Summary
Full Decision
ARBITRAL DECISION
I – REPORT
Application
A..., LDA, taxpayer no. ..., with registered office at Av. ... ... ..., ...-... Lisbon, filed, on 29-07-2016, pursuant to Article 2(1)(a) and Article 10 of Decree-Law No. 10/2011, of 20 January, which establishes the Legal Framework for Arbitration in Tax Matters (RJAT), an application for arbitral decision, in which AT - TAX AND CUSTOMS AUTHORITY is the respondent, with a view to:
¾ The declaration of illegality and annulment of the stamp tax assessment acts on the divisions with residential use of the urban property registered in the urban property matrix with no. ..., parish of ..., municipality of Lisbon, relating to the year 2015, and which are identified through the respective collection documents numbered 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016... and 2016....
The applicant alleges, essentially and with relevance to the decision of the case, the following:
- The property in question, of which the applicant is the owner, is composed of 12 divisions with independent use, of which two are allocated to commerce/services, and the remainder are allocated to residential use.
- On the VPT of each division, the Tax Administration assessed the stamp tax provided for in item 28.1 of the General Stamp Tax Table (TGIS).
- In accordance with item 28.1 of the TGIS, the tax provided therein applies when two conditions are met:
i) The residential use of the property
ii) The patrimonial tax value is equal to or greater than one million euros.
- The legislator, in creating this provision, intended not to tax immovable property by itself, but to tax high-value or luxury immovable property, for which reason the provision in question applies only to properties with residential use and not to properties with mixed use.
- Now, in the case in question, as the property is owned by a legal entity, its residential use can only take place if it is rented, and its use as an expression of wealth or luxury is not at issue, for which reason it falls outside the scope of item 28.1 of the TGIS.
- It further follows from Bill No. 96/XII that the legislator intended with this legislative innovation and in light of the principles of social equity and fiscal justice that taxpayers holding high-value properties intended for residential use should contribute more intensively.
- (citing the arbitral decision in case 132/2013-T) "Now, if such logic appears to make sense when applied to 'residential use' – whether it is a 'house', 'autonomous unit' or part of a property with independent use/autonomous unit – because it is presumed a contributive capacity above average and, to that extent, justifies the need for additional fiscal effort, it would make little sense to disregard the assessments 'unit by unit' when only through the sum of the VPTs of the same (because held by the individual) would the million euro threshold be exceeded".
- In the case in question, the property has mixed use, with residential use in ten of the twelve divisions with independent use, for which reason it falls outside the scope and applicability of item 28.1 of the TGIS.
- The fact that the property is in vertical rather than horizontal ownership cannot by itself be an indicator of greater contributive capacity.
- To the registration of immovable property in vertical ownership, even if composed of different divisions with independent use, under the terms of the Municipal Real Property Tax Code (CIMI), the same registration rules as those applied to immovable property in horizontal ownership are applied, and thus the respective Municipal Real Property Tax and Stamp Tax are assessed individually for each division.
- Article 67 of the Stamp Tax Code (CIS) provided that, in all matters not regulated by the same, and with regard to item 28, the CIMI should be applied subsidiarily.
- Both from Article 2 of the CIMI, which defines the concept of property, and from Article 38 of the same statute, relating to the determination of VPT, there follows no distinction regarding the registration status of the property, i.e. whether or not it is in horizontal ownership.
- Now (citing the arbitral decision in case 132/2013-T) "it makes no sense to distinguish in law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus). Moreover, to distinguish, in this context, between properties in horizontal ownership and in total ownership would be an "innovation" without associated legal support, especially since, as has been stated here, nothing denotes, either in item 28 or in the CIMI provisions, a justification for that particular differentiation".
- The AT itself, in the assessment notes challenged here, assumed the same, by declaring as the total value subject to tax only the VPT relating to the divisions with residential use and independent use that form part of the property, with the exclusion of the others.
- The truth is that AT issued assessment notes for each division susceptible to independent use with residential use, as it would if the property were in horizontal ownership, however, for purposes of applicability it took into account the total VPT of the property, instead of considering the VPT of each unit.
- However, given that the property comprises divisions with independent use, the subjection to stamp tax should have been determined, not by the total VPT of the property but by the VPT of those divisions.
- Especially since it is precisely the VPT entered in the register that the law directs one to consider in order to determine the applicability of the stamp tax of item 28.1 of the TGIS.
- As the VPT entered in the register of each of these units is less than €1,000,000.00, no stamp tax of item 28.1 should apply to the same.
- (Again citing the arbitral decision in case 132/2013-T): "The uniform process that is required is, therefore, one that determines that the applicability of the provision in question only takes place when any of the parts, floors or divisions with independent use of a property in horizontal or total ownership with residential use possesses a VPT greater than €1,000,000.00.
- The discrimination carried out by the AT in the case in question has no foundation, being contrary to principles of legality and fiscal justice, arbitrary and illegal, since the legislator cannot treat equal situations differently.
- If the property were in horizontal ownership, none of its residential units would be subject to the new tax.
- If Article 4(1) of the Tax Law Code provides that taxes are essentially based on the contributive capacity of taxpayers, as revealed through income or its use and property, and if the legal form in which the taxpayer holds its immovable property is of no relevance, i.e. whether it is in horizontal or total ownership, concentrated or dispersed, these formal aspects cannot be criteria of contributive capacity nor a legitimate criterion of taxation.
Response of the Respondent
In its response, the respondent alleges, briefly, the following:
- The interpretation that the applicant defends of item 28.1 of the TGIS, that when the property is composed of parts susceptible to independent use, the subjection to tax should be determined, not based on the VPT of the property but based on the VPT of each unit, has no correspondence with the letter of the law;
- Nor does it have correspondence with the meaning of that legal provision which, according to the author of the application for arbitral decision, would be the subjection to tax, not of the properties properly speaking, but of the dwellings existing therein.
- If the subjection of each dwelling to stamp tax of item 28 of the General Table should be determined based on the other dwellings of the property, as is implicit in the assessment challenged, the taxable event would no longer be the patrimonial tax value susceptible to being attributed to each dwelling, but the total patrimonial tax value of each urban property.
- The concentration in each property of independent dwellings is not, therefore, susceptible to triggering the incidence of stamp tax on each of them.
- Nor can justify that incidence the concentration of ownership in the same person of a set of properties with residential use, whether or not constituted in the regime of horizontal ownership.
- The legal form of ownership of urban properties, horizontal or vertical, is not susceptible, under penalty of violating the principle of contributive capacity, a logical corollary of the principle of equality referred to in Article 13 of the Constitution of the Portuguese Republic (CRP), to be projected in the applicability of stamp tax of item 28.1 of the General Table.
- Item 28 of the General Table provides for the incidence of stamp tax on the ownership, usufruct or surface right of urban properties whose patrimonial tax value entered in the register, in accordance with the Municipal Real Property Tax Code (CIMI), is equal to or greater than €1,000,000.00.
- According to item 28.1., in the case of urban properties with residential use, the tax applies to the patrimonial tax value used for purposes of municipal real property tax (IMI).
- According to Article 2(4) of the Stamp Tax Code, the passive subjects of the tax are the passive subjects of IMI, as provided for in Article 8 of the CIMI.
- According to Article 3(3)(u) of the CIMI, it is equally the passive subjects referred to in Article 8 of the CIMI that bear the burden of stamp tax.
- It follows from these legal provisions that the taxable event of stamp tax of item 28.1. consists of the ownership, usufruct or surface right of urban properties whose patrimonial tax value entered in the register, in accordance with the Municipal Real Property Tax Code (CIMI), is equal to or greater than €1,000,000.00.
- The patrimonial value relevant for purposes of the applicability of the tax is, therefore, the total patrimonial value of the urban property and not the patrimonial value of each of the parts that compose it, even when susceptible to independent use.
- It is not apparent, therefore, how the assessments of stamp tax challenged can have violated the literal wording of item 28.1 of the General Table.
- Article 80(2) of the CIMI provides that, except as provided in Articles 84 and 92, each property corresponds to a single entry in the register.
- The principle that each property corresponds to only one registration entry is only excepted with regard to mixed properties where, according to Article 84, each of the distinct parts is entered in the register for the part that pertains to it and with regard to properties constituted in horizontal ownership where, despite the fact that, under Article 2(4) of the CIMI, each autonomous unit is considered as constituting a property, each building in the horizontal ownership regime corresponds to only one registration entry.
- The urban property was not constituted in the regime of horizontal ownership on the date of the taxable event of stamp tax – 31 December 2013 – in which case each of the autonomous units would be considered as an urban property, including for purposes of subjection to stamp tax of item 28.1. of the General Table, but in the regime of vertical ownership.
- It provides, however, as is clear from its respective property register, independent floors or divisions, assessed under Article 12(3) of the CIMI, which provides that each floor or property susceptible to independent use is considered separately in the registration, which likewise discriminates the respective patrimonial tax value on which IMI is assessed.
- Such legal provision is thus relevant for purposes of registration in the property register, to the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent.
- In that case, the registration must make reference to each of the parts and also to the patrimonial value corresponding to each of them, determined separately under Articles 37 et seq. of the CIMI.
- The unity of the urban property in vertical ownership composed of several floors or divisions is not, however, affected by the fact that all or part of those floors or divisions are susceptible to independent economic use.
- Such property does not cease to be only one, and thus its distinct parts are not juridically equated to autonomous units in the regime of horizontal ownership.
- Without prejudice to the regime of co-ownership, when applicable, its ownership cannot be attributed to more than one owner.
- In the present case, the patrimonial tax value on which the applicability of stamp tax of item 28.1. of the General Table depends had to be, as it was, the total patrimonial value of the property and not that of each of its independent parts.
- The fact that the IMI was determined based on the patrimonial tax value of each part of property with independent economic use does not equally affect the application of item 28(1) of the General Table.
- That is what follows from the fact that the determining element for the application of that item of the General Table is the total patrimonial value of the property and not separately that of each of its portions.
- The registration of each part susceptible to independent use is not autonomous, by register, but is contained in a description in the register of the property in its entirety.
- The rules of assessment procedures, on registration, and also the rules on the assessment of parts susceptible to independent use, do not permit one to assert that there should be an equation of the property in the regime of total ownership to the regime of vertical ownership, under penalty of incurring in the vices of illegality and unconstitutionality.
- Any other interpretation would violate the letter and spirit of item 28.1. of the General Table and the principle of legality of the essential elements of the tax provided for in Article 103(2) of the Constitution of the Portuguese Republic (CRP).
3. Subsequent Procedural Steps
3.1. Subsequent Application by the Applicant
On 03.01.2017, the applicant filed an application in which it reported the following facts:
- On 09.12.2015 a deed establishing horizontal ownership of the property on which the assessments challenged were based was executed.
- On 15.12.2015 a declaration model 1 of the IMI was filed with a copy of the deed.
- The entry of the establishment of horizontal ownership in the property register was made on 12.01.2016.
And it alleged based on the same facts:
- Although the deed of horizontal ownership was registered only in January 2016, with horizontal ownership established before 31 December 2015, the year to which the tax relates, and the model 1 having been filed still in 2015, the tax relating to 2015 should be assessed considering the property already constituted in horizontal ownership.
- This because the registration of the establishment of horizontal ownership has a merely declarative effect.
This application was notified to the respondent to whom a time period was granted to, if it wished, pronounce itself on the same.
The respondent did not pronounce itself.
3.2. Meeting Provided for in Article 18 of the RJAT
By order of 06.05.2016, having previously obtained the consent of the parties, the Tribunal determined the dispensing of the meeting provided for in Article 18 of the RJAT, in view of its being unnecessary.
II – PRELIMINARY EXAMINATION
The singular arbitral tribunal was regularly constituted on 14-11-2016, with the arbitrator designated by the Deontological Board of CAAD, having complied with the respective legal and regulatory formalities (Articles 11(1)(a) and (b) of the RJAT and Articles 6 and 7 of the CAAD Code of Ethics).
The parties have legal personality and capacity, are legitimate and are regularly represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.
No procedural defects were identified.
III – QUESTIONS TO BE DECIDED
The questions to be decided are:
- The admissibility of the modification of the cause of action, in order to consider as a ground for the invalidity of the assessments the fact that the property was already in the regime of horizontal ownership on 31.12.2015.
- The applicability of the tax of item 28.1 of the General Table of Stamp Tax on divisions of urban property in total ownership, with residential use and susceptible to independent use and as such considered in the tax property register.
IV – FACTS FOUND TO BE PROVEN
The following are the facts found to be proven considered relevant to the decision:
- The applicant was, on the date of the taxable event, the owner of the urban property registered in the property register under entry ..., parish of ..., municipality of Lisbon;
- The property described is described in the tax property register as property in total ownership with floors or divisions susceptible to independent use;
- The property is composed of 12 divisions with independent use, of which one has commercial use, one has use for services, and the remainder have residential use;
- The patrimonial tax value of the property is €2,923,710.00;
- The value considered by the AT - Tax and Customs Authority as being subject to tax is €2,284,750.00;
- The AT - Tax and Customs Authority assessed stamp tax on the patrimonial tax values of the floors or parts susceptible to independent use with residential use, at the rate of 1%, pursuant to item 28.1 of the General Stamp Tax Table (TGIS) for the year 2015;
- None of the divisions of the property has a patrimonial tax value equal to or greater than one million euros.
V - REASONING
1. Admissibility of the Modification of the Cause of Action
Through the application addressed to the Tribunal on 3.1.2017, the applicant requested a modification of the cause of action.
It now requested the annulment of the assessments challenged not based on the argument that the decision on the applicability of item 28.1 of the TGIS to a property in total ownership should be based on the patrimonial tax value of each division with independent use and residential use (and not on the total patrimonial tax value of the property or the sum of the VPTs of the divisions with residential use) but based on the fact that the property on which the assessments challenged were based was in horizontal ownership on 31 December 2015.
The modification of the cause of action is a modification of the objective aspects of the case.
The fundamental principle in this matter is that of the stability of the case, enshrined in Article 260 of the Code of Civil Procedure, in accordance with which "Once the defendant is served, the case must remain the same as to the parties, the request and the cause of action, except for the possibilities of modification provided for in the law." Therefore, modifications of the cause of action are only permissible in situations expressly provided for in the law.
On the admissibility of this modification, the RJAT says nothing, so the Code of Administrative Court Procedure and the Code of Civil Procedure shall apply, by reference in Article 29.
The CACP, namely in Article 63, refers to the expansion of the case in very restricted situations that do not occur in the case at issue.
However, the Supreme Administrative Court has understood that, in the scope of proceedings in administrative courts, beyond the situations provided for in Article 63 of the CACP, the modification of the cause of action is also permissible in the situations provided for in Article 265 of the Code of Civil Procedure (cf. rulings of the SAC of 29-06-2011, case no. 30/11 and of 25-03-2004, case no. 8/04).
Thus, in the ruling of 29-06-2011, case no. 30/11, the Court states: "It is permissible, in a judicial challenge proceeding, the expansion of the request and the cause of action, in accordance with the provisions of Article 63 of the CACP, by virtue of Article 2(e) of the CACP, whenever there are supervening facts for the challenger that provide it with knowledge of defects of which it could not have knowledge at the moment of filing the initial petition, thus allowing the challenger to invoke new facts or impute new defects to the challenged act."
Now, this is not what occurs in the case sub judice.
As the application for arbitral decision was filed in July 2016, the applicant had knowledge that it itself had executed a deed establishing horizontal ownership of the property in December 2015.
It is not, therefore, permissible to admit the requested modification of the cause of action, in respect of the principle of stability of the case, and therefore the Tribunal will not pronounce on the modified cause of action.
2. The Applicability of the Tax of Item 28.1 of the General Table of Stamp Tax on Divisions of Urban Property in Total Ownership, with Residential Use and Susceptible to Independent Use and as Such Considered in the Tax Property Register
The fundamental question to be considered and decided is whether the tax of item 28.1 of the General Table of Stamp Tax applies to divisions of urban property in total ownership, with residential use susceptible to independent use and as such considered in the tax property register.
On this same question, the Supreme Administrative Court has already pronounced itself on numerous occasions, and established case law to the effect that, in the case of a property in vertical ownership, the objective applicability of Stamp Tax should be determined, not by the patrimonial tax value resulting from the sum of the patrimonial tax value of all floors or divisions susceptible to independent use (individualized in the registration entry), but by the patrimonial tax value attributed to each of those floors or divisions intended for residential use.
The basis of this case law can be found in one of the first rulings the Supreme Court rendered on this matter, on 09-09-2015, in case no. 47/15. In that ruling, which we take as the basis of our decision in the present case, that Court states:
"The concept of 'urban property with residential use' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the Municipal Real Property Tax Code, to which Article 67(2) of the Stamp Tax Code (equally introduced by that Law), refers on a subsidiary basis. And it is a concept which, probably due to its imprecision – a fact all the more serious given that it is based on it that the scope of objective applicability of the new taxation is defined – had a short life, as it was abandoned upon the entry into force of the Law on the State Budget for 2014 (Law No. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now defines its scope of objective applicability through the use of concepts that are legally defined in Article 6 of the Municipal Real Property Tax Code.
From the letter of the law nothing unequivocal follows, moreover, for it itself, by using a concept that it did not define and that also was not defined in the statute to which it referred on a subsidiary basis, lent itself, unnecessarily, to ambiguities, in a matter – of tax applicability – in which certainty and legal security should also be paramount concerns of the legislator."
The Court continues:
"(…) The present subject matter is, from the outset by force of Article 67(2) of the Stamp Tax Code, subject to the provisions of the Municipal Real Property Tax Code, – 'to matters not regulated in the present code regarding item 28 of the General Table, the CIMI applies subsidiarily'.
As such, and as has already been mentioned many times, in the understanding of the present court, the mechanism for determining the relevant VPT for purposes of the aforesaid item, is the one found in the Municipal Real Property Tax Code.
Now, Article 12(3) of the Municipal Real Property Tax Code provides that 'each floor or part of property susceptible to independent use is considered separately in the registration, which also discriminates the respective patrimonial tax value'.
The legislator thereby downgrading, under the terms previously mentioned, any prior constitution of horizontal or vertical ownership.
Indeed, for the legislator, what is relevant is the material truth underlying its existence as an urban property and its use.
It may be noted that the AT itself appears to agree with the criterion set out, which is why the assessments it issues are very clear in their essential elements, from which it follows that the value of applicability is that corresponding to the VPT of each of the floors and the assessments individualized.
Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established the criterion, which must be unique and unambiguous, for the definition of the rule of applicability of the new tax.
Thus, there would only be applicability of Stamp Tax (within the scope of Item no. 28 of the TGIS) if any of the parts, floors or divisions with independent use presented a VPT greater than €1,000,000.00.
The AT cannot consider as the reference value for the applicability of the new tax the total value of the property, when the legislator itself established a different rule with regard to IMI (and, as previously mentioned, this is the code applicable to matters not regulated with regard to Item no. 28 of the TGIS).
In conclusion, the current legal framework does not impose the obligation to establish horizontal ownership, and thus the AT's conduct amounts to an arbitrary and illegal discrimination.
In fact, the AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in Article 103 of the Constitution of the Portuguese Republic, and also the principles of fiscal justice, equality and proportionality.
In the case at issue, the property/properties in question was/were, on the date relevant to the facts, constituted in total ownership and had/has [...] units with independent use, as results from the documents [...].
Given that none of these units has a patrimonial value equal to or greater than €1,000,000.00, as results from the documents attached to the case file, it is concluded that the legal condition for applicability is not met."
We consider that the case law of the Supreme Administrative Court explained in the cited ruling is based on correct grounds, and therefore we understand that it should be applied to the case sub judice, without any reservation.
In the scope of the Municipal Real Property Tax (IMI), the legislator clearly established, in Article 12(2) of the CIMI, that parts of property with independent use are assessed separately, and such value is taken as the basis for the assessment of tax.
In the scope of Stamp Tax, Article 13(1) of the respective code provides that "the value of immovable property is the patrimonial tax value entered in the register in accordance with the CIMI".
Therefore, it appears clear that the legislator intended that the patrimonial tax value of parts with independent use be considered for purposes of delimiting the objective applicability of the tax.
The AT - Tax and Customs Authority appears to conform its conduct with this understanding, in that it issues Stamp Tax assessment acts individualized in relation to each part with independent use.
Furthermore, in accordance with Article 9(1) of the Civil Code, interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated, and the specific conditions of the time in which it is applied. Now, the subjective element of interpretation, to be drawn from the historical elements that are well known in this matter, and which are partially reproduced in the ruling of the SAC cited, clearly indicates the legislator's intention to subject to taxation residential units ("homes") of high value. Residential units are the parts susceptible to independent use and not the property in its entirety.
Without this interpretation, the provision of item 28.1 of the General Table of Stamp Tax would be completely arbitrary, inequitable and devoid of rationality.
In consonance with all the interpretive elements mentioned, it should be considered that, where one is dealing with a property in total ownership formed by parts susceptible to independent use, stamp tax is only applicable (within the scope of Item no. 28 of the TGIS) if any of the parts, floors or divisions with independent use presents a patrimonial tax value equal to or greater than €1,000,000.00.
For all the foregoing, it must be concluded that the assessments of stamp tax challenged are illegal, for violation of tax law, in that they applied to independent parts of properties in total ownership but taking as the basis the patrimonial tax value of the sum of the same parts and when none of those parts has a patrimonial tax value equal to or greater than €1,000,000.00.
VII - DECISION
For the grounds set forth, the Tribunal decides to render the present application for arbitral decision entirely well-founded, declaring the invalidity, for violation of law, and annulling the assessment acts of Stamp Tax of item 28.1 of the TGIS, relating to the year 2015 and concerning the residential divisions of the urban property described in the property register under the urban property registered in the property register with no. ..., parish of ..., municipality of Lisbon, relating to the year 2015, and which are identified through the respective collection documents numbered 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016... and 2016....
Economic value of the case: The economic value of the case is fixed at €15,231.68.
Costs: Under Article 22(4) of the RJAT, the amount of costs is fixed at €918.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the respondent.
Let this arbitral decision be entered and notified to the parties.
Lisbon, Center for Administrative Arbitration, 27 June 2017
The Arbitrator
_______________________________
(Nina Teresa Sousa Santos Aguiar)
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