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Full Decision
ARBITRAL DECISION - CAAD
The arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Council of the Administrative Arbitration Center ("CAAD") to form the Single Arbitral Tribunal, constituted on 7 October 2015, decides as follows:
1. REPORT
1.1 A…, S.A., hereinafter referred to as "Claimant", NIF…, with registered office at Rua …, … and …, Lisbon, requested the constitution of an arbitral tribunal, pursuant to article 2, subsection 1, paragraph a), and article 10, both of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"[1]).
1.2 The request for arbitral ruling concerns the declaration of illegality, and consequent annulment, of the tax assessment acts for Stamp Duty (Imposto de Selo – IS), in the total amount of €15,985.30 (fifteen thousand nine hundred and eighty-five euros and thirty cents), relating to the year 2014, as set out in the collection notices better identified in the initial petition submitted by the Claimant, and which are hereby reproduced and articulated for all legal purposes, concerning the areas located on the ground floor and four floors, of independent use and residential purpose, of the urban property owned by the Claimant, located at Rua …, No. … and …, in Lisbon, registered in the property register under article … (former article … and previously …) of the parish of … (extinct parish of …), as per documents attached to the initial petition.
The Claimant further requests the condemnation of the Respondent to refund the amounts unduly paid, in the total amount of €10,656.87 (ten thousand six hundred and fifty-six euros and eighty-seven cents) as evidenced by payment receipts attached to the initial petition, and that it be recognized the right to compensatory interest on all amounts paid.
1.3 To support its claim, the Claimant alleges that the Stamp Duty assessments that are the subject of this petition are illegal due to violation of the rule of incidence of item 28 of the General Table of Stamp Duty (TGIS). The Claimant considers that, with the property in vertical ownership, as it was at that date, divided by ground floor and 4 floors, constituted by a set of areas of independent use, better described in the initial petition, the Tax Authority cannot, as it did, sum the patrimonial values of the floors and divisions capable of independent use, given that none of these floors or divisions, on its own, has a Patrimonial Value (VPT) equal to or greater than 1,000,000 euros. And that the rule of incidence, in the interpretation applied by the Tax Authority, is unconstitutional due to violation of the principle of equality.
1.4 The Tax Authority defended itself by exception and by challenge. By exception, it argues that, as this is not a request for annulment of a tax act but rather collection notices corresponding to two of the installments of payment of the tax, the request for arbitral ruling exceeds the competence of arbitral tribunals. It further contends that the installments contained in the collection notices sub judice cannot be impugned autonomously, giving rise to the dilatory exception provided in paragraph c), of subsection 1, of article 89 of the Code of Tax Procedure and Process (CPPT), subsidiarily applicable by article 29, subsection 1, paragraph c), of the RJAT, which should preclude the tribunal from addressing the merits and result in the dismissal of the Tax Authority from the proceedings.
Without admitting liability, the Tax Authority contends that the request for declaration of illegality, and consequent annulment of the contested assessments, should be judged unfounded, given that it proposes that, although the assessment of Stamp Duty, in the conditions provided for in item 28 of the TGIS, is processed in accordance with the rules of the Municipal Property Tax Code (CIMI), the truth is that the legislator reserves aspects that require due adaptations. The Tax Authority contends that this is the case with properties in full ownership, even though with floors or divisions capable of independent use, because although the Municipal Property Tax (IMI) is assessed in relation to each part capable of independent use, for Stamp Duty purposes the property as a whole is relevant, thus advocating for the legality of the tax acts because they constitute a correct application of the law to the facts.
The Tax Authority contends that this is the case with properties in full ownership, even though with floors or divisions capable of independent use, because although the Municipal Property Tax (IMI) is assessed in relation to each part capable of independent use, for Stamp Duty purposes the property as a whole is relevant, thus advocating for the legality of the tax acts because they constitute a correct application of the law to the facts.
1.5 The parties agreed to waive submissions and the meeting of the arbitral tribunal provided for in article 18 of the RJAT.
2. PRELIMINARY EXAMINATION
The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.
The parties have legal personality and capacity, demonstrate legitimate interest and are regularly represented (cf. articles 4 and 10, subsection 2 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March).
No procedural nullities were identified in the case.
3. FACTUAL MATTERS
With relevance to the merits of the decision, the Tribunal considers the following facts to be proven:
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The Claimant was, at the date of the assessments sub judice, owner of the urban property that was the subject of those assessments, under a regime of "full ownership" (i.e., not subject to the horizontal property regime) to which was assigned a global VPT (Patrimonial Value) exceeding 1,000,000.00€, corresponding to the sum of the partial VPTs of each of the areas with independent use.
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In accordance with what is mentioned in the initial petition and the response given by the Respondent, none of the divisions capable of independent use, to which an autonomous VPT was assigned by the Respondent, and regardless of its purpose – residential or other – has a VPT that exceeds the value of €1,000,000.
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The Claimant was notified to pay stamp duty on the aforementioned property, with the Respondent considering the Claimant to be the liable person for stamp duty under item 28.1 of the TGIS, by being the owner of a property with a patrimonial value for tax purposes exceeding €1,000,000.
Unproven Facts
No essential facts, with relevance to the assessment of the merits of the case, which were not proven, were identified.
Grounds for the Factual Matters
The conviction regarding the facts deemed proven was based on documentary evidence submitted by the Claimant, whose authenticity and correspondence to reality were not challenged by the Respondent.
4. QUESTIONS TO BE DECIDED
There are two questions to be decided in the present case:
a) To determine the exception of incompetence of the Arbitral Tribunal and the impugnability of the acts;
b) To determine whether, for purposes of applying item 28.1 of the General Table of Stamp Duty, the sum of the VPTs of the areas or divisions of independent use should or should not be considered.
On the Incompetence of the Arbitral Tribunal and the Impugnability of the Acts
The Tax Authority bases its position, regarding the exception of incompetence of the arbitral tribunal and the impugnability of the acts, on the fact that tax acts are not being impugned, but rather the payment of two installments corresponding to those Stamp Duty assessment acts. Having the Claimant attached to the proceedings the collection notices of the first and second installments of Stamp Duty relating to the year 2014, the Tax Authority considers that the request does not refer to the annulment of tax acts, but rather of mere collection notices, and therefore considers that this matter is not within the scope of competence of tax arbitral tribunals, provided for in article 2 of the RJAT, and that the acts in question are not impugnable.
However, let us examine this.
Paragraph a) of subsection 1 of article 2 of the RJAT establishes that arbitral tribunals are competent to hear requests for declaration of illegality of tax assessment acts, self-assessments, withholdings at source and payment on account.
Now, the tax arbitral proceedings have as its object, mediately or immediately, the tax assessment act, as an act of determination of the amount of tax to be paid (collection), by application of a rate to the taxable matter.
The examination of the exception raised by the Tax Authority depends, therefore, on the question of whether the Claimant is impugning the Stamp Duty assessment act for the year 2014 or whether, by contrast, it merely limits itself to impugning one of the Stamp Duty installments, namely the 1st installment.
In cases where the tax is to be paid in installments, the assessment is notified to the liable person together with the notice to pay each of the installments, and can only be impugned in its entirety and not installment by installment.
In this regard, José Casalta Nabais argues that "Assessment broadly speaking, namely as the set of all operations aimed at determining the amount of tax, comprises: 1) Subjective assessment intended to determine or identify the taxpayer or liable person of the tax legal relationship, 2) Objective assessment through which the taxable or taxable matter is determined and, as well, the rate to be applied is determined, in the case of plurality of rates, 3) Assessment in the strict sense reflected in the determination of the collection through the application of the rate to the taxable or taxable matter, and 4) the (eventual) deductions from the collection."
Thus, to each tax fact will correspond, in principle, a single assessment through which the collection to be paid will be determined.
It is also important to note subsection 7 of article 23 of the Stamp Duty Code, which establishes that "in the case of tax due for the situations provided for in item No. 28 of the General Table, the tax is assessed annually (…)" applying, with the necessary adaptations, the rules contained in the CIMI." As for its payment, "where there is assessment of the tax referred to in item No. 28 of the General Table, the tax is paid in the periods, terms and conditions defined in article 120 of the CIMI."
That is, the assessment of the tax is carried out in the months of February and March of the year following the one to which it relates and the tax must be paid in three installments, in the months of April, July and November, respectively, depending on the amount involved.
Now, it is clear from the various relevant provisions that Stamp Duty is subject to a single annual assessment, assessment that is necessarily prior to the sending of the first installment collection notice of the tax and which is contained therein. And it is this annual assessment that can be subject to impugnation.
Now, in the concrete case, the Claimant came to request the annulment of the assessments for the year 2014, of which the property of which it is the owner was the subject. That is, the Claimant intends that the illegality of the Stamp Duty tax assessment acts underlying the collection notices attached to the initial petition be declared, and not each of the stamp duty installments individually considered.
And this is confirmed by the fact that the value of the claim corresponds to the entirety of this assessment (€15,985.30) and not to the value of the payments made.
Therefore, the invocation of the exception in question by the Tax Authority is deemed unfounded, and this Arbitral Tribunal considers itself competent to examine the request for declaration of the illegality of the Stamp Duty assessment act, which is impugnable by this means.
On the Application of Item 28.1 of the General Table of Stamp Duty
The essential question to be decided in the present case is, therefore, to determine, with reference to a property not constituted under the horizontal property regime, integrated by various floors and divisions with independent use, some of which with residential purpose, what Patrimonial Value for Tax Purposes (VPT) is relevant, assessing the correct criterion of incidence of the tax in relation to the law, in order to determine whether it should be assessed by the sum of the patrimonial value for tax purposes attributed to the different parts or floors (global VPT) or, instead, whether it should be attributed to each of the parts or residential floors.
Additionally, the Claimant invokes the unconstitutionality of the transitional regime approved by article 6, subsection 1 of Law 55-A/2012, of 29 October, due to violation of a significant set of constitutional principles which it expressly invokes.
It also petitions the payment of compensatory interest.
5. ON THE LAW
As identified above, the question to be decided relates to whether the patrimonial value relevant for purposes of determining the applicability of Item 28 of the TGIS, when dealing with a property not constituted in horizontal property ownership, is that of each unit autonomously considered or the sum of the patrimonial value for tax purposes attributed to each of these units.
The question arises due to taxation by stamp duty of the ownership, usufruct or right of superficies of urban properties whose patrimonial value for tax purposes shown in the property register is equal to or greater than €1,000,000, with the tax due, at the rate of 1% on the patrimonial value for tax purposes used for the purpose of Municipal Property Tax, per property with residential purpose.
Therefore, it is important to determine, when dealing with a property not constituted in horizontal property ownership, the concept of "property with residential purpose": whether it should be interpreted as corresponding to each unit autonomously considered and to fall on the respective patrimonial value or whether it should correspond to the totality of autonomous units, and should consequently fall on the sum of the patrimonial value for tax purposes attributed to each of these units.
As the Stamp Duty Code, nor its respective General Table, nor Law No. 55-A/2012, of 29 October (which approved the item of the TGIS under examination) offers a legal definition of "property with residential purpose", it is important to assess the correct interpretation of this expression, presuming that the legislator knew how to express its intent in the most adequate form (cf. article 9, subsection 3, final part, of the Civil Code), in its systematic integration with the norms contained in the Municipal Property Tax Code and, as well, in the spirit of the law.
Item 28 of the TGIS under examination was added by Law No. 55-A/2012, of 29 October with the following wording:
"28 - Ownership, usufruct or right of superficies of urban properties whose patrimonial value for tax purposes shown in the register, in terms of the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 — on the patrimonial value for tax purposes used for the purpose of Municipal Property Tax:
28.1 — For property with residential purpose — 1%;
28.2 — For property, when the liable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance — 7.5%."
(Italics ours)
Law No. 55-A/2012, of 29 October entered into force on 30 October 2012, in accordance with its article 7, subsection 1, which determined its entry "into force on the day following its publication."
The applicable rates are as follows:
i) Properties with residential purpose assessed under the terms of the Municipal Property Tax Code: 0.5%;
ii) Properties with residential purpose not yet assessed under the terms of the Municipal Property Tax Code: 0.8%;
iii) Urban properties when the liable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance: 7.5%.
However, neither the Stamp Duty Code, nor Law No. 55-A/2012, of 29 October specify the concept of "urban property with residential purpose", so in accordance with article 67 of the Stamp Duty Code, the interpretation of this concept should be sought in the Municipal Property Tax Code.
Indeed, it follows from article 67 of the Stamp Duty Code that "To matters not regulated in this Code relating to item No. 28 of the General Table, the provisions of the CIMI apply, subsidiarily" - (Wording given by article 3 of Law No. 55-A/2012 of 29 October.).
In the Municipal Property Tax Code, the concept of property is defined in its article 2, from which it follows that "For purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or erected thereon, 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 (…), clarifying in subsection 4 of this legal provision that "For purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property."
From the isolated reading of this legal provision we could be led, in a somewhat biased interpretation, to understand that under Municipal Property Tax, autonomous fractions under the horizontal property regime would have a different treatment from parts of a property capable of independent use.
However, a more careful analysis of the regime allows us to conclude precisely the opposite.
As emphasized by the Ombudsman to the Secretary of State for Tax Matters, in an official letter dated 2 April 2013, "the registration in the property register of properties in vertical ownership, constituted by parts capable of independent use, follows the same rules as the registration of properties constituted in horizontal ownership, with the respective Municipal Property Tax, as well as the new Stamp Duty, being assessed individually in relation to each of the parts."
(Italics ours)
Indeed, article 12, subsection 3 of the Municipal Property Tax Code provides in this sense, by determining that "each floor or part of property capable of independent use is considered separately in the property register entry which also discriminates the respective patrimonial value for tax purposes."
In accordance with article 119 of the Municipal Property Tax Code, "The services of the General Directorate of Taxes send to each liable person, by the end of the month prior to the month of payment, the competent collection document, with discrimination of the properties, their parts capable of independent use, respective patrimonial value for tax purposes and the collection imputed to each municipality where the properties are located."
In summary, for purposes of taxation under Municipal Property Tax, each independent unit, even when integrating the same property, is considered separately, being assigned its own patrimonial value and being taxed autonomously.
Thus, one cannot but agree with the understanding endorsed in the Arbitral Decision rendered in Case No. 50/2013, in accordance with which "if the legal criterion imposes the issuance of individualized assessments for 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 defining the rule of incidence of the new tax. Thus, there would only be place for incidence of the new stamp duty if any of the parts, floors or divisions with independent use presented a VPT exceeding €1,000,000.00."
(Italics ours)
But, moreover, it is this separate treatment of each unit capable of independent use that allows, in the application of the allocation coefficient (cf. article 41 of the Municipal Property Tax Code), to take into account the different purposes of each unit that compose a single property.
What is relevant for this purpose is the actual use of each of the parts capable of independent use, independently of whether the property is classified for residential purposes, in terms of article 6 of the Municipal Property Tax Code and, independently of whether it is an autonomous fraction or merely a unit capable of independent use.
Moreover, in accordance with this logic of the system, an urban property classified as residential can be composed of several independent units, where one or more can have a non-residential purpose, in accordance with article 41 of the Municipal Property Tax Code.
This will occur, for example, if in a property in full ownership with floors or divisions capable of independent use, licensed for residential use, one of its independent units is used for commerce or services. In this case, the units in question will not have residential purpose.
From this analysis it can be concluded that the concept of "property with residential purpose," used in Item 28 of the TGIS, encompasses each of the autonomous units, with independent use, of properties in full ownership, with units capable of independent use, that have that purpose.
In view of the foregoing, one cannot agree with the Respondent's understanding, which would result, moreover, in a violation of the principle of equality, fiscal justice and taxpaying capacity, constitutionally enshrined.
As mentioned in the decision rendered in case 132/2013-T of this CAAD:
(…) in the work relating to the discussion of the draft law No. 96/XII in the National Assembly (…) such a measure, referred to as the "special tax on high-value residential urban properties," was justified with the need to comply with the principles of social equity and fiscal justice, more significantly burdening the holders of properties with high value intended for residential purposes, and, in that measure, applying the new "special tax" to "houses with a value equal to or greater than 1 million euros."
(Italics ours)
It is thus presumed a taxpaying capacity (well) above the average that justifies a "special" tax effort for those who own a "house" or "property" whose value is at least one million euros. The legislator's intent appears, therefore, to suggest that the scope of the rule of incidence is to tax independent, individualized realities and not resulting from an aggregation or sum, albeit legal in nature.
That is, it is not inferred from this measure that the legislator aimed at the taxation of properties whose units capable of independent use did not individually reach that value.
In view of the foregoing, and given that none of the independent units that integrate the Claimant's property have a patrimonial value exceeding €1,000,000, the assessments under examination suffer from the defect of violation of law, due to error in the legal presuppositions, which justifies the declaration of its illegality and the corresponding annulment of the tax acts now under examination.
In view of the declaration of illegality of the assessments that are the subject of this proceeding, due to defect of violation of law due to error in the legal presuppositions, the examination of the other matters invoked as subsidiary is moot.
On the Request for Compensatory Interest
The Claimant petitions the condemnation of the Respondent to pay compensatory interest, provided for in articles 43 of the General Tax Law and 61 of the Code of Tax Procedure and Process.
It is clear in the proceedings that the illegality of the tax assessment acts impugned is directly attributable to the Respondent, which, on its own initiative, carried them out without legal support, suffering from an erroneous interpretation (and, therefore, application) of the legal norms to the concrete case.
Consequently, the Claimant is entitled to receive compensatory interest on the amounts paid, under the terms provided in articles 43, subsection 1, of the General Tax Law and 61 of the Code of Tax Procedure and Process.
6. DECISION
In view of the foregoing, it is decided:
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To judge the request for arbitral ruling as well-founded, with the consequent annulment, with all legal effects, of the stamp duty tax assessment acts better identified in the proceedings, in the total amount of Euros 15,985.30 (fifteen thousand nine hundred and eighty-five euros and thirty cents) and refund to the Claimant of the amount paid in the total of €10,656.87 (ten thousand six hundred and fifty-six euros and eighty-seven cents);
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To judge the request for compensatory interest petitioned by the Claimant as well-founded.
The value of the proceedings is fixed at Euros 15,985.30 (fifteen thousand nine hundred and eighty-five euros and thirty cents), in accordance with the provisions of articles 3, subsection 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, subsection 1, paragraph a) of the Code of Tax Procedure and Process and 306 of the Code of Civil Procedure.
The amount of costs is fixed at Euros 918 (nine hundred and eighteen euros) under article 22, subsection 4 of the RJAT and Table I attached to the RCPAT, to the charge of the Tax and Customs Authority, in accordance with the provisions of articles 12, subsection 2 of the RJAT and 4, subsection 4 of the RCPAT.
Notify the parties.
Lisbon, 24 February 2016
The Arbitrator
(Maria Antónia Torres)
Text drawn up by computer, in terms of article 131, subsection 5 of the Code of Civil Procedure, applicable by reference to article 29, subsection 1, paragraph e) of the RJAT.
The drafting of this arbitral decision is governed by the spelling prior to the Orthographic Agreement of 1990.
[1] Acronym for Legal Regime of Tax Arbitration.
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