Stamp Tax on High-Value Property in Vertical Ownership: CAAD Ruling 443/2015-T Annuls Assessment

ENGLISH TRANSLATION

The arbitrator Dr. Maria Antónia Torres, appointed by the Deontological Council of the Centre for Administrative Arbitration ("CAAD") to form the Single Arbitral Tribunal, constituted on 1 October 2015, decides as follows:

1. REPORT

1.1 A..., taxpayer no..., in the capacity of head of the undivided estate of B..., taxpayer no..., hereinafter referred to as the "Claimant", with residence at Rua do ..., no..., ..., ..., requested the constitution of an arbitral tribunal, under article 2.º, no. 1, paragraph a), and article 10.º, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral ruling concerns the declaration of illegality, and consequent annulment, of the tax acts assessing Stamp Duty (IS), in the total amount of €12,050.70 (twelve thousand and fifty euros and seventy cents), relating to the year 2013, better identified in the initial petition presented by the Claimant, which are hereby considered as set out and reproduced for all legal purposes, which concern the urban property owned by the Claimant, located at Rua..., no..., in Loures, composed of a shop on the ground floor and five storeys allocated to residential use, which constitute divisions with independent use, registered in the urban property tax register under article no. U-..., of the Joint Municipal District of ... and..., Municipality of Loures, in accordance with documents attached to the initial petition.

Furthermore, the Claimant requests the condemnation of the Respondent to reimburse the amounts unduly paid and that the right to indemnitary interest be recognized on all amounts paid.

1.3. To support its claim, the Claimant alleges that the Stamp Duty assessments subject to this petition are illegal due to violation of the rule of incidence of item 28.1 of the TGIS. The Claimant considers that, as the property is in vertical ownership, as it was on that date, divided into 6 storeys, a shop on the ground floor and 5 residential storeys, all areas of independent use, the Tax Authority (AT), as it did, cannot sum the patrimonial values of the storeys and divisions capable of independent use, given that none of these storeys or divisions, individually, has a Taxpayer Patrimonial Value (VPT) equal to or exceeding €1,000,000. And that the rule of incidence, in the interpretation carried into practice by the AT, is unconstitutional due to violation of the principle of equality.

1.4. The AT argues that the request for declaration of illegality, and consequent annulment of the disputed assessments, should be judged inadmissible, given that it maintains that although the IS assessment, under the conditions provided in item 28.1 of the TGIS, is processed in accordance with the rules of the CIMI, the truth is that the legislator reserves those aspects requiring proper adjustments.

The AT understands that this is the case with properties in full ownership, even with storeys or divisions capable of independent use, since although the IMI is assessed in relation to each part capable of independent use, for IS purposes the property as a whole is relevant, thus arguing for the legality of the tax acts because they constitute a correct application of the law to the facts.

1.5. The parties agreed to dispense with allegations and the meeting of the arbitral tribunal provided for in article 18 of the RJAT.

1. PRELIMINARY MATTERS

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2.º of the RJAT.

The parties have legal capacity and standing, are duly represented, and appear to have the proper status (cf. articles 4.º and 10.º, no. 2 of the RJAT and article 1.º of Ordinance no. 112-A/2011, of 22 March).

No procedural defects were identified in the case.

1. FACTUAL MATTERS

With relevance for the decision on the merits, the Tribunal considers the following facts as proved:

1. The Claimant was, at the date of the assessments sub judice, the owner of the urban property subject to these same assessments, under the regime of "full ownership" (i.e., not subject to the horizontal ownership regime) to which a global VPT exceeding €1,000,000.00 was attributed, corresponding to the sum of the partial VPT values of each of the storeys with independent use.

2. In accordance with what was mentioned in the initial petition and the response given by the Respondent, none of the divisions capable of independent use, to which an autonomous VPT was attributed by the Respondent, and regardless of its purpose – residential or otherwise – has a VPT exceeding €1,000,000.

3. The Claimant was notified to assess stamp duty on the aforementioned property, with the Respondent considering the Claimant to be a taxpayer liable for stamp duty under item 28.1 of the TGIS, for being the owner of a property with a taxpayer patrimonial value exceeding €1,000,000.

4. The Claimant filed an appeal no. ...2014... against these assessments, which was dismissed on 16.10.2014, and the decision of which was subject to a Hierarchical Appeal no. ...2014..., likewise dismissed on 17.04.2015.

Unproven Facts

No material facts with relevance for the appraisal of the merits of the case were identified which were not proved.

Grounds for the Factual Findings

The conviction concerning the facts deemed as proved was based on documentary evidence submitted by the Claimant, the authenticity and correspondence to reality of which were not questioned by the Respondent.

1. QUESTION TO BE DECIDED

The essential question to be decided in the case is to determine, with reference to a property not constituted under the horizontal ownership regime, composed of various storeys and divisions with independent use, some of which with residential allocation, what the Taxpayer Patrimonial Value (VPT) relevant to assess the correct criterion of incidence of the tax in light of the law, so as to determine whether this should be assessed by the sum of the taxpayer patrimonial value attributed to the different parts or storeys (global VPT) or, rather, whether it should be attributed to each of the parts or residential storeys individually.

The Claimant also petitions for payment of indemnitary interest.

1. ON THE LAW

As identified above, the question to be decided relates to whether the patrimonial value relevant for the purposes of determining the applicability of Item 28.1 of the TGIS, when a property not constituted in horizontal ownership is involved, is that of each unit considered autonomously or the sum of the taxpayer patrimonial value attributed to each of these units.

The question arises by virtue of taxation under stamp duty of the ownership, usufruct, or right of surface of urban properties whose taxpayer patrimonial value recorded in the property tax register is equal to or exceeding €1,000,000, with the duty due at the rate of 1% on the taxpayer patrimonial value used for the purposes of IMI, per property with residential allocation.

For this reason, it is important to determine, when a property not constituted in horizontal ownership is involved, the concept of "property with residential allocation": whether it should be interpreted as corresponding to each unit considered autonomously and apply to its respective patrimonial value or whether it should correspond to the totality of the autonomous units, and should consequently apply to the sum of the taxpayer patrimonial value attributed to each of these units.

The Stamp Duty Code, nor its respective General Table, nor Law no. 55-A/2012, of 29 October (which approved the TGIS item under review) provides a legal definition of "property with residential allocation," it is important to determine the correct interpretation of this expression, with the presumption that the legislator knew how to express their intention in the most adequate form (cf. article 9.º, no. 3, final part, of the Civil Code), in its systematic integration with the rules contained in the Municipal Property Tax Code and, as well, in the spirit of the law.

Item 28 of the TGIS under review was added by Law no. 55-A/2012, of 29 October with the following text:

"28 – Ownership, usufruct or right of surface of urban properties whose taxpayer patrimonial value recorded in the property tax register, under the terms of the Municipal Property Tax Code (CIMI), is equal to or exceeding €1,000,000 – on the taxpayer patrimonial value used for the purposes of IMI:

28.1 – For property with residential allocation – 1%;

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

(Italic ours)

Law no. 55-A/2012, of 29 October entered into force on 30 October 2012, in accordance with article 7.º, no. 1, which determined its entry into force "on the day following its publication."

The applicable rates are the following:

i) Properties with residential allocation assessed under the Municipal Property Tax Code: 0.5%;

ii) Properties with residential allocation not yet assessed under the Municipal Property Tax Code: 0.8%;

iii) Urban properties when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in the list approved by ordinance of the Minister of Finance: 7.5%.

It happens, however, that neither the Stamp Duty Code nor Law no. 55-A/2012, of 29 October specify the concept of "urban property with residential allocation," whereby in accordance with article 67.º of the Stamp Duty Code, the interpretation of this concept should be sought in the Municipal Property Tax Code.

Indeed, it results from article 67.º of the Stamp Duty Code that "To matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply, subsidiarily" – (Amended by article 3.º of Law no. 55-A/2012 of 29 October).

In the Municipal Property Tax Code, the concept of property is defined in article 2.º, from which it results that "For the purposes of this Code, property is any parcel of land, encompassing waters, plantations, buildings and constructions of any nature incorporated or seated thereon, with a character of permanence, provided it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value (…), it being clarified in no. 4 of this legal provision that "For the purposes of this tax, each autonomous fraction, under the horizontal ownership regime, is considered as constituting a property."

From the isolated reading of this legal provision we could be led, in a somewhat biased interpretation, to understand that under IMI, autonomous fractions, under the horizontal ownership regime, would have treatment distinct from parts of a property capable of independent use.

However, a more careful analysis of the regime allows one to conclude precisely the opposite.

As was emphasized by the Ombudsman to the Secretary of State for Tax Affairs, in correspondence dated 2 April 2013, "the registration in the property tax register of properties in vertical ownership, composed of parts capable of independent use, follows the same rules as the registration of properties constituted in horizontal ownership, with the respective IMI, as well as the new Stamp Duty, being assessed individually in relation to each one of the parts."

(Italic ours)

Indeed, article 12.º, no. 3 of the Municipal Property Tax Code provides in this sense, in determining that "each storey or part of a property capable of independent use is considered separately in the property tax registration, which also specifies the respective taxpayer patrimonial value."

In accordance with article 119.º of the Municipal Property Tax Code "The services of the General Directorate of Taxes send to each taxpayer, by the end of the month prior to the month of payment, the competent tax notice, with specification of the properties, their parts capable of independent use, respective taxpayer patrimonial value and the amount payable imputable to each municipality where the properties are located."

In sum, for the purposes of taxation under IMI, each independent unit, even if forming part of the same property, is considered separately, being assigned its own patrimonial value and being taxed autonomously.

Thus, one cannot fail to agree with the understanding endorsed in the Arbitral Decision rendered in Case no. 50/2013, according to which "if the legal criterion imposes the issuance of individualized assessments 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, the new stamp duty would only apply if one of the parts, storeys or divisions with independent use presented a VPT exceeding €1,000,000.00."

(Italic ours)

But, moreover, it is this separate treatment of each unit capable of independent use that allows, in the application of the allocation coefficient (cf. article 41.º of the Municipal Property Tax Code), consideration to be given to the different purposes of each unit that composes a single property.

It is relevant for this purpose, the actual use of each of the parts capable of independent use, regardless of whether the property is classified for residential purposes, under article 6.º of the Municipal Property Tax Code and, regardless of whether it concerns an autonomous fraction or only a unit capable of independent use.

Moreover, according to this logic of the system, an urban property classified as residential may be composed of various independent units, in which one or more may have a non-residential allocation, in accordance with article 41.º of the Municipal Property Tax Code.

This will be verified, for example, if in a property in full ownership with storeys or divisions capable of independent use, licensed for residential purposes, one of its independent units is used for commerce or services, which even occurs in the property at issue in this case. In this hypothesis, the units in question will not have residential allocation.

From this analysis it can be concluded that the concept of "property with residential allocation," used in Item 28 of the TGIS, encompasses each of the autonomous units, with independent use, of properties in full ownership, with units capable of independent use, which have that allocation.

In light of the foregoing, the understanding of the Respondent cannot be accepted, which would result, among other things, in a violation of the principle of equality, fiscal justice and taxpayer capacity, constitutionally enshrined.

As stated in the decision rendered in case 132/2013-T of this CAAD:

(…) in the work relating to the discussion of the bill no. 96/XII in the Assembly of the Republic (…) this measure, termed the "special tax on residential urban properties of higher value," was justified by the need to comply with the principles of social equity and fiscal justice, imposing a more significant burden on the holders of properties with high value intended for residential use, and, to that extent, applying the new "special tax" to "houses with a value equal to or exceeding 1 million euros."

(Italic ours)

It is thus presumed a taxpayer capacity (much) above average which justifies a "special" tax effort for those who have a "house" or "property" whose value is at least one million euros. The intention of the legislator appears, therefore, to suggest that the scope of the rule of incidence is to tax independent, individualized realities and not those resulting from an aggregation or sum, even if legal.

That is, it is not derived from this measure that the legislator intended the taxation of properties whose units capable of independent use did not individually reach that value.

In light of the foregoing, and given that none of the independent units composing the Claimant's property have a patrimonial value exceeding €1,000,000, the assessments under review suffer from a defect of violation of law, due to error in the legal presuppositions, which justifies the declaration of their illegality and the corresponding annulment of the tax acts now under review.

In light of the declaration of illegality of the assessments which are the subject of the present case, due to a defect of violation of law by error in the legal presuppositions, knowledge of the other issues raised on a subsidiary basis is prejudiced.

On the Request for Indemnitary Interest

The Claimant petitions the condemnation of the Respondent to payment of indemnitary interest, provided for in articles 43.º of the General Tax Law and 61.º of the Tax Procedure and Procedural Code.

It is clear in the case that the illegality of the tax assessment acts challenged is directly imputable to the Respondent, which, on its own initiative, carried them out without legal support, suffering from an erroneous interpretation (and, therefore, application) of the legal rules to the case.

Consequently, the Claimant is entitled to the receipt of indemnitary interest on the amounts paid, under the terms provided for in articles 43.º, no. 1, of the LGT and 61.º of the CPPT.

1. DECISION

In light of the foregoing, it is decided:

1. To judge the request for arbitral ruling as well-founded, with the consequent annulment, with all legal effects, of the stamp duty assessment acts better identified in the case, in the total amount of Euros 12,050.70 (twelve thousand and fifty euros and seventy cents);

2. To judge the request for indemnitary interest petitioned by the Claimant as well-founded.

The value of the case is fixed at Euros 12,050.70 (twelve thousand and fifty euros and seventy cents), in accordance with the provisions of articles 3.º, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97.º-A, no. 1, paragraph a) of the CPPT and 306.º of the Code of Civil Procedure.

The amount of costs is fixed at Euros 918 (nine hundred and eighteen euros) under article 22.º, no. 4 of the RJAT and Table I attached to the RCPAT, at the charge of the Tax and Customs Authority, in accordance with the provisions of articles 12.º, no. 2 of the RJAT and 4.º, no. 4 of the RCPAT.

Let it be notified.

Lisbon, 15 February 2016

The Arbitrator

(Maria Antónia Torres)

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

The wording of this arbitral decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] Acronym for the Legal Regime for Tax Arbitration.