Stamp Tax Verba 28.1 on Vertical Property Ownership: CAAD Ruling 451/2015-T

ADMINISTRATIVE ARBITRATION DECISION

I. Report

1. On 17/07/2015, the Applicants, pursuant to articles 2, no. 1, paragraph a), 3, no. 1, and 10, no. 1, paragraph a), all of the Legal Framework for Arbitration in Tax Matters (hereinafter LFATM), filed a request for arbitral decision, with joinder of claims, concerning the tax assessment acts for stamp duty liquidation, relating to the year 2014, carried out by His Excellency the Director-General of the General Directorate of Taxes, which affected an urban property located at …, no. … and …, in Lisbon, constituted under a regime of full ownership registered in the urban property register of the parish of …, under article … (identified by …-U …).

2. They presented as grounds the illegality of the assessments.

3. Pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council of the Administrative Arbitration Centre appointed as arbitrator Ana Teixeira de Sousa, and the parties, after being duly notified, manifested no opposition to such appointment.

4. Thus, in accordance with the provision in paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 02/10/2015.

5. The highest official of the Tax and Customs Authority (hereinafter referred to as "Respondent" or "TA") was notified to, if it so wished, within a period of 30 days, submit a response and request the production of additional evidence. A response was submitted on 04/11/2015, subscribed by the legal counsel Mrs. Dr. C… and D…, in the name and representation of the Respondent, and the Administrative File was sent.

6. In view of the Response of the TA, the tribunal, by order of 23/11/2015, decided, which was not contested by the parties, that the meeting referred to in article 18 of the LFATM is dispensed with, as well as oral and written arguments, and the legal deadline for rendering the decision was extended twice until 30 June 2016.

The Request for Arbitral Decision

1. In summary, the grounds presented by the Applicants are as follows.

2. The Applicants are co-owners in equal shares (½ each) of an urban property located at …, no. … and …, in Lisbon, registered in the urban property register of the parish of …, under article …(identified by …-U …), which they acquired by donation from their father.

3. This property, as evidenced by the property record (Doc. 2), is constituted under a regime of vertical ownership and has 4 floors and 5 independent storeys or divisions, namely:

Shop 97 – with a taxable patrimonial value of €190,880.00;

Shop 98 – with a taxable patrimonial value of €239,880.00;

1st independent storey – with a taxable patrimonial value of €357,670.00;

2nd independent storey – with a taxable patrimonial value of €357,670.00;

Attic independent – with a taxable patrimonial value of €296,190.00

1. On 20/03/2015, His Excellency the Director-General of the General Directorate of Taxes carried out three assessments of stamp duty, relating to the year 2014, in the name of A…, for the stamp duty to be paid in three instalments, and three assessments of stamp duty, relating to the year 2014, in the name of B…, to be equally paid in three instalments.

2. The stamp duty assessments now being challenged affected only the fractions allocated to housing (Doc. 1 – addressing the collection note for half of the tax by each owner), that is, the 1st storey – stamp duty of €3,576.70; the 2nd storey – stamp duty of €3,576.70; and the Attic – stamp duty of €2,961.90, which determined a total amount of Stamp Duty to be paid in the total amount of €10,115.30 of stamp duty.

3. The Applicants have already made payment of the Stamp Duty referring to the assessment now being challenged and which in their understanding is illegal due to the defects pointed out, with reference to the 1st instalment, and will make payment of the remaining instalments upon their respective maturity, unless in the meantime a favorable arbitral decision is rendered.

4. In the understanding of the Applicants, these tax assessment acts for stamp duty (item 28.1 of the General Table of Stamp Duty), are illegal due to error in their respective factual and legal prerequisites, in that none of the storeys or independent divisions of this property of the Applicants that the TA assessed in the context of stamp duty, Item 28.1 GTSD, has a taxable patrimonial value exceeding €1,000,000.00 (one million euros) if individually considered.

5. For the Tax Administration, a distinction must be made between urban properties under a regime of horizontal ownership and urban properties under a regime of vertical ownership.

6. In urban properties under a regime of horizontal ownership, each fraction is considered individually for purposes of the application of this item, whereas in properties under vertical ownership, for the TA, the aggregate is what matters.

7. It happens that this interpretation of the TA only occurs in the context of item 28.1 of the GTSD, since, for purposes of Municipal Property Tax (IMI), Corporate Income Tax (IRC), Personal Income Tax (IRS), the fractions are treated separately, whether or not the property is constituted under horizontal ownership.

8. Contrary to the understanding of the TA, in the taxation of properties there is no distinction based on the type of ownership – vertical or horizontal – but only based on use – housing, commerce, services or other – and the tax treatment is always carried out fraction by fraction, with or without autonomous status.

9. The Applicants enumerate the legal provisions that support and delineate the applicability of the norm of incidence provided for in item 28.1 of the Stamp Duty Code, to conclude that, for the fiscal legislator, the situation of the property in vertical ownership or in horizontal ownership was not material, since no reference or distinction is made between them in the rules of the Municipal Property Tax Code, applicable by reference in the Stamp Duty Code, namely no. 7 of article 23 of the Stamp Duty Code.

10. Considering that the registration in the matrix of properties in vertical ownership, constituted by different storeys with independent use, pursuant to the Municipal Property Tax Code, follows the same registration rules as properties constituted in horizontal ownership, and the respective Municipal Property Tax as well as stamp duty are liquidated individually in relation to each of the parts, it offers no doubt that the legal criterion for defining the incidence of the new tax must be the same.

11. That is, in the case of the property owned by the Applicants, there would only be incidence of Item 28.1 of the GTSD if any of the parts, storeys or divisions with independent use presented a taxable patrimonial value exceeding €1,000,000.00 (one million euros).

12. The criterion sought by the TA, of considering the value of the sum of the taxable patrimonial values attributed to the parts, storeys or divisions with independent use, with the argument that the property is not constituted under a regime of horizontal ownership, finds no legal sustenance and is contrary to the criterion that is applicable in the context of the Municipal Property Tax Code and, by reference, in the context of stamp duty.

13. Clearly, the legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or storey with independent use) reflects an above-average taxpaying capacity and, as such, susceptible to determining a special contribution to ensure fair distribution of the tax burden.

14. Which is not the case of the property in question, where all storeys have a value much lower than the limit of one million euros.

15. Furthermore, the fiscal legislator cannot treat equal situations differently, by violation of the principle of tax equality.

16. Indeed, from a reading of the law, different treatment cannot result in a situation of objective equality of autonomous fractions, both with a taxable patrimonial value of less than €1,000,000, one forming part of a property constituted under a regime of horizontal ownership, which will not be subject to stamp duty, in contrast with another, with the same value, that is integrated in a property not constituted under a regime of horizontal ownership, which will be subject to tax.

17. It does not appear legitimate, after the law states that the value is determined in accordance with the rules of Municipal Property Tax, to attribute to the legal status of the property relevance to legitimize different treatment before equal situations.

18. The Applicants conclude by requesting the tribunal to declare the illegality of the stamp duty assessment acts, subject of the present request for arbitral decision, for violating the norm of incidence provided for in item no. 28 of the GTSD, for being affected by a defect of violation of law due to error in the legal prerequisites and offence of the principle of equality before the tax law, and thus those tax assessment acts should be annulled, with all the subsequent legal consequences, such as the Tax Administration proceeding with the reimbursement of the amounts unduly paid, accrued with compensatory interest to be calculated from the date of payment of the instalments that are paid at the time of execution of the arbitral decision, in the event it is favorable to them, until the date of reimbursement.

Response of the Tax and Customs Authority

1. The Tax and Customs Authority (or Respondent) submitted a response maintaining the challenged assessments based, in summary, on the following arguments.

2. What is at issue here is an assessment that results directly from a legal norm, which translates into objective elements, without any subjective or discretionary appreciation.

3. From the notion of property in article 2 of the Municipal Property Tax Code, only autonomous fractions of property under a regime of horizontal ownership are considered as properties – no. 4 of the cited article 2 of the Municipal Property Tax Code. Therefore,

4. Finding the property of which it is the owner under a regime of full ownership, it does not possess autonomous fractions, to which the tax law attributes the qualification of property.

5. Thus the now Applicants, for purposes of Municipal Property Tax and also of stamp duty, by force of the wording of the said item, are not owners of autonomous fractions, but rather of a single property.

6. As is well known, horizontal ownership is a specific legal regime of ownership provided for in article 1414 and following of the Civil Code, the manner of constitution of which is provided therein, as are the other rules on real property rights.

7. Finding the property submitted to the regime of full ownership, but being physically constituted by parts susceptible of independent use, the tax law attributes relevance to this materiality, evaluating these parts individually, pursuant to article 12, and consequently, pursuant to article 12, no. 3, of the Municipal Property Tax Code, each storey of a property susceptible of independent use is considered separately in the matricial registration, but in the same matrix, proceeding with the liquidation of Municipal Property Tax taking into account the taxable patrimonial value of each part.

8. Such legal norm is relevant, thus, for purposes of registration in the property register, the autonomy that, within the same property, may be attributed to each of its parts, economically and functionally independent.

9. Such property does not cease, due to the fact of being only one, not being thus, its distinct parts juridically equated to autonomous fractions under a regime of horizontal ownership.

10. The fact that Municipal Property Tax has been calculated based on the taxable patrimonial value of each part of property with independent economic use does not equally affect the application of item 28, no. 1, of the General Table.

11. It is not discernible how, on the other hand, the taxation in question could have violated the principle of equality mentioned by the applicant.

12. The legislator may subject to a distinct, and therefore discriminatory, tax legal framework, properties under regimes of horizontal and vertical ownership, in particular, benefiting the more legally evolved institute of horizontal ownership, without such discrimination being necessarily considered arbitrary.

13. The taxable event of stamp duty of item 28.1 consisting in the ownership of urban properties whose taxable patrimonial value recorded in the register, pursuant to the Municipal Property Tax Code, is equal to or exceeding €1,000,000.00, the taxable patrimonial value relevant for purposes of the incidence of stamp duty is, thus, the total taxable patrimonial value of the urban property and not the taxable patrimonial value of each of the parts that compose it, even when susceptible of independent use.

14. There is binding information from the Tax Authority with an agreement order of 11.02.2013 from the Legal Substitute of the Director General of the Tax Authority that supports the position of the Respondent.

15. Wherefore the Respondent concludes that the assessments are correct and should be maintained and the request for arbitral decision should be judged unfounded, absolviting the respondent entity from the claim.

Object of the Claim

1. The question that the Applicants seek to have decided is:

· Legality of the assessment of Stamp Duty provided for in item 28.1 of the GTSD (added by article 4 of Law no. 55-A/2012, of 29 October) in relation to the total taxable patrimonial value of a building, corresponding to the sum of the taxable patrimonial values of various storeys or divisions susceptible of independent use.

Preliminary Examination

1. The arbitral tribunal is materially competent, pursuant to the provision in articles 2, no. 1, paragraph a) of the Legal Framework for Arbitration in Tax Matters.

2. The parties possess legal personality and capacity and have standing pursuant to article 4 and no. 2 of article 10 of the Legal Framework for Arbitration in Tax Matters (LFATM), and article 1 of Regulation no. 112-A/2011, of 22 March.

3. The proceeding does not suffer from any nullity nor were any exceptions raised by the parties that would prevent the appreciation of the merits of the case, and thus the conditions are met for the rendering of the arbitral decision.

4. The merits of each of the present two claims depends essentially on the same circumstances of fact and on the interpretation and application of the same principles and rules of law.

5. Therefore, joinder of the parties must be admitted, pursuant to article 3, no. 1, of the LFATM.

II. REASONING

Established Facts

Based on the documents submitted by the Applicant (request for arbitral decision, Docs. 1 to 5) together with that Request; Response of the TA and Administrative File) and the non-contestation of the facts alleged by the Applicant by the TA itself, the following facts are established:

1. The Applicants are co-owners in equal shares (½ each) of an urban property located at …, no. … and …, in Lisbon, registered in the urban property register of the parish of …, under article … (identified by …-U …), which they acquired by donation from their father. (DOCS. 1 and 2)

2. This property, as evidenced by the property record (Doc. 2), is constituted under a regime of vertical ownership and has 4 floors and 5 independent storeys or divisions, namely:

Shop 97 – with a taxable patrimonial value of €190,880.00;

Shop 98 – with a taxable patrimonial value of €239,880.00;

1st independent storey – with a taxable patrimonial value of €357,670.00;

2nd independent storey – with a taxable patrimonial value of €357,670.00;

Attic independent – with a taxable patrimonial value of €296,190.00

1. At issue are the stamp duty assessments no. 2015… 2014; 2015… 2014; 2015… 2014 (DOCS. 1 and Administrative File).

2. The stamp duty assessment now being challenged affected only the fractions allocated to housing (Doc. 1 – addressing the collection note for half of the tax by each owner), that is, the 1st storey – stamp duty of €3,576.70; the 2nd storey – stamp duty of €3,576.70; and the Attic – stamp duty of €2,961.90, all in the total amount of €10,115.30 of stamp duty.

3. The TA issued in the name of Applicant B… the following stamp duty collection notes for 2014 and the property in question:

2015…, in the amount of €596.13; 2015…, in the amount of €596.11; 2015…, in the amount of €596.11; 2015…, in the amount of €596.13; 2015…, in the amount of €596.11; 2015…; in the amount of €596.11; 2015…, in the amount of €493.65; 2015…, in the amount of €493.65; 2015…, in the amount of €493.65; and are hereby reproduced for all legal purposes (Administrative File).

1. The TA issued in the name of Applicant A… the following stamp duty collection notes for 2014 and the property in question:

2015…, in the amount of €596.13; 2015…, in the amount of €596.11; 2015…, in the amount of €596.11; 2015…, in the amount of €596.13; 2015…, in the amount of €596.11; 2015…; in the amount of €596.11; 2015…, in the amount of €493.65; 2015…, in the amount of €493.65; 2015…, in the amount of €493.65; and are hereby reproduced for all legal purposes (Administrative File).

1. The first and second instalment of the collection notes issued were paid (Docs. 5 and Administrative File).

2. The TA carried out an evaluation for each fraction or autonomous unit (Doc. 3) and gave it autonomous treatment – discrimination and evaluation sheets separately – with autonomous taxable patrimonial value, per fraction or independent unit, which were notified also autonomously for purposes of claims regarding the respective unit value.

3. The TA also proceeded to carry out a Municipal Property Tax liquidation for each fraction (Doc. 4) or independent unit, issued collection notes also autonomous, separately, per fraction or independent unit which, in turn were addressed for half of the respective liquidated value to each of the co-owners.

4. Still with reference to the stamp duty assessment, the sum of the taxable patrimonial values of all fractions that make up the aforementioned property in vertical ownership, and that are intended for housing, totals the value of €1,011,530.00 with reference to the year 2014.

5. Unproven Facts

The unproven facts are considered irrelevant for the appreciation of the merits of the case.

Applicable Law

The Scope of Incidence of Item 28 of the General Table of Stamp Duty

1. It results from the positions of the Parties that the essential question in the present proceedings consists in knowing whether in the case of properties in full ownership, with storeys or divisions of independent use but not constituted under a regime of horizontal ownership, the taxable patrimonial value to be considered for purposes of the incidence of Stamp Duty provided for in item 28.1 of the GTSD should correspond to the taxable patrimonial value of each storey or division with housing allocation and independent use or to the sum of the taxable patrimonial values corresponding to the storeys or divisions of independent use with housing allocation. That is, to know whether the taxable patrimonial value relevant as the criterion for the incidence of the tax corresponds to the aggregate of the taxable patrimonial value attributed to the different parts or storeys (total taxable patrimonial value) or, rather, the taxable patrimonial value attributed to each of the parts or housing storeys.

2. This question has already been assessed in various proceedings in the context of judicial courts and in the context of Tax Arbitration[1], and no arguments have been identified so far that would allow breaking the unanimity that has been achieved in the decisions rendered.

3. The assessments made to the Applicants of stamp duty under item 28.1 of the General Table of Stamp Duty and relating to the year 2013 gave rise to Case 808/2014-T of the CAAD, which was decided favorably to the Applicants.

4. Starting by making reference to the relevant legal provisions in the tribunal's decision-making.

5. Item 28 of the General Table of Stamp Duty, annexed to the Stamp Duty Code (SDC), was added by article 4 of Law no. 55-A/2012, of 29 October, with the following content:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable patrimonial value recorded in the register, pursuant to the Municipal Property Tax Code (MPTC), is equal to or exceeding €1,000,000 – on the taxable patrimonial value for purposes of Municipal Property Tax:

28-1 – For property with housing allocation – 1%;

28.2 – For property, when the passive subjects who are not individuals are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the order approved by order of the Minister of Finance – 7.5%."

1. According to the amendments to the Stamp Duty Code, introduced by article 3 of Law no. 55-A/2012, of 29/10, the stamp duty provided for in item 28 of the GTSD is incidence upon a legal situation (no. 1 of article 1 and no. 4 of article 2 of the SDC), in which the respective passive subjects are those referred to in article 8 of the MPTC (no. 4 of article 2 of the SDC), to whom falls the burden of the tax (paragraph u) of no. 3 of article 3 of the SDC).

2. The provision in the SDC, in the wording given by Law no. 55-A/2012, whether in article 4, no. 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever the properties are located in Portuguese territory"), or in article 23, no. 7 ("In the case of tax due for the situations provided for in item no. 28 of the General Table, the tax is liquidated annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code"), combined with article 1 of the MPTC, consider the property in itself as the taxable event (the situation that triggers taxation) provided it reaches the value provided for in item 28 of the General Table of Stamp Duty, regardless of the number of passive subjects, possessors (as owners, usufructuaries or surface rights holders) of the assets in question.[2]

3. As for rates, paragraph f) of no. 1 of the same article 6 of Law no. 55-A/2012, provides for the application in 2012 of a rate lower than the rate of 1%, provided for in item 28.1 of the GTSD for properties with housing allocation, further distinguishing between cases of properties assessed pursuant to the Municipal Property Tax Code (rate of 0.5%) and properties with housing allocation not yet assessed pursuant to the Municipal Property Tax Code (rate of 0.8%).

4. From 2013 onwards, the normally applicable rate is 1%.

The Concept of Property Used in Item 28 of the GTSD

1. The concept of "properties with housing allocation" used in item 28.1[3] is not expressly defined in any provision of the SDC nor in the MPTC, the statute to which no. 2 of article 67 of the SDC refers.

2. In the case of the proceedings, whether one takes into account the property of the Applicants in vertical ownership or each of their respective autonomous divisions, it is (is not disputed) property classified as urban and housing-related, at least partially, in accordance with the criteria established in articles 2, 4 and 6 of the Municipal Property Tax Code, applicable by reference in article 67 of the SDC.

3. Thus, what is at issue is only the exact meaning of the application of the "taxable patrimonial value considered for purposes of Municipal Property Tax," contained in the norm of incidence of stamp duty in the body of item 28: in the case of properties in full ownership but with storeys or divisions susceptible of independent use not constituted under a regime of horizontal ownership, should the taxable patrimonial value relevant correspond to the sum of the taxable patrimonial values of the various divisions/storeys, as the TA claims, or should what must be taken into account be the taxable patrimonial value of each of the respective storeys or autonomous divisions, as the Applicant argues?

4. Now this provision is integrated in a text that defines as the object of incidence of stamp duty the "Ownership, usufruct or right of surface of urban properties whose taxable patrimonial value recorded in the register, pursuant to the Municipal Property Tax Code (MPTC), is equal to or exceeding €1,000,000 – on the taxable patrimonial value for purposes of Municipal Property Tax" (bold ours).

5. As has been repeatedly invoked and admitted, the Municipal Property Tax Code establishes, both as to the matricial registration and discrimination of the respective taxable patrimonial value, and as to the liquidation of the tax, the autonomization of the parts of urban property susceptible of independent use and the segregation/individualization of the taxable patrimonial value relating to each storey or part of property susceptible of independent use.

6. Thus, each property corresponds to a single article in the matrix (no. 2 of article 80 of the MPTC), but, pursuant to no. 3 of article 12 of the same Code, regarding the concept of property register (registration of the property, its characterization, location, taxable patrimonial value and ownership), "each storey or part of property susceptible of independent use is considered separately in the matricial registration, which discriminates the respective taxable patrimonial value," taking as reference not the sum of the taxable patrimonial values attributed to the autonomous parts of the same property, but the value attributed to each of them individually considered.

7. As to the liquidation of Municipal Property Tax – application of the rate to the tax base – article 119, no. 1 provides that "the competent collection document" contains the "discrimination of the properties, their parts susceptible of independent use, respective taxable patrimonial value and the collection amount (…)".

8. That is, the rule is autonomization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, susceptible of independent use[4], in accordance with the concept of property defined at the outset in no. 1 of article 2 of the MPTC: property is any fraction (of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or based thereon, with a character of permanence) provided it forms part of the patrimony of a singular or collective person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy (emphasis and underlining ours).[5]

9. Thus, when no. 4 of article 2 provides that "For purposes of this tax, each autonomous fraction, under the regime of horizontal ownership, is considered as constituting a property," it does not properly establish an exceptional or special regime for properties in horizontal ownership.

10. Each building in horizontal ownership (article 92) has only one matricial registration (no. 1), generically describing the building and mentioning the fact that it is under a regime of horizontal ownership (no. 2), and the matricial autonomy is concretized in the attribution to each of the autonomous fractions, detailed and individualized, of a capital letter, according to alphabetical order (no. 3). This appears to be the specificity of buildings in horizontal ownership; in other cases, of properties in vertical or full ownership, the divisions or storeys with autonomy but without the status of horizontal ownership, the matrix also establishes autonomy but evidencing the units with indication of the type of floor/storey.

11. Nor is the Respondent's argument convincing that in the case of properties in full ownership, even with storeys or divisions susceptible of independent use, despite Municipal Property Tax being liquidated relative to each part susceptible of independent use, the taxable patrimonial value on which the incidence of Stamp Duty of item no. 28.1 of the General Table depends had to be, as it was, the total taxable patrimonial value of the properties, and not that of each of its storeys or independent parts, because item no. 28.1 of the GTSD is applied according to the rules of the MPTC but "with exception of aspects requiring necessary adaptations." (underlining ours).

12. It is not discernible, therefore, in the approved law any reason for, in the matter of incidence of Stamp Duty provided for in item 28.1 of the GTSD, giving to fractions of properties in "vertical ownership," endowed with autonomy, treatment different from that given to properties in horizontal ownership, when in any of those situations Municipal Property Tax is applied to the taxable patrimonial value evidenced in the matrix for each of the autonomous units.

13. The interpretation above sustained, resulting from the analysis of the letter of the law and its insertion in the set of other applicable tax norms, is the most consonant with the spirit of the legislative amendments introduced by Law no. 55-A/2012, of 29 October.

14. As has already been evidenced in other arbitral decisions, "the legislator in introducing this legislative innovation considered as determining element of taxpaying capacity urban properties, with housing allocation, of high value (luxury), more precisely, of value equal to or exceeding €1,000,000.00 upon which a special rate of stamp duty began to apply, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of surface of luxury urban properties with housing allocation. For this reason, the criterion was the application of the new rate to urban properties with housing allocation, whose taxable patrimonial value is equal to or exceeding €1,000,000.00." (...) "The substantiation of the measure designated by 'special rate on the highest value residential urban properties' rests on the invocation of the principles of social equity and fiscal justice, calling upon to contribute more intensively those holding high-value properties intended for housing, applying the new special rate on 'houses of value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or storey with independent use) reflects an above-average taxpaying capacity and, as such, susceptible of determining a special contribution to ensure fair distribution of the tax burden."[6]

15. Now, the sustenance of the thesis that the holding of fractions devoid of status of horizontal ownership reveals greater taxpaying capacity than if they were endowed with such status appears to completely lack adhesion to reality.

16. Conversely, in the majority of cases, as evidenced by Arbitral Decision no. 50/2013, "many of the properties existing in vertical ownership are old, with undeniable social utility, as in many cases they house residents with modest and more accessible rents, factors that necessarily must be taken into account."

17. Thus, it is considered correct the interpretation that item 28 of the GTSD does not encompass each of the storeys, divisions or parts susceptible of independent use when only from the sum thereof results a taxable patrimonial value exceeding that provided for in the same item.

18. As decided in other arbitral proceedings, this tribunal understands that regarding the date of constitution of the tax obligation, fiscal connection, determination of the tax base, liquidation and payment of the stamp duty in question, the corresponding rules of the MPTC are applicable, by express reference of articles 5, no. 1, paragraph u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the SDC.

19. Subjecting to the new stamp duty autonomous parts without the legal status of horizontal ownership, that is to say, while vertical ownership is maintained and not subjecting any of the housing fractions if the property were under a regime of horizontal ownership would constitute violation of the constitutional principle of equality, treating equal situations differently.

20. In the case of the proceedings, verifying that none of the "fractions" of any of the buildings in question presents, per se, "value equal to or exceeding 1 million euros," there is no place for the incidence of item 28 provided for in the General Table of Stamp Duty.

On Compensatory Interest

1. Alongside the annulment of the assessments and reimbursement of the amounts of tax unduly paid, the Applicants further requested that they be assessed compensatory interest, pursuant to the provision in article 43 of the General Tax Law.

2. In harmony with the provision in paragraph b) of article 24 of the LFATM, the arbitral decision on the merits of the claim which is not subject to appeal or contestation binds the tax administration as from the end of the period provided for appeal or contestation, this being required, in the exact terms of the merits of the arbitral decision favorable to the passive subject and until the end of the period provided for the execution of tax court judgments, to "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose."

3. Such is compatible with the provision in article 100 of the General Tax Law [applicable by force of the provision in paragraph a) of no. 1 of article 29 of the LFATM], which establishes that "the tax administration is obliged, in the event of total or partial merits of a claim, judicial action or appeal favorable to the passive subject, to the immediate and full restoration of the legality of the act or situation subject of the dispute, including the payment of compensatory interest, if applicable, as from the end of the period of execution of the decision."

4. It is the understanding of the tribunal, accompanied by arbitral jurisprudence, that the arbitral tribunals functioning in the CAAD integrate within their competence the powers that in judicial challenge proceedings are attributed to tax courts.

5. The judicial challenge proceeding, despite being essentially a proceeding for annulment of tax acts, admits the conviction of the Tax Administration in the payment of compensatory interest, as may be understood from article 43, no. 1, of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in gracious claim or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due."

6. Thus, no. 5 of article 24 of the LFATM in stating that "payment of interest is due, regardless of its nature, pursuant to the terms provided in the general tax law and in the Tax Procedure and Process Code" must be understood as allowing the recognition of the right to compensatory interest in the arbitral proceeding.

7. In the present case, and in the logical course of the recognition, by the tribunal, of the illegality of the stamp duty assessments subject of the initial petition, there will be place for reimbursement of the tax, by force of the cited articles 24, no. 1, paragraph b), of the LFATM and 100 of the General Tax Law, as such is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out."

8. The illegality of the tax assessment acts of stamp duty being imputable to the Tax and Customs Authority, which, on its own initiative carried them out, in manifest defect of violation of substantive law, embodied in error in the legal prerequisites.

9. Consequently, the Applicants are entitled to compensatory interest, pursuant to article 43, no. 1, of the General Tax Law and article 61 of the Tax Procedure and Process Code, calculated on the amounts they paid unduly.

10. Thus, the Tax and Customs Authority should give execution to the present award, pursuant to article 24, no. 1, of the LFATM, determining the amount to be refunded to the Applicants and calculating the respective compensatory interest, at the legal default rate for civil debts, pursuant to articles 35, no. 10, and 43, nos. 1 and 5, of the General Tax Law, 61 of the Tax Procedure and Process Code, 559 of the Civil Code and Regulation no. 291/2003, of 8 April (or statute or statutes succeeding it).

11. Compensatory interest is due from the dates of the payments and on the respective amounts until the date of processing of the credit note in which they are included (article 61, no. 5, of the Tax Procedure and Process Code).

Conclusion

Thus, the present arbitral tribunal concludes that the assessments of Stamp Duty, based on item 28.1 of the GTSD, regarding each of the storeys or parts susceptible of independent use, owned by the Applicants, subject of the present proceedings, are affected by illegality, because the said provisions cannot be interpreted in the sense of their application to storeys or parts susceptible of independent use of a property in vertical ownership, when only from the sum of each of those storeys or parts is it possible to obtain a taxable patrimonial value equal to or exceeding €1,000,000.00 (one million euros), not exceeding the taxable patrimonial value of each of the said storeys or parts that legal threshold.

And, as results from the factuality established, none of the storeys intended for housing, of the property in vertical ownership, subject of this proceeding, has a taxable patrimonial value equal to or exceeding €1,000,000.00, it is concluded for the non-occurrence of the legal prerequisite for the incidence of item 28 of the General Table of Stamp Duty provided for in the GTSD.

Decision

In the terms and with the grounds exposed, the arbitral tribunal decides to judge the request for arbitral decision well-founded with the consequent annulment of the challenged assessments, with all legal consequences wherefore:

a) Judges well-founded the claim for declaration of illegality of the Stamp Duty assessment acts, contained in the identified collection documents, in the total amount of €10,115.30 (ten thousand, one hundred and fifteen euros and thirty cents), with the consequent annulment thereof;

b) Condemns the Tax and Customs Authority to reimburse the Applicants for the amounts they paid;

c) Condemns the Tax and Customs Authority to pay to the Applicants compensatory interest, at the legal rate, reckoned from the date on which they made the payments until the date of complete reimbursement of those amounts.

Value of the Proceeding

The value of the proceeding is fixed at €10,115.30 (ten thousand, one hundred and fifteen euros and thirty cents), in accordance with the provision in paragraph a) of no. 1 of article 97-A of the Tax Procedure and Process Code and no. 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings, as well as article 306 of the Code of Civil Procedure.

Costs

For the purposes of the provision in no. 2 of article 12 and in no. 4 of article 22 of the LFATM and no. 4 of article 4 of the Regulation on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €918.00 (nine hundred and eighteen euros) pursuant to Table I annexed to the said Regulation, to be borne entirely by the Respondent.

Let it be notified.

Lisbon, 30 June 2016

The Arbitrator

(Ana Teixeira de Sousa)

[Text prepared by computer, pursuant to article 131, number 5 of the Code of Civil Procedure (CPC), applicable by reference of article 29, no. 1, paragraph e) of the Legal Framework for Tax Arbitration. The drafting of this decision is governed by pre-reform orthography.]

[1] On the application of item 28 of the GTSD in the case of properties in vertical ownership, there are already published decisions on the CAAD website, namely in Cases 50/2013-T; 132/2013-T; 181/2013-T; 183/2013-T; 185/2013-T; 248/2013-T; 240/2013-T; 280/2013-T, available at www.caad.org.pt.

[2] The provision in Law no. 55-A/2012, of 29 October, regarding the new item 28 of the General Table of Stamp Duty, entered into force on the day following publication of the law, that is, 30 October 2012. Article 6 of Law no. 55-A/2012 provides transitional provisions by virtue of which, in that first year of force, that is, 2012: the taxable event occurs on 31 October (when, in accordance with article 8 of the MPTC, applicable by reference of no. 4 of article 2 of the SDC, it would be on 31 December); the passive subject of the tax is the owner of the property (no. 4 of article 2 of the SDC) also on that 31 October; the taxable patrimonial value to be used in the liquidation of the tax corresponds to that resulting from the rules provided for in the MPTC by reference to the year 2011; the liquidation of the tax by the TA is carried out by the end of November 2012; the tax must be paid in a single instalment, by the passive subjects, by 20 December of that year 2012.

[3] The wording of this number was amended by Law no. 83-C/2013, of 31 December, now using the concept "housing property," but the assessments subject of the present proceedings relate to the year 2012.

[4] On this aspect, and in line with the commentary cited in the previous note, see the reasoning contained in decision no. 248/2013-T: "The autonomization in the matrix of the functionally and economically independent parts of a property in full ownership is connected with reasons of fiscal and extrafiscal nature. At the fiscal level, this autonomization has to do with the very determination of taxable patrimonial value, which constitutes the tax base of Municipal Property Tax, given that the formula for determining that value, provided for in article 38 of the same Code, includes indices that vary depending on the use attributed to each of those parts. At the extrafiscal level, this autonomization continues to find justification in the relevance attributed to the taxable patrimonial value of properties and their autonomous parts in the urban rental legislation." It also mentions no. 1 of article 15-O of Decree-Law no. 287/2003, of 12/11, added by Law no. 60-A/2011, of 30/11 (providing that the safeguard clause relating to the increase in taxation in Municipal Property Tax resulting from the general assessment of urban properties is applicable per property or part of urban property that is subject to the said assessment) as confirming the individualization, for tax purposes, of autonomous parts of urban properties.

[5] As observed in Case 132/2013: "The norms (...) listed establish the principle of autonomization of the independent parts of an urban property, even when not constituted under horizontal ownership. That is, each part susceptible of independent use must be, for purposes of Municipal Property Tax, valued in light of its specificities and allocation, resulting in an autonomous taxable patrimonial value, individualizable and corresponding to each part susceptible of independent use."

[6] Excerpts from the Decision in case no. 50/2014-T, also referring to Arbitral Decision in case no. 48/2013-T, regarding the analysis of the Discussion of the legislative proposal in the National Assembly.