ("Location coefficient"), 43 ("Quality and comfort coefficient") and 44 ("Obsolescence coefficient") of the CIMI.

In light of the literal content of item 28.1 of the TGIS (wording applicable ratione temporis to the situation sub judice), subject to this tax scope rule are urban properties with residential use and tax value equal to or greater than €1,000,000.00.

In view of the rules of the CIMI cited above, we have that residential properties are buildings or constructions licensed by municipalities for that purpose or, in the absence of licensing, which have as normal destination that use (article 6(2) of the CIMI); thus, residential properties are those said buildings or constructions, and these are the ones subject to item 28.1 of the TGIS.

The correctness of this interpretation, as to the scope of application of item 28.1 of the TGIS is confirmed by the perceptible ratio legis of the restriction of the field of application of the rule to residential properties – a restriction that was maintained as to the use (housing) in the legislative amendment that extended the scope of application to building land – in the context of the "circumstances in which the law was drawn up and the specific conditions of the time in which it is applied", which article 9(1) of the Civil Code also establishes as interpretive elements.

In fact, the limitation of the application of the tax to residential properties and, subsequently, to building land in which the construction of housing is authorized or planned, reveals the intention not to burden the productive sector and enterprises in general and, in that sense, it was not intended to include within the scope of application of the tax either properties devoted to services, industry or commerce, that is, properties devoted to economic activity, or building land with respect to which the construction for those other purposes is authorized or planned. Such is understandable in a context in which the economy was in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historical levels, with an avalanche of business closures due to economic unsustainability. On the ratio legis of the introduction of item 28 of the TGIS, see, among others, the decisions handed down in cases nos. 50/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/2014-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T of the CAAD.

Taking into account that situation and being known and public that the revival of economic activity and the increase of exports are the way out of the crisis, it is understood that, despite the pressing need to increase tax revenues, no legislative measures were taken that would impede economic activity, in particular the increase of the tax burden that hinders it and affects competitiveness in international terms.

Therefore, it is to be concluded that the interpretive elements available, including the "circumstances in which the law was drawn up and the specific conditions of the time in which it is applied", point clearly to the fact that it was not intended to include within the scope of application of item 28.1 of the TGIS non-residential properties and, subsequently, also building land with respect to which construction for purposes different from housing is authorized or planned.

Concluding this exegesis of item 28.1 of the TGIS, it is important to note further that the cited articles 38-46 of the CIMI have no relation to the classification of urban properties, as in those rules only the factors to be considered in their evaluation are indicated (in this sense, see the decision handed down in case no. 53/2013-T of the CAAD).

That being stated. It results from the combined analysis of the cited provisions of the CIMI that in this legal compendium no distinction is made between properties constituted under the condominium or full ownership regime. In fact, although article 2(4) expressly refers to the fact that the autonomous units of properties constituted under the condominium ownership regime constitute, each one of them, a property, the truth is that this does not exclude from such classification the divisions with independent use of properties constituted under the full or vertical ownership regime.

And, where the law has not distinguished, the interpreter cannot do so.

Having analyzed, therefore, the definition of property inherent in article 2(1) of the CIMI, we do not see any reason not to include here the divisions with independent use of properties constituted under the full ownership regime, as these constitute a fraction of territory that forms an integral part of the assets of a natural or legal person and which has economic value.

It should be noted that each of these divisions or units is assigned a tax value.

It being established that the classification of divisions with independent use of properties constituted under the full ownership regime as "properties", in the terms and for the purposes of the CIMI, it seems evident to us that each of these divisions, when such is the purpose to which they are devoted, constitute residential properties.

In the case at issue, all divisions or apartments of the urban property in question are susceptible to independent use, with the majority of them – specifically, 12 (twelve) – being devoted to housing.

Moreover, if the divisions or apartments in question in the present proceedings were not individually classified as "properties", the issuance, in this case, of a Stamp Duty assessment for each of these units would have no sense or logic.

It is true that the subsidiary application of the CIMI could suggest that only autonomous units, under the condominium ownership regime, are deemed properties in light of article 2(4) of the CIMI.

However, if one pays attention to the wording of that legal rule, one will immediately find that the requirement of the constitution of the condominium ownership regime is only necessary for purposes of taxation in IMI.

It should be noted, on the other hand, that, in light of article 12(3) of the CIMI, "each apartment or part of property susceptible to independent use is considered separately in the property registration, which also discriminates the respective tax value".

Furthermore, as stated above, the introduction of item 28 into the TGIS had as its objective the taxation of urban properties of high value with residential use, taxing the wealth, externalized in ownership, usufruct or right of superficies of luxury urban properties, or their autonomous units or divisions, with residential use.

Now, if the objective of the law was to adapt taxation in the context of Stamp Duty to the ability to pay of taxpayers, it seems that the distinction between properties constituted under the condominium or vertical ownership regime has no relevance.

Manifestly, it is not in this that the greater or lesser ability to pay is revealed, especially since, as is known, condominium ownership is a relatively recent legal institution, and it is certain that a large part of old properties are not even constituted in this regime, despite functioning in practice as such.

Now, the principle of the prevalence of substance over form requires that the AT should value material reality. And, in the case at issue, the material reality consists in the absence of any substantive difference between the divisions susceptible to independent use comprising the urban property in question and the units of a property constituted in condominium ownership.

Or, in other words, since the constitution of condominium ownership is merely a legal and not a factual operation, no reasons are discerned for differences in taxation in this respect, since what will always be relevant is the individual value of each unit, whether or not the property is constituted under the condominium ownership regime.

In light of all that has been stated, there is no doubt that the tax value relevant for purposes of the application of Stamp Duty in cases of properties constituted under the full ownership regime, composed of various divisions with independent use, of which some have residential use, is the tax value of each division of the property and not the global tax value of the property, corresponding to the sum of all the tax values of the divisions that compose it.

Thus, in conclusion, for properties in full ownership with apartments or divisions susceptible to independent use, regard should be had exclusively to the own tax value of each apartment or division with residential use, stated in the register, for purposes of the application of item 28.1 of the TGIS.

Furthermore, it should be stated that when it is a property which has parts susceptible to independent use with residential use and parts susceptible to independent use devoted to commerce, industry or services – as is the case in the situation sub judice – there is not stated in the register nor is there used for purposes of IMI a tax value that corresponds to the sum of the tax values of the divisions of independent use with residential use.

In fact, what article 7(2)(b) of the CIMI provides is that the value of the property is "the sum of the values of its parts", therefore, of all its parts, regardless of their respective use, which does not allow for the configuration of partial values of the property by considering only parts with a certain use, disregarding parts with other uses.

Consequently, the "Tax Value of the property – total subject to tax" on which the disputed assessments are based does not have correspondence with the legal category enshrined in item 28 of the TGIS of the "tax value stated in the register, in accordance with the Code of Municipal Property Tax".

In this framework, in the assessments challenged a tax value is adopted, for purposes of determining the scope of item 28.1 of the TGIS, which finds no accommodation in the law.

§2. ON THE PRESENT CASE

As was established, none of the apartments or divisions with independent use, described in the property register as devoted to housing, of the urban property in question, has a tax value equal to or greater than €1,000,000.00 (cf. established fact c)).

In that measure and in light of what has been stated above, since the tax value of each of the said apartments or divisions with independent use devoted to housing is less than that value to which item 28.1 of the TGIS refers, it follows that such apartments or divisions do not fall within the tax scope rule contained in that item 28.1, whereby the disputed assessments suffer from the defect of breach of law, due to error as to the legal requirements, consisting in the erroneous interpretation and application of item 28.1 of the TGIS, which implies the declaration of its illegality and consequent annulment.

In view of the success of the requested declaration of illegality of the disputed Stamp Duty assessments, due to a defect preventing the renewal of the act, the examination of the remaining issues and defects invoked by the Claimant is prejudiced and rendered moot.

§3. ON THE REIMBURSEMENT OF AMOUNTS PAID AND ON THE PAYMENT OF INDEMNITY INTEREST

The Claimant further petitions for the condemnation of the AT to reimburse the tax wrongfully paid, plus the respective indemnity interest.

Article 24(1)(b) of the RJAT provides that the arbitral decision on the merits of the claim which is not subject to appeal or challenge binds the tax administration from the end of the time limit provided for appeal or challenge, and this body should, in the exact terms of the success of the arbitral decision in favor of the tax subject and until the end of the time limit provided for the voluntary execution of the sentences of the tax courts, restore the situation that existed by adopting the acts and operations necessary for that purpose, which should be understood, in accordance with article 100 of the General Tax Code, applicable ex vi article 29(1)(a) of the RJAT, as encompassing the payment of indemnity interest, in line, moreover, with the provisions of article 24(5) of the RJAT.

Article 43(1) of the General Tax Code provides that "indemnity interest is owed when it is determined, in an administrative claim or judicial challenge, that there has been error attributable to the services which results in payment of the tax debt in an amount greater than that legally due", with article 61(5) of the Tax Procedural Code providing that "interest is computed from the date of wrongful payment of the tax until the date of processing of the respective credit note, where it is included".

In the present case, it is verified that the illegality of the disputed assessments, due to error as to the legal requirements, is attributable to the AT for, in those tax assessments, it proceeded with the incorrect interpretation and application of the provision contained in item 28.1 of the TGIS, whereby the Claimant has the right, in accordance with the provisions of article 24(1)(b) of the RJAT and article 100 of the General Tax Code, to the reimbursement of the tax wrongfully paid, plus the respective indemnity interest, in accordance with the provisions of article 43(1) of the General Tax Code and article 61 of the Tax Procedural Code, calculated from the dates of the respective payments, at the rate resulting from article 43(4) of the General Tax Code, until the date of processing of the respective credit note, where it is included.

IV. DECISION

For the reasons stated, this Arbitral Tribunal decides:

a) To find the petition for arbitral decision well-founded and, consequently, due to the defect of breach of law, due to error as to the legal requirements, consisting in the erroneous interpretation and application of item 28.1 of the TGIS, to declare illegal and annul the Stamp Duty assessments challenged in the present proceedings, relating to the year 2015 and concerning the urban property registered under article … in the urban property register of the parish …, municipality and district of Lisbon;

b) To find well-founded the petition for condemnation of the Tax and Customs Authority to reimburse to the Claimant the amount of tax wrongfully paid, plus the respective indemnity interest, calculated, at the legal rate, from the dates of the respective payments, until the date of processing of the respective credit note, where it is included;

c) To condemn the Tax and Customs Authority to pay the costs of the present proceedings.

VALUE OF THE CASE

In accordance with the provisions of articles 306(2) of the Code of Civil Procedure, 97-A(1)(a) of the Tax Procedural Code and 3(2) of the Rules of Costs in Tax Arbitration Proceedings, the case is assigned the value of €17,331.64 (seventeen thousand three hundred thirty-one euros and sixty-four cents).

COSTS

In accordance with article 22(4) of the RJAT, the amount of costs is fixed at €1,224.00 (one thousand two hundred twenty-four euros), in accordance with Table I attached to the Rules of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 2 December 2016.

The Arbitrator,

(Ricardo Rodrigues Pereira)