Summary
Full Decision
ARBITRAL AWARD
1 REPORT
A…, LDA. ("Claimant"), tax identification number…, with address at Street…, no…–…, in Lisbon, with share capital of € 5,986.00 (five thousand nine hundred and eighty-six euros), registered in the Commercial Registry Office of Lisbon, pursuant to subparagraph a) of no. 1 of art. 2 combined with art. 10 of Decree-Law no. 10/2011, of 20 January, and art. 2 of Ordinance no. 112-A/2011, of 22 March, filed a request for the Constitution of a Collective Arbitral Tribunal and formulated the following request for a ruling:
(i) Annulment of the Stamp Tax assessments for the years 2012, 2013, 2014 and 2015, in the total amount of € 70,908.20, relating to the real property of which the Claimant is the owner and which gave rise to the collection documents it identifies;
(ii) Condemnation of the Tax and Customs Authority (AT) to refund to the Claimant the tax improperly paid and to pay compensatory interest at the legal rate of 4%, calculated from the date of the improper payments until full reimbursement to the Claimant of such improperly paid tax.
The Claimant substantiated its request by arguing, in summary, that the assessments sub judice are illegal because each of the units constituting the property has a Taxable Property Value (TPV) of less than €1,000,000, arguing that it is on the basis of the TPV of each floor or part of the property capable of independent use and with residential use that its subjection to tax is determined.
The Claimant further argued, more specifically and essentially, the following:
The Claimant is the owner of the urban property located at Av…, no…, in Lisbon, registered in the urban property register of the parish of … under article…, as evidenced by a copy of the property registration certificate attached (Doc. no. 1).
The property in question is held in vertical ownership, being composed of two shops, two independent use areas allocated to services and twenty-eight independent use areas allocated to residential purposes, all as shown in the consultation of the said property register.
The Taxable Property Value ("TPV") of the property is € 2,454,410.00.
On 22 January 2016, the Tax Authority assessed Stamp Tax for the years 2012, 2013 and 2014, with reference to item 28.1 of the General Table of Stamp Tax ("GTST"), totalling € 53,473.70, as follows:
A - With respect to the year 2012, the total tax assessed amounted to € 18,604.70, corresponding to the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Table with 30 entries showing floor identification, TPV, assessment number, tax amount, and document number - layout preserved as in original]
B - With respect to 2013, the total tax assessed amounted to € 17,434.50, corresponding to the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Table with 30 entries - layout preserved as in original]
C - Finally, with reference to 2014, the total tax assessed amounted to € 17,434.50, corresponding to the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Table with 30 entries - layout preserved as in original]
In April 2016, the Claimant was notified to proceed with payment of the first instalments of the tax due with reference to the year 2015 – in a total of € 5,811.76 - which were based on a total collection of € 17,434.50, divided among the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Table with 30 entries - layout preserved as in original]
In June 2016, the Claimant was notified to proceed with payment of the second instalments of the 2015 tax, in a total of € 5,811.38, as shown by copies of the collection documents attached (Docs. 116 to 143).
The Claimant proceeded to pay the tax thus assessed within the prescribed deadline, as evidenced by copies of the documents attached (Docs. nos. 144 to 285).
The Claimant considers that the tax assessed is illegal due to both factual and legal error in the application of the substantive rule invoked - item 28.1 of the GTST -, as well as due to violation of the transitional regime provided for in Law no. 55-A/2012, of 29 October, with respect to the tax for the year 2012.
Request
The Claimant requests the declaration of illegality and annulment of the tax acts in question.
Constitution of the Arbitral Tribunal
The Collective Tribunal was constituted on 19-10-2016, following the appointment of the arbitrators undersigned by the Deontological Council of the Administrative Arbitration Centre, and the Director General of the Tax Authority was notified in accordance with article 17 of the Regulation of Tax Arbitral Jurisdiction in order to present its reply and attach a copy of the administrative file.
Reply of the Tax Authority
Within the prescribed period, the Tax Authority presented its reply, alleging in essence and in summary that the property is described in the property register under a regime of full ownership, consisting of 10 floors and 32 units or floors capable of independent use and for the calculation of TPV, the coefficient varies depending on its intended use, and given that the total assessed property value of the property relating to the units intended for residential use is greater than €1,000,000, the allocation coefficient applied was 1.00 and 1.20 to the units allocated to commercial use; such being the property register information, in accordance with article 23, no. 7 of the Stamp Tax Code, the assessment of the stamp tax in question was carried out by the Tax Authority, taking into account the nature of the urban property, namely its units allocated to residential use, on the date of the taxable event, applying, with the necessary adjustments, the rules contained in the Municipal Property Tax Code; it thus concludes that the contested stamp tax assessments were issued in accordance with the information contained in the property register of the property, and therefore are valid and do not suffer from any illegality.
Subsequent Procedural Development
Proceeding with the case, a ruling was issued on 2-12-2016, dispensing with the meeting provided for in article 18 of the Regulation of Tax Arbitral Jurisdiction and final arguments by the parties.
Preliminary Matters
This Collective Arbitral Tribunal was regularly constituted, with the arbitrators appointed by the Deontological Council of the Administrative Arbitration Centre, all respective legal and regulatory formalities having been complied with (see articles 11-1/a) and b) of the Regulation of Tax Arbitral Jurisdiction and 6 and 7 of the Deontological Code of the Administrative Arbitration Centre), and is competent ratione materiae, in accordance with article 2 of the Regulation of Tax Arbitral Jurisdiction.
The parties have legal capacity and standing, are legitimate and are duly represented (see articles 4 and 10, no. 2 of the Regulation of Tax Arbitral Jurisdiction and article 1 of Ordinance no. 112-A/2011, of 22 March).
No nullities were identified in the proceedings.
It is necessary to examine and decide on the merits of the claim.
2 SUBSTANTIVE LAW
Findings of Fact
2.1 Proven Facts:
2.1.1 The Claimant is the owner of the urban property located at Av…, no…, in Lisbon, registered in the urban property register of the parish of … under article..., as shown in the respective property registration certificate (Doc. 1, attached with the initial request[1]);
2.1.2 The property in question is held in vertical ownership, being composed of two shops, two independent use areas allocated to services and twenty-eight independent use areas allocated to residential use, all as shown in the consultation of the said property register (Doc. 1);
2.1.3 The Taxable Property Value ("TPV") of the property is € 2,454,410.00.
2.1.4 On 22 January 2016, the Tax Authority assessed Stamp Tax for the years 2012, 2013 and 2014, with reference to item 28.1 of the General Table of Stamp Tax ("GTST"), totalling € 53,473.70, as follows:
A - With respect to the year 2012, the total tax assessed amounted to € 18,604.70, corresponding to the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Tables as listed above - preserved as in original]
B - With respect to 2013, the total tax assessed amounted to € 17,434.50, corresponding to the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Tables as listed above - preserved as in original]
C - Finally, with reference to 2014, the total tax assessed amounted to € 17,434.50, corresponding to the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Tables as listed above - preserved as in original]
2.1.5 In April 2016, the Claimant was notified to proceed with payment of the first instalments of the tax due with reference to the year 2015 – in a total of € 5,811.76 - which were based on a total collection of € 17,434.50, divided among the following individual assessment acts carried out on the basis of the TPV of each independent use area:
[Table as listed above - preserved as in original]
2.1.6 In June 2016, the Claimant was notified to proceed with payment of the second instalments of the 2015 tax, in a total of € 5,811.38 (Docs. 116 to 143) and in November 2016 to proceed with payment of the third instalments of the 2015 tax, in a total of € 5,811.37 (Docs. attached with the request presented by the Claimant on 3-1-2017).
2.1.7 The Claimant proceeded to pay the tax thus assessed within the prescribed deadline (Docs. nos. 144 to 285 and docs. attached with the request presented by the Claimant on 3-1-2017).
2.1.8 The Tax Authority assessed Stamp Tax autonomously on the assessed property value of each floor allocated to residential use, on the basis of item 28.1 of the GTST...
2.1.9 ... taking as reference, for the determination of taxability, the total assessed property value of the floors or units allocated to residential use of the property - € 1,860,470.00, for 2012, and € 1,743,450.00 for the following years.
2.2 Substantiation of the Proven Facts
The Tribunal's conviction regarding the facts found as proven resulted from a critical analysis of the copy of the administrative file attached by the Tax Authority and of the documentary evidence attached and not disputed in conjunction with the positions of the parties in their respective pleadings.
2.3 Unproven Facts
There are no facts relevant or essential to the decision of the case that should be considered as unproven.
3 THE LAW
3.1 Issue to be Decided
The essential question to be decided in this case is to determine, with reference to an urban property not constituted under a horizontal property regime, comprised of various areas with independent use, partly with residential allocation, whether the TPV relevant for the purposes of taxation under Stamp Tax pursuant to item 28.1 of the GTST should be the value corresponding to the sum of the assessed property value attributed to the different independent parts or floors allocated to residential use (total TPV greater than €1,000,000.00) or whether, on the contrary, the TPV attributed to each floor or unit with independent use should be taken into account for the purposes of the incidence of Stamp Tax pursuant to item 28.1 of the GTST.
3.2 Substantiation (continued)
In its wording as applicable to the situation under analysis, item 28 of the GTST provided that the following situations were subject to Stamp Tax:
"28 — Ownership, usufruct or right of superficies of urban properties whose assessed property value contained in the property register, in accordance with the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 — on the assessed property value used for the purpose of the Municipal Property Tax:
28.1 — Per property with residential allocation[2] — 1%;
28.2 — Per property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by ordinance of the Minister of Finance — 7.5%."
Thus, the cumulative requirements for the application of the norm contained in item 28.1 of the GTST are: that the property to be taxed is an urban property "with residential allocation" and that its assessed property value, for the purpose of the Municipal Property Tax, is greater than € 1,000,000.00.
And no. 7 of article 23 of the Stamp Tax Code provides, regarding the assessment of this tax:
"In the case of tax due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adjustments, the rules contained in the Municipal Property Tax Code."
Regarding taxation in light of the aforesaid item 28 of the GTST, various doubts have arisen regarding the inclusion or not in the rule of incidence of Stamp Tax of properties held in vertical ownership, constituted in fractions of autonomous and independent use, with residential allocation, and in which the assessed property value, in the sum of the fractions, is equal to or greater than one million euros, but in which none of them, separately considered, for the purposes of the Municipal Property Tax, has a value equal to or greater than that amount. This is because article 28 itself provides that the value to be considered is the value "used for the purposes of the Municipal Property Tax", and, in the case of vertical ownership, each of the independent use fractions is valued autonomously.
The aforesaid norm emerged following the Legislative Proposal no. 96/XII – 2nd, of the Assembly of the Republic, contained in the Parliamentary Records, Series I, no. 9/XX/2, of 11 October 2012, which states that, with the intended legislative amendment, the creation of "a tax under Stamp Tax applicable to urban properties with residential allocation whose assessed property value is equal to or greater than one million euros" is sought. "These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment programme. The Government is strongly committed to ensuring that the distribution of such sacrifices will be made by all and not just by those who live on the income from their work. In accordance with this objective, this statute broadens the taxation of income from capital and property, equitably encompassing a wide range of sectors of Portuguese society".[3]
Appeal is thus made, along with the creation of another revenue-generating mechanism, to the need to accommodate the principles of social equity and tax justice so that they contribute especially natural persons who are holders of homes valued at equal to or greater than € 1,000,000.00.
It seems obvious that the aim was, first and foremost, to create a way to generate additional revenue, since the statute itself says nothing more on the subject, without prejudice to having intended to convey the idea that this increase in revenue provided for in the norm would come only from the taxation of those individual citizens who demonstrate greater contributory capacity through the use of real property of high value. And indeed, item 28.2 also considers as subject to tax properties not held by natural persons that have their seat in countries, territories or regions where a more favourable tax regime is in force, as listed in an Ordinance of the Government.
Well, having regard to the letter of the law, the essential elements for the existence of taxation can thus be summarized: Stamp Tax is levied on the ownership, usufruct or right of superficies of (i) urban properties, (ii) held by natural persons, (iii) with residential allocation, (iv) whose assessed property value contained in the property register is equal to or greater than 1,000,000.00€, (v) to be calculated on the same assessed property value that is used for the purposes of the Municipal Property Tax.
Also to be taken into account, as absolutely essential for this case, the norms of article 67, no. 2 of the Stamp Tax Code - when it establishes that "(…) to matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the Municipal Property Tax Code shall apply subsidiarily" - and of articles 4 and 12 of the Municipal Property Tax Code, containing the definition of what urban properties are and specifying that the latter, for the purposes of taxation under Municipal Property Tax, "each floor or part of a property capable of independent use is considered separately in the property registration, which also discriminates the respective assessed property value" (TPV) (emphasis added).
Not insignificant is also the circumstance that there is express systematic reference in the Stamp Tax Code to the rules of the Municipal Property Tax Code (see, e.g., articles 5, no. 1, subparagraph u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the Stamp Tax Code).
Naturally, no doubts would arise if each floor or part of the property constituted autonomous fractions under the horizontal property regime, since the Municipal Property Tax Code clearly provides that each fraction is deemed to constitute a property (see article 2-4 of the Municipal Property Tax Code).
But what appears clear is the equal treatment given by the Municipal Property Tax Code to properties in horizontal ownership and properties in full ownership, treatment justified by the absence of material differences between the two types of properties and, consequently, by treating the two types of properties in the same way, the legislator complied with the constitutional principle of equality.
On the other hand, having especially in mind that it was the taxation of the so-called "luxury properties" that was at the basis, as seen, of the creation of the said wording of item 28.1 of the GTST, this purpose of the norm is only fulfilled when the urban property is considered in its function as individual residential housing, that is, in light of a concept of property as an independent or individual economic or tax unit, whether or not constituted under the horizontal property regime.
In this perspective and in light, in particular, of the constitutional principles of equality, justice and contributory capacity, no differences in tax treatment can be established in the application of article 28.1 of the GTST between a taxpayer who owns a building constituted in horizontal property and another owner of a building identical in all respects but not constituted (or not yet constituted) under the horizontal property regime.
Thus, given that the value to be considered for the calculation of the rate to be applied for the purposes of item 28 of the GTST is the assessed property value used for the purpose of the Municipal Property Tax, this will necessarily be that of each of the units or parts of the property allocated to residential use and with autonomous TPV.
And it has been in this line of conclusions that jurisprudence has oriented itself, in an almost unanimous manner, (see, e.g., the arbitral awards issued in the cases of the Administrative Arbitration Centre, nos. 14/2014-T, 35/2014-T, 245/2014-T, 249/2015-T, 413/2015-T, 432/2015-T, 530/2015-T, 632/2015-T, 668/2015-T, 743/2015-T, 765/2015-T and 777/2015-T, all of which can be consulted on the Administrative Arbitration Centre website, www.caad.org.pt.
4 The Indemnity Claim
The Claimant requests condemnation of the Tax Authority to refund to the Claimant the tax improperly paid and to pay compensatory interest at the legal rate of 4%, calculated from the date of the improper payments until full reimbursement of such improperly paid tax.
The Claimant paid the amounts assessed, as referred to in 2.1.7 of the facts established.
In accordance with the provisions of subparagraph b) of article 24 of the Regulation of Tax Arbitral Jurisdiction, the arbitral award on the merits of the claim for which no appeal or challenge is available binds the tax administration from the end of the period prescribed for appeal or challenge, and the latter must, in the exact terms of the merits of the arbitral award in favour of the taxpayer and until the end of the period prescribed for the voluntary execution of sentences of tax courts, "restore the situation that would have existed if the tax act that is the subject of the arbitral award had not been carried out, adopting the acts and operations necessary for that purpose", which is in line with the provisions of article 100 of the General Tax Law [applicable by virtue of the provisions of subparagraph a) of no. 1 of article 29 of the Regulation of Tax Arbitral Jurisdiction] which establishes that "the tax administration is obliged, in the event of total or partial success of a claim, judicial challenge or appeal in favour of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period for execution of the decision".
Although article 2, no. 1, subparagraphs a) and b) of the Regulation of Tax Arbitral Jurisdiction use the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in the Administrative Arbitration Centre, making no reference to condemnatory rulings, it should be understood that the powers granted to tax courts in judicial challenge proceedings are comprised in their competences, and this is the interpretation that is in tune with the sense of the legislative authorization on which the Government based itself to approve the Regulation of Tax Arbitral Jurisdiction, in which it proclaims, as the first guideline, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".
The judicial challenge process, despite being essentially an annulment process of tax acts, allows for the condemnation of the Tax Administration in the payment of compensatory interest, as can be inferred from article 43, no. 1 of the General Tax Law, which establishes that "compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due" and from article 61, no. 4 of the Tax Procedure and Process Code (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to no. 2 in the initial wording), that "if the decision that recognized the right to compensatory interest is judicial, the period for payment shall be counted from the beginning of the period for its voluntary execution".
Thus, no. 5 of article 24 of the Regulation of Tax Arbitral Jurisdiction, when it states that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Tax Procedure and Process Code" should be understood as allowing for the recognition of the right to compensatory interest in the arbitral process.
In the case at hand, it is manifest that, as a result of the partial illegality of the assessment acts, a refund of the tax is due, by force of the aforementioned articles 24, no. 1, subparagraph b) of the Regulation of Tax Arbitral Jurisdiction and 100 of the General Tax Law, since this is essential to "restore the situation that would have existed if the tax act that is the subject of the arbitral award had not been carried out".
With respect to compensatory interest, it is also clear that the illegality of the act is attributable to the Tax and Customs Authority, which carried it out on its own initiative without legal basis.
This is a defect in violation of substantive law, embodied in error regarding the legal presuppositions, attributable to the Tax Administration.
Consequently, the Claimant is entitled to compensatory interest, in accordance with article 43, no. 1 of the General Tax Law and article 61 of the Tax Procedure and Process Code, calculated on the amounts it paid improperly and from the dates on which it did so.
Thus, the Tax and Customs Authority should execute this award, in accordance with article 24, no. 1 of the Regulation of Tax Arbitral Jurisdiction, determining the amount to be refunded to the Claimant and calculating the respective compensatory interest at the legal default rate for civil debts (currently 4% per annum), in accordance with 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 Ordinance no. 291/2003, of 8 April (or the statute or statutes that may replace it in the interim).
Compensatory interest is due from the dates of the payments until that of the processing of the credit note, in which it is included (article 61, no. 5 of the Tax Procedure and Process Code).
- RULING
In accordance with the foregoing, this Tribunal rules:
-
To declare the illegality of the assessments that are the subject of these proceedings, for lack of legal basis and violation, in particular, of articles 28 of the GTST, in conjunction with articles 4 and 12 of the Municipal Property Tax Code and 23-7 and 67-2 of the Stamp Tax Code (CIS), in the interpretation now defended, and, consequently, ruling that the claim is well-founded on such grounds, decides to annul the aforesaid assessment acts
-
To condemn the Respondent to refund to the Claimant the amounts improperly assessed and paid, plus the payment of compensatory interest from the date of payment until the date of processing of the credit note in which it should be included (article 61, no. 5 of the Tax Procedure and Process Code), at the legal rates in force until reimbursement, in accordance with article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (and the statute or statutes that may replace it); and
-
To condemn the Tax and Customs Authority to pay the costs of the proceedings.
5.1 Value of the Proceedings
In accordance with the provisions of article 306, nos. 1 and 2 of the Civil Procedure Code and 97-A, no. 1, subparagraph a) of the Tax Procedure and Process Code and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 70,908.20.
5.2 Costs
In accordance with article 22, no. 4 of the Regulation of Tax Arbitral Jurisdiction, the amount of costs is set at €2,448.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, which, as was determined above, shall be entirely charged to the Tax and Customs Authority.
Lisbon, 7-2-2017
The Collective Arbitral Tribunal,
José Poças Falcão
(Presiding Arbitrator)
Ana Teixeira de Sousa
(Adjunct Arbitrator)
João Menezes Leitão
(Adjunct Arbitrator)
[1] The documents to which reference is made without other mention were attached by the Claimant with its initial request.
[2] Current wording of item 28.1: "Per residential property or per land for construction, the building of which, authorised or planned, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code" [Wording of Law no. 83-C/2013, of 31-12.].
[3] And when presenting and discussing, in Parliament, Legislative Proposal no. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated: "The Government proposes the creation of a special tax on urban residential properties of the highest value. It is the first time that in Portugal a special taxation on high-value properties intended for residential use has been created. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and shall apply to properties valued at equal to or greater than 1 million euros."
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