Summary
Full Decision
ARBITRAL DECISION
I. Report
A..., widow, with the tax identification number ("NIF")..., resident at..., no...,...-... Lisbon, represented by B..., NIF..., resident at..., no....,...-... Lisbon, and with a tax address at the same location, filed, on 29 July 2016, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, i.e., the Legal Framework for Arbitration in Tax Matters ("RJAT"), a request for the constitution of an arbitral tribunal, in order to declare illegal the assessments of Stamp Duty ("IS") set out below, in the total amount of €11,511.00 (see tables below);
The Tax and Customs Authority ("Respondent" or "AT") is the defendant.
A) Constitution of the Arbitral Tribunal
Pursuant to the provisions of paragraph (a) of article 6, paragraph 2 and paragraph (b) of article 11, paragraph 1 of the RJAT, the Ethics Council of this Administrative Arbitration Centre ("CAAD") appointed the undersigned as sole arbitrator, who communicated acceptance of the assignment within the applicable period, and notified the parties of this appointment on 19 October 2016.
Thus, in compliance with the provisions of paragraph (c) of article 11, paragraph 1 of the RJAT, and by means of communication from the President of the Ethics Council of the CAAD, the Sole Arbitral Tribunal was constituted on 4 November 2016.
B) Procedural History
In the request for arbitral decision, the Claimant petitioned for a declaration of illegality of the IS assessments mentioned above, relating to the year 2015, with reference to an urban property with a Tax Patrimonial Value ("VPT") with residential use of €1,151,100, in full ownership, located at..., no.../..., in Lisbon, currently registered under article... in the urban property register of the parish of..., municipality of Lisbon.
By order of 23 January 2017, the Sole Arbitral Tribunal, pursuant to the provisions of paragraph (c) of article 16 of the RJAT, and following the request by the AT, decided, without opposition from the parties, that it was not necessary to convene the hearing referred to in article 18 of the RJAT, as a result of the simplicity of the issues at hand, and because it considered that it had all the necessary elements to make a clear and impartial decision.
It also decided, in accordance with article 18, paragraph 2 of the RJAT, that oral arguments were not necessary, as the positions of the parties were clearly defined in their respective pleadings, and set 4 April 2017 as the deadline for the arbitral decision.
The Tribunal was properly constituted and is competent to determine the issues indicated (article 2, paragraph 1, sub-paragraph (a) of the RJAT), the parties have legal personality and capacity and have full standing (articles 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March). There are no procedural defects, and nothing prevents judgment on the merits.
The present case is thus in a position for a final decision to be rendered.
II. Issue to be Decided
The central issue to be considered and decided regarding the merits of the case, as emerges from the parties' procedural documents, is the following: with reference to properties not constituted under the horizontal property regime, comprised of various floors and divisions capable of independent use (and with residential use), what is the Tax Patrimonial Value ("VPT") relevant for the purpose of determining the IS payable, pursuant to Item No. 28 of the General Table of IS ("TGIS").
That is, this tribunal seeks to determine whether, as the Claimant alleges, the amount to be considered is the VPT attributed individually to each of the parts capable of autonomous use, or, conversely, the total value resulting from the sum of the VPTs of those autonomous fractions, as suggested by the Respondent.
III. Decision on the Factual Matters and its Justification
Having examined the documentary evidence produced, the tribunal deems proven, with relevance to the decision of the case, the following facts:
I. The Claimant is the owner of a property located at..., no.../..., in Lisbon, currently registered under article... in the urban property register of the parish of..., municipality of Lisbon, with a Tax Patrimonial Value ("VPT") with residential use of €1,151,100;
II. The Claimant received, with respect to the fiscal year 2015, and as a result of the provisions of Item No. 28 of the TGIS, the IS assessment notices from the AT, mentioned above, relating to the three installments of IS, in the total amount of €11,511.00 (amount already fully paid);
The Tribunal's conviction regarding the facts deemed as proven resulted from the documents attached to the case file and contained in the petition and the uncontested allegations of the parties, as specified in the factual matters points set out above.
IV. On the Law
A) Legal Framework
Having regard to the subject matter under discussion in the present case, it is important, first of all, to enumerate the rules that comprise the relevant legal framework, on the date the facts occurred.
The subjection to IS of properties with residential use resulted from the addition of Item No. 28 to the TGIS, effected by article 4 of Law 55-A/2012, of 29 October, which established the following taxable events:
"28 – Ownership, usufruct or right to a surface of urban properties whose tax patrimonial value contained in the register, pursuant to the Municipal Property Tax Code (IMI Code), is equal to or greater than €1,000,000.00 – on the tax patrimonial value for the purpose of IMI:
28.1 – For a property with residential use – 1%
28.2 – For a property, when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the ordinance approved by the Minister of Finance – 7.5%."
The aforementioned law also added, in the IS Code, paragraph 7 of article 23, concerning the assessment of IS: "in the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the IMI Code", and article 67, paragraph 2, which provides that "to matters not regulated in this code relating to item 28 of the General Table, the IMI Code shall apply subsidiarily".
In this context, and having regard to the above indication, let us turn, now, to the IMI Code.
First, note article 2, paragraph 4 of the IMI Code, which states that "for the purposes of this tax, each autonomous fraction in the horizontal property regime is considered as constituting a property".
In turn, paragraph 3 of article 12 of the IMI Code establishes that "each floor or part of a property capable of independent use is considered separately in the property register, which also discriminates the respective tax patrimonial value".
In parallel, the article governing item under discussion in the IS Code is article 23, paragraph 7, concerning the assessment of IS, which provides as follows: "in the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the IMI Code".
Likewise, and if such is not understood, it will also be examined whether in cases in which the horizontal property of an urban property with various autonomous fractions is not constituted, the VPT, for the purposes of Item No. 28 of the TGIS, is calculated individually per fraction capable of being used autonomously, or, alternatively, determined by the sum of the VPTs of those fractions.
B) Arguments of the Parties
In this regard, the Claimant, in its petition, alleges, in summary, the following:
The Claimant is the owner of the property located at..., no.../..., in Lisbon, currently registered under article... in the urban property register of the parish of..., municipality of Lisbon.
The property is divided into a basement, ground floor, and six upper floors, consisting of eleven divisions with independent use, all in accordance with the respective property register entries, whereby the six upper floors, the ground floor, and the part of the basement with residential use were the subject of the disputed assessments.
According to the property records, the divisions with residential use total a VPT of €1,151,100.
The Claimant paid in full all the amounts assessed as IS, totaling €11,511.00, within the legally established deadlines.
The challenged acts are based on an error regarding the factual and legal prerequisites for the application of said item 28 of the TGIS, and are tainted by the defect of violation of law, as has been decided by various Arbitral Tribunals.
Subjection to IS contained in Item No. 28.1 of the TGIS is determined by the conjunction of two criteria: residential use and the VPT contained in the register equal to or greater than €1,000,000.00.
In that sense, in the case of an urban property with characteristics identical to those described in the present case file, subjection to IS is determined not by the VPT of the property, but by the VPT attributed to each of the floors or divisions.
This is because, in the Claimant's opinion, the legislator made no distinction between properties constituted in full ownership and in horizontal property. Therefore, in the case at hand only the material truth underlying the property and its respective use can be relevant.
The Claimant contends that "it is not at all relevant whether the legal situation of a particular property is constituted in vertical or horizontal property for the purpose of whether or not it is qualified as an urban property with residential use".
From the Claimant's point of view, "the VPT to be considered for the purposes of IS assessment shall have to be that attributed to an individualized physical space with independent residential use, whether that space is an autonomous fraction in horizontal property or an independent division in vertical property".
In conclusion, the Claimant therefore petitioned that the aforementioned assessments be annulled, as being manifestly illegal, with all further consequences.
For its part, the Respondent, after being duly notified to that effect, presented its response in which it began by considering that, in its opinion, a property in full ownership with floors or divisions capable of independent use is, unequivocally, different from a property in the horizontal property regime, constituted by autonomous fractions, or that is, several properties, therefore, as to the assessment of IMI, and subsidiarily of IS, "the tax patrimonial value on which the incidence of stamp duty item 28.1 of the General Table depends had to be, as it was, the global tax patrimonial value of the property and not that of each of its independent parts".
Concluding, with regard to that point, that the legislator intended to tax, with Item No. 28.1 of the TGIS, properties as a single legal-tax reality. "From which it necessarily follows that the tax acts in question did not violate any legal or constitutional principle, and therefore should be maintained".
The Respondent thus understands that the assessments it made result from a correct interpretation and application of law to the facts, and accordingly requests that the claim put forward by the Claimant be judged unfounded and it be absolved of the claim.
The Tribunal's conviction regarding the decision on the factual matters was based on the documents in the case file, as well as the pleadings presented and the positions of the parties expressed therein, it being noted that there is agreement between the parties regarding the factual matters, with disagreement limited to matters of law.
C) Tribunal's Assessment
By way of introduction, it should be noted that, in the opinion of the present tribunal, and having regard to the legal framework previously presented, the essential normative proposition to be considered for the decision of the case is that which results from Item No. 28 of the TGIS.
It should also be noted that, in the eyes of the arbitral tribunal, the issue under analysis is exclusively concerned with matters of law, specifically understanding, for the purposes of applying the aforementioned item, which VPT is relevant.
First, it should be clarified that it is clear, from the letter of the law, that the VPT to be considered, for the purposes of applying Item No. 28 of the TGIS, can only be that which is determined within the scope of the IMI Code.
This is, moreover, what the aforementioned item tells us, verbatim: "(…) whose tax patrimonial value contained in the register, pursuant to the Municipal Property Tax Code (IMI Code), is equal to or greater than €1,000,000.00".
Therefore, note once again what follows from article 2, paragraph 4 of the IMI Code, which states that "for the purposes of this tax, each autonomous fraction in the horizontal property regime is considered as constituting a property".
Reinforced, nevertheless, by article 12, paragraph 3 of the same Code, which establishes that "each floor or part of a property capable of independent use is considered separately in the property register, which also determines the respective tax patrimonial value".
It is thus concluded that, for the purposes of calculating the IMI payable, the VPT is considered individually for each floor or part capable of independent use.
And if this is the method of determination used for IMI, it must necessarily be the same model also applied in the context of Item No. 28 of the TGIS, in the manner set out above.
Nevertheless, and should the doubts raised still persist, the present tribunal relies on some previous arbitral decisions that addressed the subject under analysis.
Thus, first, let us note decision no. 50/2013-T, of 29 October, also mentioned by the Claimant, which provides as follows:
"Law No. 55-A/2012 says nothing regarding the qualification of the concepts at hand, in particular, regarding the concept of 'property with residential use'. However, article 67, paragraph 2 of the IS Code, added by the aforementioned Law, provides that 'to matters not regulated in this code relating to item 28 of the General Table, the IMI Code shall apply subsidiarily'.
The rule of application thus refers to urban properties, whose concept is that which results from the provisions of article 2 of the IMI Code, with the determination of the VPT being subject to the terms of the provisions of article 38 et seq. of the same code.
Having consulted the IMI Code, it is verified that its article 6 only indicates the different types of urban properties, among which it mentions residential properties (…).
From this we can conclude that, in the legislator's view, what matters is not the legal-formal accuracy of the particular situation of the property, but rather its normal use, the purpose to which the property is destined. We further conclude that for the legislator the situation of the property in vertical or horizontal property ownership was not relevant, as there is no reference to or distinction made between one and the other. What is relevant is the material truth underlying its existence as an urban property and its use.
(…)
Using the criterion that the law itself introduced in article 67, paragraph 2 of the IS Code, 'to matters not regulated in this code relating to item 28 of the General Table, the IMI Code shall apply subsidiarily'" (emphasis ours).
That is, bearing in mind that the registration of properties in vertical property in the property register for the purposes of the IMI Code follows the same registration rules as properties constituted in horizontal property, and the respective IMI, as well as the IS, are assessed individually in relation to each of the parts, it does not seem, to the present tribunal, that there is any doubt that the legal criterion for determining the incidence of the new tax must be the same.
In this context, if the law requires, with regard to IMI, the issuance of individualized assessment notices for the autonomous parts of properties in vertical property, in the same manner as it establishes for properties in horizontal property, it will require, in the same terms, with regard to the rule of incidence of Item No. 28 of the TGIS.
Therefore, the IS, in the context of Item No. 28 of the TGIS, could only apply to a particular fraction if it eventually had a VPT greater than €1,000,000.00.
And, what is more, this was also the understanding adopted by the AT.
In fact, the AT also issued individualized assessment notices referring to each of the fractions capable of autonomous use, demonstrating that, in its opinion, the aforementioned fractions, despite not being legally constituted in horizontal property, would be, for all purposes, independent of one another.
However, the AT overlooked that it could not, by virtue of the framework previously set forth, proceed to sum the individual VPTs of the aforementioned fractions, seeking a value that would fall within the tax base of Item No. 28 of the TGIS.
This when the legislator itself established a different rule in the context of the IMI Code, which, as previously mentioned, is the Code applicable to matters not regulated in the IS Code, with regard to Item No. 28 of the TGIS.
In summary, the criterion established by the AT, of considering the value of the sum of the individual VPTs attributed to the parts, floors, or divisions with independent use, taking advantage of the fact that the property is not constituted under the horizontal property regime, does not find, in the eyes of the present tribunal, legal support, being, in particular, contrary to the criterion applicable under IMI and, by reference (in the manner mentioned above), under IS.
In this context, the present tribunal considers that the criterion defended by the AT violates the principles of legality and fiscal equality and, as well, that of the prevalence of material truth over legal-formal reality.
In parallel, note that article 12, paragraph 3 of the IMI Code does not make any distinction regarding the regime of properties that are in horizontal or vertical property.
As such, and given that if the property were in the horizontal property regime, none of its residential fractions would be subject to the incidence of the new tax, the AT cannot treat materially equal situations differently.
In this regard, see what was stated on this matter in the arbitral decision rendered in the context of Case No. 132/2013-T, of 16 December, whose understanding the present tribunal adopts.
"Indeed, it makes no sense to distinguish in law what the law itself does not distinguish (where the law does not distinguish, neither should we).
Furthermore, to distinguish, in this context, between properties constituted in horizontal property and in full property would be an 'innovation' without associated legal support, especially since, as has been stated here, nothing indicates, neither in item 28 nor in the provisions of the IMI Code, a justification for that particular differentiation.
Note, by way of example, what article 12, paragraph 3 of the IMI Code states: each floor or part of a property capable of independent use is considered separately in the property register, which also discriminates the respective tax patrimonial value.
The uniform criterion that is required is thus that which determines that the incidence of the rule in question takes place only when some of the parts, floors, or divisions with independent use of a property in horizontal or full property with residential use has a VPT greater than €1,000,000.00.
To set as the reference value for the incidence of the new tax the global VPT of the property in question, as the respondent sought, finds no basis in the applicable legislation, which is the IMI Code, given the reference made by the aforementioned article 67, paragraph 2 of the IS Code.
(…)
Furthermore, to admit differentiation in treatment could produce results that are incomprehensible from a legal point of view and contrary to the objectives that the legislator said it had in adding item 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the respondent: a citizen who owns a property constituted in full property intended for residential use, with the global value of autonomous units equal to or greater than €1,000,000.00 and the VPT of each one less than €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics as the former but which has been constituted in horizontal property, with the global value of autonomous fractions also equal to or greater than €1,000,000.00 and the VPT of each one less than €1,000,000.00, will not be subject to taxation pursuant to the aforementioned item 28.
On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for tax purposes, their respective VPTs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal property, in which each of its 20 fractions has a VPT of less than €1,000,000.00, would be subject to taxation if – should such aggregation be permitted – the global VPT exceeded that amount; whereas another citizen with the same 20 fractions distributed among 5, 10, or 20 properties would not be subject to any taxation pursuant to the aforementioned item 28.
If this line of reasoning makes sense – justifying, therefore, the non-aggregation of the VPTs of fractions of properties in horizontal property – there is no plausible reason why the same should not be applied to the autonomous units of properties in full property.
Observing, now, the case under analysis, it is found that the VPTs of the floors (autonomous units) of the property with residential use vary between (…), therefore each one is less than €1,000,000.00.
From this it is concluded, as a result of what has been stated, that IS to which item 28 of the TGIS refers cannot apply to them, and therefore the assessment acts contested by the claimant are illegal" (emphasis ours).
In this regard, let us now focus on the arbitral decision rendered in the context of case no. 48/2013-T, of 9 October, which analyzes, extensively, the objectives underlying the addition of the aforementioned item.
"Law No. 55-A/2012, of 29/10, has no preamble whatsoever, so it is not possible to extract from it the intention of the legislator.
Said law of the Assembly of the Republic originated from bill no. 96/XII (2nd), which, in the statement of grounds, discusses the introduction of fiscal measures inserted in a broader set of measures to combat budgetary deficit.
In the statement of grounds of the aforementioned bill, it is stated that, 'these measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live from their work income. In accordance with that objective, this law expands the taxation of capital and property, equitably covering a broad set of sectors of Portuguese society'.
In that statement of grounds it is further stated that, in addition to the increase in the taxation of capital income and stock market capital gains, a rate is created under IS applicable to urban properties with residential use whose tax patrimonial value is equal to or greater than one million euros.
That is, in such statement of grounds, it is not clarified what is meant by urban properties with residential use.
In its intervention in the Assembly of the Republic, in the presentation and discussion of the aforementioned bill, the Secretary of State for Tax Affairs stated the following:
'The Government has chosen as a priority principle of its fiscal policy social equity. This is even more important in times of austerity as a way to ensure fair distribution of the fiscal burden.
In the demanding period that the country is going through, during which it is obliged to comply with the program of economic and financial assistance, it becomes even more pressing to affirm the principle of equity. It cannot always be the same – wage earners and retirees, bearing the tax burdens.
For the fiscal system to be more just, it is decisive to promote the expansion of the tax base by requiring an increased effort from taxpayers with higher income and thereby protecting Portuguese families with lower incomes.
For the fiscal system to promote more equality, it is fundamental that the effort for budgetary consolidation be distributed among all types of income, covering with special emphasis capital income and high-value properties. This matter, it should be recalled, was extensively addressed in the Constitutional Court judgment.
Finally, for the fiscal system to be more equitable, it is crucial that all be called upon to contribute according to their tax capacity, giving the tax administration reinforced powers to control and oversee situations of fraud and tax evasion.
In this sense the Government presents, today, a set of measures that effectively reinforce a fair and equitable distribution of the adjustment effort by a broad and comprehensive set of sectors of Portuguese society.
This proposal has three essential pillars: the creation of special taxation on urban properties valued at over 1 million euros; the increase in taxation on capital income and stock market capital gains; and the strengthening of the rules to combat fraud and tax evasion.
First and foremost, the Government proposes the creation of a special tax on the highest value residential urban properties. This is the first time in Portugal that special taxation is created on high-value properties intended for residential use. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to properties valued at equal to or greater than 1 million euros. With the creation of this additional tax rate, the fiscal burden required of these owners will be significantly increased in 2012 and 2013'".
Following this, it is necessary to gather the conclusions that will permit, without any doubt, deciding on the matter under discussion (that is, whether, for the purposes of applying Item No. 28 of the TGIS, in cases in which a property with various autonomous fractions, capable of independent use, is not constituted in horizontal property, the relevant VPT is determined through the sum of the individual VPTs, or, alternatively, is individually considered).
In this sense, it should first be noted that the present subject matter is, by virtue of article 67, paragraph 2 of the IS Code, subject to the rules of the IMI Code, "to matters not regulated in this code relating to item 28 of the General Table, the IMI Code shall apply subsidiarily".
As such, and as has been mentioned so many times, in the opinion of the present tribunal, the mechanism for determining the relevant VPT for the purposes of the aforementioned item is that which is established in the IMI Code.
Now, article 12, paragraph 3 of the IMI Code establishes that "each floor or part of a property capable of independent use is considered separately in the property register, which also discriminates the respective tax patrimonial value".
With the legislator downplaying, in the manner previously mentioned, any prior constitution of horizontal or vertical property.
Indeed, for the legislator, what is relevant is the material truth underlying its existence as an urban property and its use.
It should be noted that the AT itself appears to agree with the criterion set forth, which is why the assessments it issues are very clear in their essential elements, from which it results that the value subject to application is that corresponding to the VPT of each one of the floors, and the assessments individualized.
Therefore, if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties in vertical property, in the same manner as it establishes for properties in horizontal property, the criterion is clearly established, and must be unique and unequivocal, for the definition of the rule of incidence of the new tax.
Thus, there would only be room for the application of IS (in the context of Item No. 28 of the TGIS) if some 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 application of the new tax the total value of the property, when the legislator itself established a different rule under 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 an obligation to constitute horizontal property, so the AT's action amounts to arbitrary and illegal discrimination.
In fact, the AT cannot distinguish where the legislator itself chose not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal 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 hand, the property in question was, on the relevant date of the facts, constituted in full property and had eight fractions with independent use with residential use that were the subject of assessment (contested), as results from the documents attached by the Claimant.
Given that none of those fractions, individually considered, has a tax 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 prerequisite for application is not met.
V. Decision
This Arbitral Tribunal hereby decides:
A) To uphold the request for arbitral decision and, in consequence, to declare illegal and annul the IS assessments mentioned above, with reference to the fiscal year 2015, from which resulted tax paid in the amount of €11,511.00, which amount should now be reimbursed to the Claimant;
B) To condemn the Respondent, pursuant to article 43, paragraph 1 of the General Tax Law ("LGT") and articles 61, paragraphs 2 and 5 of the Code of Tax Procedure and Process ("CPPT"), in the payment of indemnifying interest, at the rate resulting from paragraph 4 of article 43 of the LGT, there being in the case "sub judice", undoubtedly error attributable to the services in the practice of the tax acts in question, calculated on the amount paid, from the day on which the aforementioned assessments were paid until the full reimbursement of the aforementioned amount; and
C) To condemn the Respondent in the costs of the proceedings.
VI. Value of the Case
The value of the case is fixed at €11,511.00, pursuant to article 97-A, paragraph 1, sub-paragraph (a) of the CPPT, applicable by virtue of sub-paragraphs (a) and (b) of article 29, paragraph 1 of the RJAT and paragraph 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings ("RCPAT").
VII. Costs
In accordance with the provisions of article 22, paragraph 4 of the RJAT, the amount of the arbitration fee is fixed at €918, pursuant to Table I of the aforementioned Regulation, to be borne by the Respondent, given the full success of the claim.
Let notification be made.
Lisbon, CAAD, 27 March 2017
The Arbitrator
(Sérgio Santos Pereira)
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