Stamp Tax on Vertical Property: Individual VPT vs Total VPT Under Clause 28.1 TGIS (CAAD 463/2015-T)

ARBITRAL DECISION [1]

Claimant – A, Ltd.

Respondent - Tax and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 6 October 2015, with respect to the process identified above, decided as follows:

1. REPORT

1.1. A, Ltd., Legal Entity No. ..., with registered office at …, ... (hereinafter referred to as "Claimant"), submitted a request for arbitral pronouncement and constitution of a single Arbitral Tribunal, on 22 July 2015, pursuant to the provisions of Article 4 and No. 2 of Article 10 of Decree-Law No. 10/2011, of 20 January [Legal Regime of Tax Arbitration (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter referred to as "Respondent").

1.2. The Claimant intends that the Arbitral Tribunal pronounce on the request for arbitral pronouncement and judge the same as "fully merited and proven, on the basis that in the specific case of properties constituted in vertical ownership, and for purposes of the incidence of item 28.1. of the TGIS, the individual and effective Property Value Tax (PVT) of each one of the divisions/floors with residential allocation of the property (…) should be relevant and not the sum of the PVTs of all parts of the property (…) and consequently the stamp tax assessments sub judice should be annulled, with the consequent restitution of the tax paid, plus compensatory interest at the legal rate, from the date of full payment of the tax, until its effective restitution (…)".

1.3. The request for constitution of the Arbitral Tribunal was accepted by the Esteemed President of CAAD, and automatically notified to the Respondent on 24 July 2015.

1.4. Given that the Claimant did not proceed to the appointment of an arbitrator, pursuant to Article 6, No. 2, paragraph a) of the RJAT, the undersigned was designated as arbitrator on 18 September 2015, by the President of the Deontological Council of CAAD, with the appointment having been accepted within the legal timeframe and terms.

1.5. On the same date, the parties were duly notified of such designation and did not express any intention to refuse the appointment of the arbitrator, in accordance with Article 11, No. 1, paragraphs a) and b) of the RJAT in conjunction with Articles 6 and 7 of the Deontological Code.

1.6. Thus, in compliance with the provisions of paragraph c), No. 1, Article 11 of the RJAT, the Arbitral Tribunal was constituted on 6 October 2015, with an arbitral order being issued on 7 October 2015, to the effect of notifying the Respondent to, in accordance with the provisions of Article 17, No. 1 of the RJAT, submit a reply within a maximum period of 30 days and, if it wished, request the production of additional evidence.

1.7. On 13 October 2015, the Respondent submitted its Reply, having defended itself by objection and concluded that "(…) the tax acts in question (…) did not violate (…) any legal or constitutional provision and should (…) be upheld".

1.8. Additionally, "given that the matter in dispute is (…) exclusively of law", the Respondent also presented in its Reply a request for waiver of the "arbitral hearing provided for in Article 18 of the RJAT, as well as the submission of arguments".

1.9. The Parties were notified of the arbitral order, dated 14 October 2015, to the effect of pronouncing themselves, within a period of 5 days, on the possibility of waiving the holding of the hearing referred to in Article 18 of the RJAT, as well as on the possibility of waiving the submission of arguments.

1.10. The Claimant submitted a motion on 20 October 2015, to the effect of dispensing with the holding of the hearing referred to in Article 18 of the RJAT, as well as dispensing with the submission of arguments.

1.11. The Respondent, on the same date, also submitted a motion to the effect that it had nothing to object regarding the waiver of the holding of the aforementioned hearing, as well as to the effect of considering the production of arguments dispensable.

1.12. In these terms, it was decided by the Arbitral Tribunal, in an order dated 22 October 2015, in accordance with the procedural principles provided for in Article 16 of the RJAT, of the autonomy of the Arbitral Tribunal in conducting the proceedings and in determining the rules to be observed [paragraph c)], of cooperation and procedural good faith [paragraph f)] and of the free conduct of proceedings provided for in Articles 19 and 29, No. 2 of the RJAT, and also taking into account the principle of limitation of useless acts provided for in Article 130 of the Civil Procedure Code (CPC) [applicable by virtue of the provisions of Article 29, No. 1, paragraph e) of the RJAT], to dispense with the holding of the hearing referred to in Article 18 of the RJAT, as well as to dispense with the submission of arguments, with 16 November 2015 being designated as the date for the issuance of the arbitral decision.

1.13. In the same order, the Claimant was also warned that "up to the date of issuance of the arbitral decision it should proceed to payment of the subsequent arbitration fee, in accordance with the provisions of No. 3 of Article 4 of the Regulations of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD".[2]

1.14. As a consequence of the motion submitted by the Claimant on 28 October 2015, to the effect of "requesting the joining to the file of the notifications for payment of the third instalment of Stamp Tax, (…) respective payment proofs (…) and (…) proof of payment of the subsequent arbitration fee (…)", the respective joining was admitted by arbitral order dated 30 October 2015.

1. CAUSE OF ACTION

2.1. The Claimant "is the owner of the urban property which corresponds to registration number …, of the parish of ... and ..., in ...", said property being constituted in "full ownership with floors or divisions capable of independent use, i.e., in vertical ownership".

2.2. According to the Claimant, "the property is described as being comprised of two individual dwellings, both for residential purposes and of independent use", whereby "at the date of the tax event - 31 December 2014 -, the two divisions of the property had residential allocation and independent use".

2.3. In fact, "the first dwelling is comprised of 2 floors with a (…) PVT (…) of EUR 206,290.00" and "the second is a dwelling with 3 floors and 12 divisions also comprised of a caretaker's house, two swimming pools, pump house and kennels, with a (…) PVT (…) of EUR 967,940.00", "with the sum of the PVTs of all divisions amounting to EUR 1,774,230.00".[3]

2.4. The Claimant submits that "the individual use of the dwellings is easily ascertainable through analysis of rental invoices, water, electricity and gas bills (…), each associated with different contracts (…)".[4]

2.5. "Given the allocation assigned to the various divisions of the aforementioned property - residential allocation - and the current grouped PVT of the property (…) the Tax Authority notified the Claimant of the Stamp Tax assessment, in accordance with item 28.1. of the TGIS (…)", "relating to the tax year 2014 (…)","(…) with a collection of EUR 11,742.30 (…)", and whose first and second instalments are identified below:

2.6. The Claimant further refers that payments were made "(…) of the first and second instalment of the tax (…) in accordance with the payment proofs (…)" attached, and undertook to join the proofs relating to the "third and final instalment of the tax (…)", because at the date of the request had not yet been "(…) notified".[5]

2.7. However, "by not agreeing with the Stamp Tax assessments notified, the Claimant requests the annulment of the same as illegal (…)", since "item 28 of the TGIS can only, legitimately, apply to divisions that form part of properties constituted in vertical ownership when this part/division presents a PVT equal to or greater than EUR 1,000,000.00, which is not verified in the present situation", whereby not being "(…) none of the PVTs of the divisions that were subject to Stamp Tax equal to or greater than EUR 1,000,000.00 (…)", "the Stamp Tax assessments sub judice should be annulled, as illegal, for all (…) legal purposes".[6]

2.8. According to the Claimant, "it is further necessary to note that (…) in light of the constitutional principles underlying taxation, the Stamp Tax assessments sub judice are illegal", since "for purposes of the incidence of item 28.1. of the TGIS, the determining criterion of taxpaying capacity should be the material truth of each property/fraction/division, and not the mere legal-formal reality of the property (…) in vertical/horizontal ownership, under pain of flagrant violation of the principle of equality, constitutionally enshrined, whereby (…) this (…) Arbitral Tribunal should declare the illegality of the Stamp Tax assessments sub judice, whereby the same should be annulled (…)".

2.9. Finally, the Claimant cannot "fail to note that the illegality of the Stamp Tax assessments sub judice is imperative (…) given the very ratio legis underlying item 28.1. of the TGIS", since, taking into account that "the Legislator intended to impose an additional burden on taxpayers who are owners (…) of properties with residential allocation whose PVT exceeds 1 million euros, that is, on luxury residential real estate assets", "(…) it should be concluded that the subjection (…)" of "properties constituted in vertical ownership, when none of their floors or divisions have a PVT equal to or greater than EUR 1,000,000.00".[7]

Regarding the Request for Payment of Compensatory Interest

2.10. "By means of this Request for Arbitral Pronouncement, the Claimant requests the appreciation of the illegality of the Stamp Tax assessments (…) which amount to EUR 11,742.30 (…) its annulment, as well as the restitution of the tax unduly paid", and "(…) further requests (…) the condemnation of the Tax Authority to payment of the compensatory interest due on the amount of tax paid, from the date of its payment, until the effective reimbursement of the same (…)".[8]

2.11. In these terms, "in view of all the above, this Request for Arbitral Pronouncement should be judged as fully merited and proven (…) and the Claimant reimbursed of the total amount of tax unduly paid, plus payment of compensatory interest".

1. REPLY OF THE RESPONDENT

3.1. The Respondent replied sustaining the lack of merit of the request for arbitral pronouncement and invoking the following arguments:

3.2. "The interpretation of this item 28 of the (…) TGIS (…) has given rise to much controversy regarding the formula for calculating the tax in relation to a property that is not constituted under horizontal ownership and whose areas and physical divisions are exploited autonomously".

3.3. The Respondent takes the view that "the situation configured in the case is, therefore, one of those cases since the Claimant is the owner of a property under the regime of full or vertical ownership and from this derives its legitimacy to intervene in the proceedings (…), whereby what matters to determine is whether or not the total PVT of the property (…) should be taken into account, for purposes of subjection or non-subjection to Stamp Tax, or whether, conversely, the PVT of each one of the parcels should be taken into account".

3.4. The Respondent further states that "it has reiterated the understanding that if the building is constituted in full ownership with parts capable of independent use (…), it integrates the legal tax concept of property, that is, a single unit and the tax value of the same is determined by the sum of the parts with residential allocation and, if this is equal to or greater than EUR 1,000,000.00, there is subjection to Stamp Tax of item 28 of the General Table attached to the CIS".

3.5. That is, the Respondent submits that "(…) for a property not constituted under the regime of horizontal ownership, the criterion for determining the incidence of stamp tax is the global tax value of the fractions and other divisions intended for residential use".

3.6. Thus, the Respondent understands that "to advocate a contrary understanding (…) is to confuse teleologically distinct realities, full ownership, on the one hand, and horizontal ownership, on the other, whose distinction finds its foundation from the outset in civil law".[9]

3.7. According to the Respondent, "it is thus clear that we are dealing with distinct factual and legal realities deserving (…) differentiated tax treatment since only such a path is favored by the principle of closed typicality", whereby being "(…) before a rule of incidence (…) one cannot, through the interpretative route, lead to a result that is not provided for in the law".[10]

3.8. In these terms, the Respondent concludes that "the present claimant, for purposes of IMI and also of stamp tax, by virtue of the wording of the aforementioned item, is not the owner of autonomous fractions, but rather of a single property, the Tax Authority considering that this is the understanding that best accords with the principle of legality inherent in Article 8 of the LGT (…)".

3.9. "In consonance, no error is acknowledged in the factual or legal presuppositions in which the tax acts of assessment of the contested tax may have incurred and, consequently, the right of the taxpayer to payment of compensatory interest provided for in Article 43 of the LGT in case of error attributable to the services is not acknowledged".

3.10. The Respondent concludes that "(…) the tax acts in question, in terms of substance, did not violate (…) any legal or constitutional provision and should, therefore, be upheld".

3.11. Additionally, "given that the matter in dispute is (…) exclusively of law (…)" the Respondent requested in its Reply the waiver of the holding of "(…) the arbitral hearing provided for in Article 18 of the RJAT, as well as the submission of arguments (…)", taking into account that the "(…) position of the parties is broadly and clearly defined".

1. CLARIFYING ORDER

4.1. The request for arbitral pronouncement is timely since it was submitted within the period provided for in paragraph a) of No. 1 of Article 10 of the RJAT.

4.2. The parties possess legal personality and capacity, are legitimate as to the request for arbitral pronouncement and are duly represented, in accordance with the provisions of Articles 4 and 10 of the RJAT and Article 1 of Regulation No. 112-A/2011, of 22 March.

4.3. The Tribunal has competence to appreciate the request for arbitral pronouncement formulated by the Claimant.

4.4. No exceptions have been raised that require consideration.

4.5. No nullities are verified and therefore it is now necessary to examine the merits of the request.

1. FACTS

5.1. Proven Facts

5.2. The following facts documented by the documents attached to the file are considered as proven:

5.2.1. The Claimant is the owner of the urban property located at ..., …, ..., in ..., which is registered in the urban property register under registration number ... of the parish … – Union of Parishes of ... and ... (as per doc. no. 2 attached with the request).

5.2.2. The aforementioned urban property is under the regime of vertical ownership, being comprised of two dwellings, one with basement, ground floor and 1st floor and the other with ground floor and 1st floor, garage and caretaker's house, 2 swimming pools, pump house and kennels (as per doc. no. 2 attached with the request).

5.2.3. The total PVT of the aforementioned urban property is EUR 1,174,230.00 [11], whereby the PVT of each one of the divisions (or parts capable of independent use) intended for residential purposes amounts to EUR 206,290.00 and EUR 967,940.00, respectively.

5.2.4. The Claimant was notified of the collection notes for payment of the 1st instalment of tax, identified below, relating to the Stamp Tax assessments, dated 20 March 2015, relating to the year 2014, whose payment deadline was "April/2015", paid on 6 April 2015, in accordance with copies of the documents attached to the case (doc. no. 1 and no. 4):

5.2.5. The Claimant was notified of the collection notes for payment of the 2nd instalment of tax, identified below, relating to the Stamp Tax assessments, dated 20 March 2015, relating to the year 2014, whose payment deadline was "July/2015", paid on 2 July 2015, in accordance with copies of the documents attached to the case (doc. no. 1 and no. 4):

5.2.6. The Claimant was notified of the collection notes for payment of the 3rd instalment of tax, identified below, relating to the Stamp Tax assessments, dated 20 March 2015, relating to the year 2014, whose payment deadline was "November/2015", paid on 22 October 2015, in accordance with copies of the documents attached to the case through a motion dated 28 October 2015 (see point 1.14., above):

5.2.7. The total of the collections identified above amounts to EUR 11,762.30, relating to the total amount of Stamp Tax assessed with reference to the year 2014, as indicated by the Claimant in the request.

5.2.8. The Claimant submitted a rental invoice relating to Dwelling A (no. M-17, dated 31-10-2014) and rental invoice relating to Dwelling B (no. M-24, dated 25 May 2015), in accordance with copies of the documents attached to the case (doc. no. 3).

5.2.9. The Claimant entered into contracts for the supply of water and gas to each one of the dwellings, having different electricity meters in each one of the divisions (or parts capable of independent use), as follows (in accordance with copies of the documents attached to the case):

| DWELLING | CONTRACT FOR SUPPLY | DOC. ATTACHED TO REQUEST |
|---|---|---|---|
| | WATER | ELECTRICITY | GAS | |
| A | 2015... | ...[12] | C... | 3 |
| B | 2015... | ...[13] | C... | |

5.3. No other facts capable of affecting the decision on the merits of the request have been proven.

5.4. Unproven Facts

5.5. No other facts have been verified as unproven with relevance to the arbitral decision.

1. LEGAL GROUNDS

6.1. In the case under analysis, in order to assess the legality of the Stamp Tax assessments notified to the Claimant, by reference to the year 2014, there is a need to respond to a disputed legal question, underlying the Request for Arbitral Pronouncement:

6.1.1. Is subjection to Stamp Tax, in terms of what item No. 28.1. of the TGIS provides, determined by the PVT that corresponds to each one of the parts of the property with residential allocation or is it, on the contrary, determined by the global PVT of the property, which would correspond to the sum of all PVTs of the floors (with that type of allocation) that make up part of it?

6.2. The response to this question requires the analysis of the applicable legal rules in order to determine which is the correct interpretation in light of the provisions of the Law and the Constitution, given that it is a matter of assessing a tax incidence presupposition, carefully protected by the principle of tax legality (Article 103, No. 2 of the Constitution of the Portuguese Republic - CRP).

6.3. As to the response to be given to the question formulated above (point 6.1.1.), it is important to analyze the essence of item No. 28 of the TGIS, added by Article 4 of Law No. 55-A/2012, of 29 October, in accordance with which the following is established:

"28. Ownership, usufruct or right of superficies of urban properties whose PVT contained in the register, in accordance with the IMI Code, is equal to or greater than EUR 1,000,000 – on the PVT for purposes of IMI:

28.1. – For property with residential allocation – 1%.

28.2. – (…)".

6.4. Although Law No. 55-A/2012 (in force since 30 October 2012) did not proceed to qualify the concepts contained in the aforementioned item No. 28, in particular, the concept of "property with residential allocation", if one observes the provisions of Article 67, No. 2, of the Stamp Tax Code (also added by the aforementioned Law No. 55-A/2012), it is verified that "to matters not regulated in this Code relating to item 28 of the TGIS, the IMI Code applies subsidiarily".

6.5. Now, from reading the IMI Code, it is readily apparent that the concept of "property with residential allocation" refers back to the concept of "urban property", defined in accordance with Articles 2 and 4 of that Code.

6.6. In fact, in accordance with the provisions of Article 2, No. 1 of the IMI Code, "for purposes of this Code, property is every parcel of territory, including waters, plantations, buildings and structures of any nature incorporated or situated therein, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or structures, in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are located, although situated in a parcel of territory that constitutes an integral part of assets which are diverse or do not have a patrimonial nature" (emphasis added).

6.7. Further in accordance with No. 2 and No. 3 of the same article, "buildings or structures, even if movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes", with it being presumed that "the character of permanence when buildings or structures are situated in the same location for a period exceeding one year".

6.8. For purposes of IMI, "each autonomous fraction, under the regime of horizontal ownership, is deemed to constitute a property" and in accordance with the provisions of Article 4 of that tax Code, "urban properties are all those which should not be classified as rural (…)" (emphasis added).

6.9. Among the various classes of "urban properties" referred to in Article 6 of the IMI Code, "residential urban properties" are expressly mentioned [No. 1, paragraph a)], with No. 2 of the same article adding that these "are buildings or structures licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes".

6.10. While it is true that No. 4 of Article 2 of the IMI Code states that "for purposes of this tax, each autonomous fraction, under the regime of horizontal ownership, is deemed to constitute a property" it is equally true that there is nothing in the law that points to a distinction between properties in horizontal and vertical ownership as regards their identification as "residential urban properties" (emphasis added).

6.11. It can thus be concluded that the autonomous parts of properties in vertical ownership, with residential allocation, should be considered as "residential urban properties".

6.12. As sustained in various Arbitral Decisions, in particular, in that issued within the scope of Process No. 88/2013-T, "in the legislator's perspective, what matters is not the legal-formal accuracy of the concrete situation of the property but rather its normal use, the purpose for which it is intended".

6.13. Therefore, "it must thus be concluded that for the legislator it is irrelevant whether the property is constituted in vertical or horizontal ownership, with only the material truth underlying its existence as an urban property and its use being relevant" (emphasis added).

6.14. In fact, in the interpretation of the legal text, it makes no sense to distinguish what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus) as to distinguish, in this context, between properties constituted in horizontal and full ownership would be an "innovation" without an associated legal basis.

6.15. In truth, nothing indicates, neither in item No. 28 of the TGIS, nor in the provisions of the IMI Code, a justification for that particular differentiation.[14]

6.16. In fact, it can be affirmed that it is today a settled understanding that tax laws are interpreted like any others, there being a need to determine their true meaning in accordance with the techniques and interpretative elements generally accepted by doctrine [see Article 9 of the Civil Code and Article 11 of the General Tax Law (LGT)].[15]

6.17. On the other hand, it is necessary to take into account that the rules of incidence of taxes should be interpreted in their exact terms, without recourse to analogy, making prevailing the certainty and security in their application.[16]

6.18. In these terms, the uniform criterion that is required is that which determines that the incidence of the provision in question (item 28 of the TGIS) takes place only when one of the parts, floors or divisions with independent use of property in horizontal (or full) ownership, with residential allocation, possesses a PVT exceeding EUR 1,000,000.00 (emphasis added).

6.19. Thus "if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner in which it establishes for properties in horizontal ownership, it clearly established a criterion, which must be unique and unambiguous, for defining the rule of incidence of item 28.1. of the TGIS" [17], whereby fixing as the reference value for the incidence of the new tax the global PVT of the property in question, as the Respondent intends, finds no basis in applicable legislation (emphasis added).[18]

6.20. Finally, it will be important to also investigate what the ratio legis underlying the rule of item 28 of the TGIS is and, in obedience to the provisions of Article 9 of the Civil Code[19], what the circumstances are in which the rule was drawn up and what the specific conditions of the time in which the same is applied are.

6.21. In fact, the legislator intended to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies of urban luxury properties with residential allocation, having considered, as a determining element of taxpaying capacity, urban properties, with residential allocation, of high value (luxury), that is, of value equal to or greater than EUR 1,000,000.00, on which a special rate of Stamp Tax would (and did) apply.

6.22. And we understand this to be exactly what can be concluded from the analysis of the discussion, in the Assembly of the Republic of Draft Law No. 96/XII[20], with no different interpretative ratio being envisaged from that presented here.[21]

6.23. In fact, the justification for the measure designated as "special tax on residential urban properties of highest value" is thus based on the invocation of the principles of social equity and tax justice, calling upon the holders of high-value properties intended for residential use to contribute in a more intense manner, thus applying the new special tax to "houses of value equal to or greater than 1 million euros" (emphasis added).

6.24. Now, if such logic seems to make sense when applied to a "dwelling" (whether it is a house, an autonomous fraction, a part of property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, a taxpaying capacity above the average (and, in that measure, capable of determining a special contribution to ensure fair apportionment of the tax burden), it would make no sense if applied "unit by unit" so that, through the summation of the PVTs thereof (because held by the same individual), the such value equal to or greater than one million euros would be ascertained (emphasis added).

6.25. It further adds that admitting the differentiation of treatment could produce incomprehensible and discriminatory results from a legal perspective, since contrary to the objectives (of promotion of social equity and tax justice) which the legislator claimed to have when adding item No. 28.

6.26. In truth, the existence of a property in vertical ownership cannot, by itself, be an indicator of taxpaying capacity, it being derived from the law that both that type of property and those constituted in horizontal ownership should receive the same tax treatment in obedience to the principles of justice, tax equality and material truth.

6.27. Conversely, the existence in each property of independent residential dwellings, under the regime of horizontal or vertical ownership, may be capable of triggering the incidence of the new tax if the PVT of each one of the parts or fraction is equal to or greater than the limit defined by law, that is, EUR 1,000,000.00.

6.28. In this way, it is illegal (and even unconstitutional) to consider that the reference value for the assessment of the tax is that corresponding to the summation of the PVTs attributed to each part or division, not least because we would be faced with a clear violation of the principle of equality and proportionality in tax matters.

6.29. The tax legislator cannot treat equal situations differently, depending on whether we are or are not dealing with a property in horizontal or vertical ownership.

6.30. Now, if the urban property under analysis were under the regime of horizontal ownership, it was clear that none of the residential fractions that compose it would be subject to the incidence of the "new tax", since none of them would exceed, individually considered, the limit of EUR 1,000,000.00 defined by law (see point 5.2.3. above as to the PVT of each one of the divisions with independent use).

6.31. In fact, it is thus, for this very reason, that Article 12, No. 3 of the IMI Code provides that "each floor or part of a property capable of independent use is considered separately in the property register entry which also discriminates the respective PVT" so as not to generate situations of violation of the principles of social equity and tax justice referred to above (emphasis added).

6.32. Thus, because the constitution of horizontal ownership implies a mere legal alteration of the property (not even requiring a new valuation), it will be material truth that imposes itself as the determining criterion of taxpaying capacity and not the mere legal-formal reality of the property.

6.33. In consequence, the discrimination practiced by the Respondent translates into an arbitrary and illegal discrimination, since the law does not impose the obligation to constitute horizontal ownership.

6.34. And, taking into account the entire social and economic reality (sometimes present in many of the properties existing in vertical ownership), the tax legislator itself in the IMI Code treated the two situations (horizontal and vertical ownership) in an equitable manner, applying the same criteria.

6.35. In fact, let it be reiterated that the Respondent cannot distinguish where the legislator itself understood not to do so, under pain of violating the coherence of the tax system and the principles of tax legality (Article 103, No. 2 of the CRP), of justice, equality and tax proportionality, included therein.

6.36. Examining the situation sub judice, it is found that the PVT of the two autonomous units with residential allocation varies between EUR 208,290.00 and EUR 987,940.00 whereby, in any one of them, individually considered, the aforementioned PVT is less than EUR 1,000,000.00 (as already mentioned in point 6.30., above).

6.37. Thus, in light of the above, and in response to the question raised in point 6.1.1., above, it is concluded that the Stamp Tax referred to in item No. 28 of the TGIS cannot apply to the two autonomous units with residential allocation (of the urban property identified in the case) and therefore the assessment acts which are the subject of the Request for Arbitral Pronouncement submitted by the Claimant are illegal.[22]

6.38. Additionally, also taking into account all that was previously stated, we can conclude that the interpretation made by the Respondent is not in conformity with the Law and the Constitution, as it violates the principle of equality (Article 13 of the CRP) and does not contribute to equality among citizens (Article 104, No. 3, of the CRP).[23]

Regarding the Request for Payment of Compensatory Interest

6.39. Finally, as to the request for payment of compensatory interest submitted by the Claimant, in accordance with the provisions of Article 43 of the LGT, according to which "(...) compensatory interest is due when it is determined, in amicable recourse or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount greater than legally due (...)", it is important to note that, in accordance with the provisions of paragraph b), No. 1, Article 24 of the RJAT, and in conformity with what is established therein, "the arbitral decision on the merits of the claim (…)" must "(…) restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the purpose" (emphasis added).[24] [25]

6.40. In truth, in accordance with the provisions of Article 100 of the LGT, applicable to the case by virtue of the provisions of paragraph a), No. 1, Article 29 of the RJAT, "the tax administration is obliged, in case of total or partial merit of complaints or administrative appeals, or of court proceedings in favor of the taxpayer, to immediate and complete restoration of the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided for in the law" (emphasis added).[26]

6.41. In the situation under analysis, and following the illegality of the assessment acts already identified above, there must be reimbursement of the amounts already paid (to this date) by the Claimant, as a means of achieving the restoration of the situation that would have existed if the illegality had not been committed.

6.42. As to the compensatory interest requested, in light of the provisions of Article 61 of the Code of Tax Procedure and Process (CPPT) and the requirements of the right to compensatory interest being met (that is, verified the existence of error attributable to the services from which results payment of the tax debt in an amount greater than legally due, as provided for in No. 1, Article 43 of the LGT), the Claimant shall have the right to compensatory interest at the legal rate, calculated on the amounts paid relating to the Stamp Tax assessment dated 20 March 2015 (and relating to the year 2014), which shall be counted from the date of payment of the undue tax until the date of issuance of the respective credit note.

1. DECISION

7.1. In accordance with the provisions of Article 22, No. 4, of the RJAT, "the arbitral decision issued by the arbitral tribunal includes the fixing of the amount and apportionment among the parties of the costs directly resulting from the arbitration proceedings".

7.2. In this scope, the basic rule relating to responsibility for the costs of proceedings is that the party which gave rise to them should be condemned, it being understood that the unsuccessful party, in the proportion in which it is unsuccessful, gives rise to the costs of proceedings (Article 527, No. 1 and 2 of the CPC).

7.3. In the case under analysis, having regard to the above, the principle of proportionality requires that the total responsibility for costs be attributed to the Respondent.

7.4. In these terms, having regard to the analysis carried out, this Arbitral Tribunal decided:

7.4.1. To uphold the request for arbitral pronouncement submitted by the Claimant and to condemn the Respondent as to the request for declaration of illegality of the Stamp Tax assessments, dated 20 March 2015 (relating to the year 2014), underlying the collection notes identified in this case, annulling, in consequence, all of the respective tax acts;

7.4.2. To uphold the request for condemnation of the Respondent to reimbursement of the amounts unduly paid by the Claimant, plus compensatory interest at the legal rate, counted in accordance with the legal terms;

7.4.3. To condemn the Respondent to payment of the costs of these proceedings.

Value of the case: Having regard to the provisions of Articles 306, No. 2 of the CPC, Article 97-A, No. 1 of the CPPT and Article 3, No. 2 of the Regulations of Costs in Tax Arbitration Proceedings, the value of the case is fixed at EUR 11,742.30.

Costs of proceedings: In accordance with the provisions of Table I of the Regulations of Costs of Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceedings is fixed at EUR 918.00, chargeable to the Respondent, in accordance with Article 22, No. 4 of the RJAT.

Let notification be made.

Lisbon, 16 November 2015

The Arbitrator

Sílvia Oliveira

[1] The composition of this decision is governed by the spelling prior to the Orthographic Agreement of 1990, except as regards transcriptions made.

[2] Payment which was subsequently made on 26 October 2015 and communicated to CAAD on 28 October 2015 (see point 1.14., above).

[3] The sum of the PVT of the two dwellings amounts to EUR 1,174,230.00 and not EUR 1,774,230.00, as indicated by the Claimant.

[4] Contracts which the Claimant identifies and attaches copies of invoices of the respective supplies (doc. no. 3).

[5] The Claimant attached with the request copies of the proofs of payment of the first instalments, of EUR 3,226.48 (relating to dwelling A) and of EUR 687.64 (relating to dwelling B), on 06-04-2015 and of the second instalments, of EUR 3,226.46 (relating to dwelling A) and of EUR 687.63 (relating to dwelling B) on 02-07-2015 (doc. no. 4).

[6] In this regard, the Claimant cites Arbitral Decision No. 50/2013-T, in accordance with which it is stated that "the Tax Authority cannot (…) consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in the sphere of IMI (…)", as well as Arbitral Decision No. 181/2013-T which states that "(…) for purposes of assessment of Stamp Tax provided for in item 28.1. of the TGIS the individual PVT of each (…) one of the divisions of independent use should be taken into account in accordance with the IMI Code".

[7] In this regard, the Claimant cites Arbitral Decision No. 50/2013-T, "(…) which peremptorily concludes that the justification for the measure designated as special tax (…) is based on the invocation of the principles of social equity and tax justice, calling upon the holders of high-value properties intended for residential use to contribute in a more intense manner (…) to ensure fair apportionment of the tax burden", as well as Arbitral Decision No. 132/2013-T, in accordance with which it is reiterated that "(…) admitting the differentiation of treatment could produce incomprehensible results from a legal perspective and contrary to the objectives that the legislator claimed to have when adding item No. 28".

[8] As reinforcement of its position, the Claimant cites Judgment of the STA of 16 June 2010 and Judgment of the TCAS of 31 January 2012.

[9] In this regard, the Respondent cites Carvalho Fernandes, in "Lectures on Real Rights", 1996, p. 335 et seq. in accordance with which "it is understood that in order to well capture and translate its legal reality, namely horizontal ownership, one must regard it as a specific type of real right of enjoyment".

Likewise, the Respondent cites Oliveira Ascensão, in "Real Rights", 3rd edition, pp. 462 and 464, who states regarding the legal nature of horizontal ownership that "we believe, however, that the correct qualification of this situation is that of special ownership. Although ownership and co-ownership are combined, ownership is the fundamental, with co-ownership being merely instrumental. The purpose of horizontal ownership (…) is to permit separate properties, although in collective buildings (…). Being thus, there is, at the core, an ownership, but this is specialized by the fact that it relates to part of the thing and instrumentally involves a community in other parts of the property. These specialities lead to the law having had the need to cut out a differentiated regime. This is typical (…) of special properties, of which horizontal ownership offers us the best example" (emphasis added).

[10] On this matter, the Respondent mentions that the Binding Information No. 2013000226 - IVE no. 4599, of 11.02.2013, was issued on this issue, in accordance with which "for purposes of taxation under stamp tax, by item 28 of the respective general table, the distinction between properties (…) in full ownership and properties (…) under the regime of horizontal ownership is determining. In the case of property constituted in horizontal ownership (…) each autonomous fraction thus constituted is deemed to constitute a property (…)", whereby "(…) for purposes of taxation under stamp tax, item 28 of the TGIS, properties constituted in full ownership are considered in their entirety as a single property (…)" (emphasis added).

[11] As appears from the copy of the Urban Property Register Sheet, attached to the case (doc. no. 2).

[12] Refers to the number of the respective meter.

[13] Same as previous note.

[14] In this regard, pay attention to the provisions of Article 12, No. 3, of the IMI Code, in referring that "each floor or part of a property capable of independent use is considered separately in the property register entry, which also discriminates the respective PVT" (emphasis added).

[15] In this sense, see Judgment TCAS Process 07648/14, of 10 July 2014.

[16] See Judgment TCAS Process 5320/12, of 2 October 2012, Judgment TCAS Process 7073/13, of 12 December 2013 and Judgment TCAS 2912/09, of 27 March 2014.

[17] See Arbitral Decision No. 50/2013-T (CAAD), of 29 October 2013.

[18] Refers to the IMI Code, given the reference made by the cited Article 67, No. 2, of the Stamp Tax Code.

[19] According to which the interpretation of a legal rule should not be confined to the wording of the law, but should reconstruct the legislative intent, starting from the texts and other interpretative elements, taking into account the unity of the legal system.

[20] Available for consultation in the Journal of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.

[21] As already referred to in various Arbitral Decisions issued by CAAD (see Process No. 48/2013-T and Process No. 50/2013-T).

[22] In this sense, see Arbitral Decision No. 368/2014-T, of 18 December 2014, issued by the undersigned.

[23] In this sense, see Arbitral Decision identified in the previous note.

[24] In this sense, see Arbitral Decision 27/2013-T, of 10 September 2013, with respect to "reimbursement of the total amount paid and compensatory interest".

[25] In this regard, the Claimant cites Judgment of the Supreme Administrative Court, of 16.06.2010, in accordance with which "the compensatory interest enshrined in No. 1 of Article 43 of the LGT corresponds to the realization of a right of indemnification which has its foundation in Article 22 of the CRP, and should be interpreted as a non-exhaustive set of situations in which the existence of loss to the taxpayers can be presumed with the consequent responsibility of the Administration for the occurrence thereof" (emphasis added).

[26] In this sense, the Claimant also cites Judgment of the Supreme Administrative Court, of 30.11.2004 and Judgment of the Central Administrative Court of the South, of 31.01.2012.