Stamp Tax on Properties Under €1M: Independent Units Cannot Be Aggregated | CAAD 452/2015-T

ARBITRAL DECISION

REPORT

At folios 2, Insurance Company A..., SA, legal entity no. ..., with headquarters at ... street, ..., -... ...-... ..., hereby requests an Arbitral Decision concerning the assessments of Stamp Duty levied, under item no. 28.1 of the General Stamp Duty Table, amended by Law No. 55-A/2012, of 29 October, for the year 2014, in the amount of € 12,225.20, and on the urban property located at ... street, at ..., registered in the urban property register of the parish of ..., of the municipality of Setúbal, registered in the register under article ..., alleging the following:

I. THE PROVEN FACTS

I. The Claimant alleges that:

1. It is the owner of the aforementioned urban property, registered in the urban property register, under full ownership, with 25 units susceptible of independent use, all allocated to residential use, each of the units having a Taxable Property Value (TPV) registered in the property register, which was calculated separately and varies between € 23,210.00 and € 53,860.00, the sum of the taxable property values of all units susceptible of independent use of the property being €1,222,520.00.

2. On 28 March 2015, the Tax Authority proceeded to assess Stamp Duty under item 28.1 of the General Stamp Duty Table for all units susceptible of independent use, as follows:

Total: 1,222,520.00 | 12,225.20 | 5,174.43

1. Despite having proceeded to the payment of the assessment notices, the Claimant disagrees with the taxation provided for in item 28.1 of the General Stamp Duty Table, due to the absence of legal prerequisites for the incidence of Stamp Duty provided for in the aforementioned item 28.1 of the General Stamp Duty Table.

2. There exists no regulation that determines how to calculate the TPV of a property registered in full ownership, composed of various floors or units susceptible of independent use, and there are doubts as to whether the TPV corresponds to the sum of all TPVs of the respective parts, as the Tax Authority operated, or whether the TPV of each part is independent, therefore the operation carried out by the Tax Authority was based on an error regarding the factual and legal prerequisites.

3. Response of the Tax Authority

4. There is no illegality in the assessments carried out, since the areas of independent use do not constitute an autonomous property, therefore the TPV must be the sum of all the TPVs of the areas that compose it.

5. Each one of its floors or units susceptible of independent use is considered, pursuant to paragraph 3 of article 12, separately in the registration in the property register, but this cannot be confused with a property in horizontal ownership, benefiting from a more legally evolved status, with a property in full ownership, which are different legal institutions and with different legal-civil regimes.

6. Therefore, the Tax Authority considers that the assessment notices issued remain entirely valid, and that the request for arbitral decision should be judged as unfounded and the respondent entity absolved.

FACTS NOT PROVEN

1. There are no facts that, by their relevance, should be mentioned.

III. PRELIMINARY EXAMINATION

1. The Tribunal is competent and is regularly constituted, pursuant to articles 2, paragraph 1 subparagraph a), 5 and 6, all of the Rules of the Tax Arbitration Court.

2. The parties have legal personality and capacity, are legitimate and are regularly represented, pursuant to articles 4 and 12 of the Rules of the Tax Arbitration Court and article 1 of Administrative Order 112-A/2011, of 22 March.

It is necessary to proceed with the examination of the merits of the request.

IV. THE ISSUE TO BE DECIDED

1. The matter at issue consists in determining whether, for purposes of taxation under item 28.1 of the General Stamp Duty Table, the TPV (taxable property value) of a property in full ownership is the sum of the TPVs of each floor or unit susceptible of independent use that integrate the same property and which are allocated to residential use, or is the TPV of each floor or unit susceptible of independent use.

V. THE LAW

1. Law No. 55-A/2012, of 29 October, amended the General Stamp Duty Table by adding item 28.1 to the General Stamp Duty Table, subjecting property ownership to Stamp Duty, from 1 January 2014:

"28 Ownership, usufruct or right of superficies of urban properties whose taxable property value as recorded in the register, in accordance with the Code of Municipal Property Tax (CMPT), is equal to or exceeding € 1,000,000.00 on the taxable property value used for purposes of Municipal Property Tax;

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

1. Thus, there became subject to taxation, under Stamp Duty, at the rate of 1%, on the TPV used for purposes of Municipal Property Tax:

• Residential properties
• Land for construction whose building, authorized or planned, is for residential use;

Whenever, in either case, the respective TPV is at least € 1,000,000.00

1. Although creating a new form of taxation, the law neither created nor clarified the new concepts for the situations provided for in item 28.1, namely that of "residential property", having determined, in article 67, paragraph 2 of the Code of Municipal Property Tax, to fill the gap of the legal norm, that the Code of Municipal Property Tax is subsidiary law for matters not regulated concerning item no. 28 of Stamp Duty.

2. It is important to keep in mind some norms that design or condition the norm now created, such as the registration of each floor, or part of property, susceptible of independent use, but integrating the same property, is considered separately in the real property registration in full ownership that discriminates the taxable property value of each one of the parts susceptible of independent use (paragraph 2 of article 12 of the Code of Municipal Property Tax), and that Municipal Property Tax is assessed individually, in relation to each floor or part of the property susceptible of independent use (article 119, paragraph 1 of the Code of Municipal Property Tax).

3. Thus, when dealing with the "structure" of properties in vertical ownership, the legal framework considers the floors or the units susceptible of independent use, individually, treating them as independent units similarly to autonomous units, following the same rules as real estate constituted in horizontal ownership.

4. For the legislator of the norm, the situation of the property in vertical ownership or in horizontal ownership was not relevant, since no reference or distinction is made between one and the other, which are figures of civil law.

5. We must understand that the legislator did not adopt formal legal rigor, but the concrete situation of the property, its normal use, the purpose for which the property is intended, making the material truth underlying its existence and its use prevail.

6. The subjection to stamp duty, in these cases, is determined by the simultaneous combination of two factors:

7. residential allocation,

and,

1. the TPV attributed to each floor or unit susceptible of independent use, being equal to or exceeding € 1,000,000.00

2. The subjection to Stamp Duty is, therefore, determined by the TPV of the property, but by the TPV of each one of the parts susceptible of independent use, presenting a TPV equal to or exceeding € 1,000,000.00.

3. The Tax Authority understands that in a property in vertical ownership, the norm contained in item 28 of the General Stamp Duty Table determines that the criterion for its incidence is the global TPV of the property, which does not appear to be in accordance with the principle of tax legality.

4. It constitutes established jurisprudence of the Tax Arbitration Court, among others in Case 132/2013-T, that "property with patrimonial allocation" is understood to be, among the various types of urban properties, buildings or constructions licensed for such purpose or, in the absence of a license, which have each of these purposes as their normal destination.

5. Although article 4 of the Code of Municipal Property Tax establishes that, in horizontal ownership, each autonomous unit is considered a property, the law points to no discrimination between horizontal and vertical ownership susceptible of independent use, both being the same reality, merely urban residential properties, therefore the regime applicable to them cannot be different.

6. On the other hand, article 23, paragraph 7 of the Stamp Duty Code provides that the tax is assessed annually, in relation to each urban property, applying, with the necessary adaptations, the norms of the Code of Municipal Property Tax, requiring that, in relation to properties in full ownership with units susceptible of independent use allocated to residential use, the taxation of item 28 of the General Stamp Duty Table shall only occur when some of those units have a TPV of at least € 1,000,000, in the same terms as occur for an autonomous unit of a property in horizontal ownership.

7. The Tax Authority cannot consider as the reference value for the incidence of the tax the total taxable property value of the property, since, in the register, there is the TPV of each independent part.

8. Taking into account that the individual TPV of each one of the 25 units of independent use with residential allocation vary between 23,210.00 and 53,860.00, the assessments under scrutiny are affected by illegalities due to the absence of legal prerequisites set forth in item 28 of the General Stamp Duty Table.

PRELIMINARY ISSUES OF KNOWLEDGE

1. With regard to factual matters, the Tribunal does not have to rule on everything alleged by the parties, it being its duty to select the facts that matter to the decision, the proven and unproven matters (article 123, paragraph 2 of the Code of Administrative Procedure and article 607, paragraph 3 of the Code of Civil Procedure, applicable "ex vi" article 29, paragraph 1, subparagraphs a) and e) of the Rules of the Tax Arbitration Court. In this way, the facts relevant to the judgment of the case are chosen and selected in accordance with their legal relevance, which is established in view of the various plausible questions of law (article 596 Code of Civil Procedure, applicable "ex vi" of article 29, paragraph 2 of the Rules of the Tax Arbitration Court).

2. In fact, article 124 of the Code of Administrative Procedure, subsidiarily applicable by virtue of the aforementioned article 29 of the Rules of the Tax Arbitration Court, by establishing an order of knowledge of defects, presupposes that, when one defect is adjudged founded which ensures the effective protection of the rights of the challengers, it is not necessary to know the others, for, if it were always necessary to examine all the defects imputed to the impugned acts, the order of their examination would be irrelevant.

DECISION

In light of the foregoing, we conclude that the Claimant is in the right, and, in consequence, we decide:

a) To declare the illegality of the assessments which are the subject of these proceedings and, in consequence, to judge the request for arbitral decision as founded, with the consequent annulment, with all legal effects, of the acts of assessment of Stamp Duty, better identified in the proceedings;

b) To judge as founded the request for indemnifying interest petitioned by the Claimant.

VALUE OF THE PROCESS € 12,225.20 in accordance with article 306, paragraphs 1 and 2 of the Code of Civil Procedure and 97-A, paragraph 1 subparagraph a) of the Code of Administrative Procedure and 3, paragraph 2 of the Regulation of Costs in Processes of Tax Arbitration, the value of the process is fixed at € 12,225.20.

COSTS

The costs, in the amount of € 918.00 - Table I annexed to the Regulation of Costs in processes of Tax Arbitration, remain entirely the charge of the Respondent (article 24.A of the Regulation of the Tax Arbitration Court).

Let it be notified and registered.

Lisbon, 18 August 2016

The Arbitrator,

Fernando Pinto Monteiro