CAAD 455/2015-T: Stamp Tax Verba 28.1 on Vertical Property With VPT Over €1M

ARBITRAL DECISION

Process No. 455/2015-T

I - REPORT

1. A…, Tax Identification Number…, resident at Street … No…, …-… Maia, requested, on 17 July 2015, in accordance with the provisions of Articles 2, No. 1, letter a) and 10, No. 2 of Decree-Law No. 10/2001, of 20 January, which regulates the Legal Regime of Tax Arbitration (LRTA), the constitution of the Arbitral Tribunal, for the appreciation of the legality of the assessment of Stamp Duty (IS), dated 20/03/2015, effected on the basis of Item No. 28.1 of the General Table of Stamp Duty (GTSD) attached to the Stamp Duty Code (SDC), relating to the year 2014, in the total amount of € 11,118.40, concerning the urban property, not constituted in horizontal ownership, located on Street … No…, registered in the urban real estate registry of the civil parish of Union of Civil Parishes of … and…, municipality of Porto, under article… .

2. The Claimant further requests the condemnation of the TA to the payment of compensatory interest, in accordance with Article 43, No. 1 of the General Tax Law and Article 68 of the Code of Tax Procedure and Process.

3. In the request for arbitral pronouncement, the Claimant chose not to designate an arbitrator.

4. Pursuant to Article 6/2, letter a) and Article 11/1, letter b) of the LRTA, the Deontological Council appointed as sole arbitrator the undersigned, who accepted the office within the legally stipulated deadline.

5. The Arbitral Tribunal was constituted on 27 October 2015.

6. The Respondent submitted its reply on 26 November 2015.

7. The Claimant, notified to respond in writing to the matter of the exception, said nothing.

8. The meeting referred to in Article 18, No. 1 of the LRTA was dispensed with and the parties were notified to submit written arguments if they so wished.

9. By order of 10 February 2016, the Tribunal notified the Claimant to attach to the case file proof of payment of the third instalment of the Stamp Duty.

10. The parties submitted no written arguments.

1. The Claimant alleged, in summary, that:

11.1 Is the owner of the urban property, not constituted in horizontal ownership, located on Street … No…, in Porto, registered in the urban real estate registry of the civil parish of Union of Civil Parishes of … and…, municipality of Porto, under article… .

11.2 The Respondent proceeded, for the year 2014, to assess the stamp duty, in the amount of € 11,118.40, stating in the assessment notes "Patrimonial Value of the property-total subject to tax: € 1,111,840.00".

11.3 However, the floors or divisions susceptible to independent use, subject to taxation, have a Taxable Patrimonial Value (TPV) less than € 1,000,000.00.

11.4 The assessments in question are based on the understanding that there will be subjection to Stamp Duty whenever the sum of the TPV of the floors, individually considered, exceeds € 1,000,000.00.

11.5 Concludes in the sense that the illegality of the assessments in question is manifest, due to illegal interpretation by the TA of item 28 of the GTSD.

11.6 Further invokes the violation of the Principles of Justice, Equality and Proportionality.

11.7 The Claimant finally requests that the Respondent be condemned to reimburse the amount of tax wrongly paid, plus compensatory interest.

1. Notified to respond, the Respondent alleges, in summary, the following:

12.1 By way of exception, it maintains the material incompetence of the Arbitral Tribunal to appreciate the legality of a portion of the tax assessment act, in view of the provisions of Article 2 of the LRTA, since, in its understanding, the Claimant requests the appreciation of the legality of a portion of the tax act, which is not in itself any tax act, especially since all documents attached constitute the collection notes for the first instalment of the tax of the year 2014.

12.2 By way of challenge, it argues that, at the date, the Claimant held full ownership of the urban property under analysis, with taxable patrimonial value exceeding € 1,000,000.00.

12.3 With reference to the year 2014, in compliance with the provisions of Article 6/2 of Law No. 55-A/2012, of 29 October, it proceeded in accordance with item No. 28.1, with the amendment effected by Law No. 83-C/2013, of 31 December, it proceeded to notify the collection documents for payment of the 1st instalment of the assessments in question, which affects urban properties, valued in accordance with the IMI Code, with Patrimonial Value equal to or exceeding € 1,000,000.00.

12.4 In compliance with the provisions of Article 119/1 of the IMI Code, the collection document is sent to the taxpayer with a breakdown of the parts susceptible to independent use, respective taxable patrimonial value and the tax apportioned to each municipality of the location of the properties.

12.5 The assessment being correct and the tax apportioned being due, there is no error attributable to the services, which merely acted, as they should, in strict compliance with the legal norm.

12.6 With regard to the alleged violation of the principles of tax equality and contributive capacity, it maintains that there is no violation of the principle of equality in the absence of any discrimination between properties constituted in horizontal ownership and properties in sole ownership with floors or divisions susceptible to independent use, or between properties with housing allocation and properties with other allocations.

12.7 It maintains the full validity and legality of the collection notes of the stamp duty, 1st and 2nd instalment of the year 2014, by application of item 28.1 of the GTSD, concluding for the legality of the same.

C – Proven Facts

1. Based on the facts alleged by the parties, and not contested by the Respondent, as well as on the documentation attached to the case file, the following relevant factual findings are established for the proper decision of the case:

A) The Claimant was in 2014 the owner of the urban property, under the regime of sole ownership with floors or divisions susceptible to independent use, located on Street … No…, Porto, registered in the urban real estate registry of the civil parish of Union of Civil Parishes of … and…, municipality of Porto, under article… .

B) The aforementioned property, in sole ownership, with floors or divisions susceptible to independent use, is composed of "five-storey building and courtyard, intended for commerce and housing", with entrance through Street … No… and Street … No… .

C) In accordance with the respective land registry entry, the sum of the taxable patrimonial values of the various parts, allocated to housing, that make up the property is € 1,111,840.00:

D) The Claimant was notified to proceed with payment, by April 2015, of the 1st instalment of the assessments made.

E) From all documents issued, the following statement also appears: "You may file a complaint or appeal to the assessment in accordance with the terms and deadlines established in articles 70 and 102 of the CTPP".

F) On 30 April 2015, the Claimant proceeded to pay the 1st instalment of the Stamp Duty in question in the present proceedings.

Unproven Facts

It is not considered proven that the Claimant proceeded to pay the second and third instalments of the Stamp Duty assessed, due to the failure to attach to the case file the respective documents proving such payment.

II – PRELIMINARY EXAMINATION

1. The Tribunal is regularly constituted, in accordance with Articles 2, No. 1, letter a), 5, No. 2, and 6, No. 1, all of the LRTA.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10, No. 2, of the LRTA and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The process is not affected by defects that would render it invalid, so the conditions are met for the pronouncement of the final decision.

III. REASONING

The two issues to be decided in the scope of these proceedings are as follows:

1. The competence of the Arbitral Tribunal to hear the claim formulated by the Claimant in these proceedings;

2. The application of item 28.1 of the General Table attached to the SDC, in the wording given by Law No. 83-C/2013, of 31 December, to the property of which the Claimant is the owner, more specifically, it consists of determining whether in the case of properties in sole or vertical ownership, with floors or divisions susceptible to independent use, the taxable patrimonial value to be considered for the purposes of the incidence of item 28.1 of the GTSD is the taxable patrimonial value of each floor or division susceptible to independent use, with housing allocation, as the Claimant argues; or whether it is the total value of the property resulting from the sum of the taxable patrimonial values corresponding to the floors or divisions susceptible to independent use with housing allocation, as the Respondent argues.

3. The request for compensatory interest.

a) Regarding the competence of the arbitral tribunal

In the petition submitted by the Claimant to the Arbitral Tribunal, the Claimant requests that the illegality be declared and the consequent annulment of the acts of assessment of Stamp Duty, item 28.1 of the GTSD, for the year 2014, which resulted in a tax amount of € 11,118.40, concerning the urban property described in the registry under the land registry article…, of the civil parish of the Union of Civil Parishes of … and…, municipality of Porto. In the final request, the Claimant petitions for the declaration of illegality of the aforementioned stamp duty assessment acts and the consequent annulment.

In the response submitted, the Respondent maintains that the Arbitral Tribunal is materially incompetent, in view of the provisions of Article 2 of the LRTA to appreciate the legality of a portion of the assessment act, which is not in itself a tax act, maintaining that the Claimant challenges the collection notes that constitute the 1st and 2nd instalments of the tax.

Notified to respond to the exception raised by the Respondent, the Claimant said nothing.

With regard to competence, it should be noted that, as is known, by virtue of Article 2/letter a) of Decree-Law No. 10/2011, the Arbitral Tribunal is competent to decide claims concerning the "declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;".

Now, from the reading of the request for constitution of the Arbitral Tribunal and the request for arbitral pronouncement, it appears settled that the litigation in these proceedings has as its object the assessments of stamp duty relating to the urban property registered in the registry under article…, for the year 2014, in the global amount of € 11,118.40, this being the value attributed to the proceedings.

In fact, given the tenor of the request for constitution of the arbitral tribunal, the final prayer for relief, and the value attributed to the present action, it appears unequivocal that the Claimant intended to challenge the acts of assessment of stamp duty.

From this it follows that, contrary to what the Respondent argues, the arbitral tribunal is competent to decide the request for declaration of illegality of the stamp duty assessment formulated by the Claimant.

The exception of incompetence raised by the Respondent therefore fails.

b) Application of item No. 28.1 of the GTSD to properties in sole ownership

As we have already alluded, the issue to be decided in these proceedings consists of determining whether the TPV relevant for the purposes of incidence of IS (Item 28 of the GTSD, in the wording given by Law No. 83-C/2013, of 31 December) is the one corresponding to the sum of the taxable patrimonial value attributed to the different divisions or floors (total TPV) or, rather, the TPV attributed to each of the housing divisions or floors.

The issue has already been considered in various proceedings, within the scope of Tax Arbitration, in which it was decided that when it is verified that each one of the floors that make up a property in vertical ownership have a taxable patrimonial value less than one million euros, the legal assumption of incidence of Stamp Duty provided for in item 28.1 of the GTSD is not satisfied and, consequently, it was pronounced for the illegality of the respective assessment acts (cf. decisions handed down in the scope of proceedings numbers 51/2015-T, 391/2014-T, 451/2014-T, 153/2015-T, among others[1]). Also, the Supreme Administrative Court, by judgment of 9/09/2015, case No. 47/15, in which Francisco Rothes was the reporter, decided that in the case of a property in vertical ownership, the incidence of IS (Item 28.1 of the GTSD, in the wording given by Law No. 55-A/2012, of 29 October) should be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors susceptible to independent use (individualized in the land registry article), but by the TPV attributed to each of those floors or divisions intended for housing[2].

No arguments have been identified so far that would allow breaking the unanimity that has been achieved by the decisions already issued, so it is important to reiterate the jurisprudence already established[3].

Item 28 of the GTSD, attached to the SDC, was added by Article 4 of Law No. 55-A/2012, of 29 October, initially had the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the registry, in accordance with the Municipal Property Tax Code, is equal to or greater than € 1,000,000 – on the taxable patrimonial value for purposes of IMI:

28.1 – Per property with housing allocation – 1%;

28.2 – Per property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Ministry of Justice – 7.5%."

The wording of item 28.1 was subsequently amended by Law No. 83-C/2013, of 31 December, which approved the State Budget for 2014, with point 28.1 now using the concept of residential property, now providing as follows: "28.1 Per residential property or for land for construction whose authorized or expected building is for housing, in accordance with the provisions of the IMI Code – 1%".

The issue raised in these proceedings is whether the scope of incidence of item 28.1 of the GTSD in the wording given by Law No. 83-C/2013, of 31 December, i.e., whether item No. 28.1 of the GTSD applies to urban properties in sole ownership, but with floors susceptible to independent use, with housing allocation, when the taxable patrimonial value attributed to each of these floors is less than 1,000,000.00, although the sum of the floors, with independent use, allocated to housing has a total value equal to or greater than that amount.

With respect to the norm in question – item No. 28.1 of the GTSD – the legislative intent that lay at its base can be scrutinized in the presentation and discussion, in Parliament, of bill No. 96/XII (2nd), in which the Secretary of State for Tax Affairs expressly stated[4]:

"The Government proposes the creation of a special tax on high-value residential urban properties. It is the first time that Portugal has created special taxation on high-value properties intended for housing. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or exceeding 1 million euros."

From the semantic variety of the discussion, the undifferentiated use of expressions such as "residential urban properties", "high-value properties intended for housing" and "houses with a value equal to or exceeding 1 million euros" stands out, everything seeming to point to the intention to tax single-family units of greater economic value, parametrized through their respective taxable patrimonial value equal to or exceeding one million euros.

However, from the preparatory works it is not possible to gather, with the necessary rigor, as has already been emphasized in previous decisions, what concept of property underlies that norm (cf. decisions 21/2015-T and 451/2014), namely, whether a residential urban property is, in the sense of item 28 of the GTSD, an autonomous unit (self-sufficient for its intended purpose), distinct and isolated in which the life of each individual or family unit resident takes place, in single-family or multi-family buildings; or whether it encompasses multi-family properties with autonomous units, but without legal autonomy, a characteristic of the separate fractions that make up properties constituted in horizontal ownership.

In the case at hand, the Claimant's property is an urban property, in sole ownership, composed of various floors susceptible to independent use, allocated to commerce and housing.

The individual taxable patrimonial values of the various floors susceptible to independent use are less than € 1,000,000.00.

Item 28.1 provides that "Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the registry, in accordance with the Municipal Property Tax Code, is equal to or greater than € 1,000,000 – on the taxable patrimonial value for purposes of IMI.

It is therefore necessary to determine what taxable patrimonial value is considered for purposes of IMI as item 28.1 results in that Stamp Duty is levied on the "Ownership, usufruct or right of superficies of property whose taxable patrimonial value contained in the registry, in accordance with the Municipal Property Tax Code (IMI Code), is equal to or greater than € 1,000,000 (...)".

Reference is thus made to the IMI Code for all the regulatory content regarding the incidence of "urban properties with the taxable patrimonial value contained in the registry", in accordance with the IMI Code, and regarding the taxable matter "taxable patrimonial value for purposes of IMI". A referral that, moreover, appears, as a subsidiary matter, in Article 67, No. 2 of the SDC, which refers to the IMI Code the "matters not regulated in this Code relating to item No. 28 of the General Table.

We highlight from the IMI Code, with respect to floors or divisions susceptible to independent use, the following rules:

a) each property corresponds to a single land registry article (cf. Article 82, No. 2 of the IMI Code);

b) each floor susceptible to independent use is considered separately in the land registry entry, which also discriminates the respective taxable patrimonial value (cf. Article 12, No. 3 of the IMI Code);

c) the determination of the taxable patrimonial value is determined for each floor or division susceptible to independent use, in accordance with the allocation of each unit, being evaluated separately according to its use and areas (cf. Article 38 of the IMI Code);

d) the collection document contains, obligatorily, the discrimination of the properties, their parts susceptible to independent use, respective taxable patrimonial value (cf. Article 119, No. 1 of the IMI Code);

e) The non-discrimination of the taxable patrimonial value of urban properties by floors or divisions susceptible to autonomous use constitutes grounds for complaint of incorrect land registry entry (cf. Article 130, No. 3, letter h) of the IMI Code).

In legal doctrine, Silvério Mateus and Freitas Corvelo point out that one of the aspects that should be highlighted in the registry has to do with the need to highlight the autonomy that, within each property, can be attributed to each of its parts, functionally and economically independent[5].

The IMI Code enshrines tax relevance – at the level of land registry entry, determination of taxable patrimonial value, discrimination of taxable patrimonial value, assessment, grounds for complaint – to the autonomization in the registry of each part of a property, susceptible to independent use.

It follows from the IMI Code that the parts of a property in sole ownership endowed with autonomy, that is, self-sufficient for the purpose they serve, are subject to individual and separate evaluation, are individualized in the respective land registry entry, possess their own taxable patrimonial value contained in the registry and are subject to individualized assessments (all as results from Articles 7, No. 2, letter b), 13, No. 2 and 119, No. 1 of the IMI Code), this autonomy should be respected and is relevant for the purposes of application of item 28 of the GTSD.

Item 28 of the GTSD makes reference to "urban properties with taxable patrimonial value contained in the registry, in accordance with the Municipal Property Tax Code" and to "taxable patrimonial value used for purposes of IMI".

For its part, Article 12, No. 3 of the IMI Code provides that "each floor or part of property susceptible to independent use is considered separately in the land registry entry, which also discriminates the respective taxable patrimonial value".

Wherefore to the floors susceptible to independent use – as is the case in the proceedings at hand – a specific and own taxable patrimonial value is attributed which is subject to autonomous entry in the respective property registry.

There is thus an autonomization for purposes of IMI of the floors susceptible to independent use which are subject to a specific evaluation, in accordance with Article 7, No. 2, letter b) of the IMI Code, of individual land registry entry and with taxable patrimonial value for purposes of IMI that is autonomous.

In the case of properties in vertical or sole ownership with floors or divisions susceptible to independent use, but without being constituted in horizontal ownership, there is clear tax autonomy which is evidenced by the different units (evaluated with distinct parameters depending on the specific allocation of each unit), indication of the floor/storey, including with specification of the private gross area and the dependent gross area, all as if they were true separate fractions, as occurs in the case at hand – cf. document No. 33.

There is thus no reason for – in the context of incidence of Stamp Duty, provided for in item 28.1 of the General Table –, to give to the floors/divisions susceptible to independent use (integrated in properties in vertical ownership) treatment different from that granted in the IMI Code.

Thus, for the purposes of incidence of Stamp Duty, namely for the purposes of application of item 28.1 of the GTSD, "the taxable patrimonial value contained in the registry" and the "taxable patrimonial value used for purposes of IMI" correspond to the taxable patrimonial value that appears in the registry in relation to each floor or part of property susceptible to independent use, as results from the provision of Article 12, No. 3 of the IMI Code.

In light of the above, it is reiterated, in line with the decisions already issued, that the application in this case of item 28.1 of the GTSD in relation to the property of which the Claimant is the owner is illegal because the aforementioned item should be interpreted in the sense that the relevant taxable patrimonial value is that corresponding to each of the floors susceptible to independent use and not the taxable patrimonial value that results from the arithmetic sum of all the partial taxable patrimonial values, attributed to each of the floors intended for housing, in cases where only from the sum of the taxable patrimonial values results the determination of a taxable patrimonial value equal to or greater than 1,000,000.00. As none of the independent units that make up the property has a taxable patrimonial value exceeding one million euros, item 28.1 of the GTSD does not apply.

Having this Tribunal understood that the assessments in question are illegal, the examination of the alleged violation of the principles and constitutional norms invoked by the Claimant is rendered moot.

c) Compensatory Interest

The Claimant petitions for the condemnation of the TA to reimburse the tax wrongly paid, as well as the respective compensatory interest.

Article 43, No. 1 of the General Tax Law prescribes that "compensatory interest is due when it is determined, in amicable settlement or judicial challenge, that there was an error attributable to the services from which results payment of the tax debt in an amount greater than that legally due.".

For its part, Article 24, No. 1, letter b) of the LRTA provides that the "arbitral decision on the merits of the claim which is not subject to appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, this administration having to, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of the sentences of the tax courts, restore the situation that would have existed if the tax act subject to the arbitral decision had not been carried out.

Given that, in the case sub iudice, the illegality of the challenged assessments is verified, due to error in the assumptions of law, attributable to the Tax Administration that carried out the assessments challenged, due to incorrect application and interpretation of the provision in item No. 28.1 of the GTSD, the Claimant has the right to the reimbursement of the 1st instalment of the tax paid and to compensatory interest calculated from the date of payment until full reimbursement, at the rate of interest resulting from Article 43, No. 4 of the GTL.

With regard to the compensatory interest relating to the second and third instalments of the tax in question, it is verified that the Claimant failed to prove the payment of the tax relating to the second and third instalments (although, with respect to the 2nd instalment the Claimant protested to attach the respective document and, with respect to the 3rd instalment, the Tribunal notified the Claimant to come to the case file to attach proof of payment). Since proof of payment of these instalments has not been provided, there can – with regard to these – be no condemnation to compensatory interest under the provisions of Article 43 of the General Tax Law.

Decision:

For the reasons set out, the arbitral tribunal decides:

a) Find the exception of incompetence raised by the Tax Authority without merit;

b) Find the request for arbitral pronouncement with merit and, as a consequence, declare illegal the assessments of Stamp Duty, by application of Item 28.1 of the GTSD, year 2014, relating to the urban property located on Street … No…, registered in the urban real estate registry of the civil parish of Union of Civil Parishes of … and…, municipality of Porto, under article… .

c) Find the request for payment of compensatory interest relating to the payment of the 1st instalment of the tax with merit.

d) Absolvate the Respondent from the payment of compensatory interest relating to the 2nd and 3rd instalments, for not having been proven that payment of the tax relating to those instalments has already taken place.

e) Condemn the Respondent to the costs of the proceedings.

Value of the proceedings:

Pursuant to the provision of No. 2 of Article 315 of the CPC, combined with letter a) of No. 1 of Article 97-A of the CTPP and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 11,118.40, which constitutes the total amount of tax resulting from the assessments challenged whose annulment was requested.

Costs:

For the purposes of the provision in No. 2 of Article 12 and No. 4 of Article 22 of the RGAT and No. 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00, in accordance with Table I attached to the Regulation, to be borne by the Respondent.

Lisbon, 26 April 2016

The Arbitrator

(Alexandra Gonçalves Marques)

[1] All available in the CAAD database, at www.caad.org.

[2] Available at www.dgsi.pt

[3] We will follow closely the jurisprudence already established and the text of the decisions handed down in the scope of CAAD in proceedings No. 153/2015-T, 263/2015-T and 420/2015-T drafted by the undersigned.

[4] Cf. DAR I Series No. 9/XII-2, of 11 October, p. 32.

[5] Silvério Mateus and Freitas Corvelo (2005), Os Impostos sobre o Património Imobiliário e o Imposto de Selo, Comentados e Anotados, Engifisco, pp. 159-160.