Stamp Tax on Vertical Property Under Entry 28 TGIS – CAAD Case 484/2015-T

ARBITRAL DECISION

REPORT

A - PARTIES

A..., with address at..., nº ... - 1st Floor, ...-... Lisbon, bearing tax identification number..., hereinafter designated as Claimant or taxpayer.

TAX AND CUSTOMS AUTHORITY (which succeeded the General Directorate of Taxes, through Decree-Law no. 118/2011, of 15 December) hereinafter designated as Respondent or AT.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly constituted on 06-10-2015, to appraise and decide on the subject matter of this case, and was automatically notified to the Tax and Customs Authority on 06-10-2015, as stated in the respective minutes.

The Claimant did not proceed with the appointment of an arbitrator, whereby, pursuant to article 6, number 1 and article 11, number 1, subparagraph b) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated Dr. arbitrator Paulo Ferreira Alves, with the appointment being accepted in accordance with legal provisions.

On 25-09-2015 both parties were duly notified of such appointment, having not expressed any intention to challenge the appointment of the arbitrators, in accordance with article 11, number 1, subparagraphs a) and b), of the RJAT and articles 6 and 7 of the Code of Ethics.

In accordance with the provisions of article 11, number 1, subparagraph c) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitrator tribunal is duly constituted on 06-10-2015.

Both parties agree to the waiver of the holding of the meeting provided for in article 18 of the RJAT.

A period for response was given to the Claimant and the Respondent for the presentation of their responses to the exceptions invoked.

The arbitral tribunal is duly constituted. It is materially competent, in accordance with articles 2, number 1, subparagraph a), and 30, number 1, of Decree-Law no. 10/2011, of 20 January.

The parties possess legal personality and capacity, are entitled to proceed and are legally represented (articles 4 and 10, number 2, of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case is not affected by defects that would invalidate it.

B - CLAIM

1. The Claimant seeks the declaration of illegality of the tax assessment acts regarding Stamp Duty: no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015 ... and no. 2015..., which established a global tax to be paid of € 10,353.00 (ten thousand three hundred and fifty-three euros).

C - CAUSE OF ACTION

1. To support its request for an arbitral award, the Claimant alleged, with a view to the declaration of illegality of the tax assessment acts regarding Stamp Duty already described in point 1 of this Award, in summary, the following:

2. It is the owner of the urban property situated on Avenue..., numbers ... to..., in Lisbon, Parish of..., Municipality of Lisbon.

3. The said property is composed of four shops and thirteen floors with independent use, the value of which was determined separately, in accordance with the provisions of article 7, number 2, subparagraph b) of the Municipal Property Tax Code.

4. The Claimant argues that each of the shops and independent floors has an assigned and own tax property value, determined in accordance with the provisions of the Municipal Property Tax Code.

5. The property is not established under a horizontal property regime.

6. Being the tax property value of the property in vertical ownership amounting to € 1,514,060.00.

7. It argues that none of the floors or shops has a tax property value greater than or equal to €1,000,000.00.

8. It happens that on the tax property value of the floors, with the exception of the shops, the AT levied stamp duty with reference to the year 2014 in accordance with Law no. 55-A/2012, of 29/10.

9. The Claimant further alleges that considering that the registration of the property matrix in vertical property, composed of different floors with independent use, in accordance with the CIMI, follows the same registration rules as properties established under a horizontal property regime, with the respective IMI, as well as the IS, being levied individually in relation to each part, it leaves no doubt that the legal criterion for determining the incidence of the new tax must be the same.

10. In the case at hand, the property in question, although not established under a horizontal property regime, contains thirteen floors with independent use.

11. Given that none of the floors has a tax property value equal to or greater than €1,000,000.00, it is therefore inevitable to conclude that the legal presupposition for the incidence of IS provided for in item no. 28 of TGIS is not met.

12. The Claimant concludes by arguing for the illegality and voidability of the assessment acts regarding Stamp Duty due to violation of law.

D - RESPONSE OF THE RESPONDENT

1. The Respondent, duly notified for this purpose, presented its response in a timely manner in which, in brief summary, it alleged the following:

2. The situation of the Claimant's property falls literally within the provision of item 28.1 of TGIS.

3. The Claimant is, therefore, the owner of a property under a regime of full or vertical ownership, whereby there are no autonomous fractions to which the tax law could assign the qualification of property.

4. It follows from the notion of property in article 2 of CIMI, according to which only the autonomous fractions of property under a horizontal property regime are considered as properties.

5. Thus, the present Claimant, for purposes of IMI and stamp duty, by force of the wording of said item, is not the owner of 13 autonomous fractions, but rather of a single property.

6. The Respondent argues that horizontal property is a specific legal regime of property provided for in article 1414 and following of the Civil Code, which provides for and regulates the method of constitution as well as other rules on the rights and charges of co-owners, recognizing a more developed regime of property.

7. Furthermore, it maintains that seeking to have the interpreter and applicator of tax law clarify that applying, by analogy to the regime of full property, the regime of horizontal property would be, at a minimum, abusive and illegal. These two property regimes are regimes of civil law, which were imported into tax law, namely in the terms referred to by article 2 of CIMI.

8. The tax law interpreter is precluded from equating the two property regimes, in consonance with the rule whereby the concepts of other branches of law have in tax law the meaning given to them in those branches of law, or as referred to in article 11, number 2 of the LGT.

9. On the other hand, given that in determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed, as provided by article 11, number 1 of the LGT which refers to the Civil Code which, in article 10 on the application of analogy, determines that this will only be applicable in case of gaps in the law.

10. Arguing that tax law contains no such gap.

11. It cannot be accepted that, for purposes of item 28.1 of the General Table attached to the CIS, the parts susceptible to independent use have the same tax regime as the autonomous fractions of the horizontal property regime, under penalty of open violation of the principle of legality.

12. Being the property submitted to the regime of full ownership, but being physically composed of parts susceptible to independent use, the tax law attributed relevance to such materiality, evaluating individually, in accordance with article 12, number 3 of CIMI, each floor or part of property susceptible to independent use - considered separately in the property registration, but forming part of the same property record - with the levying of IMI taking into account the tax property value of each part.

13. In that case, the property registration must make reference to each of the parts and also to the tax property value corresponding to each of them, ascertained separately in accordance with articles 37 and following of 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 some of these floors or divisions are susceptible to independent economic use.

14. Such property is nonetheless only one, and thus its distinct parts are not legally equated to the autonomous fractions in a horizontal property regime.

15. The fact that the IMI was calculated based on the tax property value of each part of property with independent economic use does not likewise affect the application of item 28, number 1, of the General Table.

16. It is what results from the fact that the determining factor for the application of that item of the General Table is the total tax property value of the property and not separately that of each of its parcels.

17. The Respondent further states that the property registration of each part susceptible to independent use is not autonomous, per property record, but rather consists of a description in the property record of the property as a whole - see the property ledger of this property which represents the owner's document containing the property registration elements.

18. What is intended to be concluded is that these procedural norms of evaluation, property registration and levying of the parts susceptible to independent use do not allow one to state that there is an equating of property under a regime of full ownership to the regime of vertical property, this being because, and as has already been stated,

19. Therefore, the tax property value relevant for purposes of the incidence of the tax is thus the total tax property value of the urban property and not the tax property value of each of the parts that compose it, even when susceptible to independent use.

20. And this interpretation of the norm of incidence to stamp duty results from the combination of the other norm of incidence to IMI which is article 1, according to which IMI falls on the tax property value of urban properties, considering the notion of property in article 2 and of urban property contained in article 4 and also the species of urban properties described in article 6.

21. In conclusion, the impugned tax acts, in substance, did not violate any legal or constitutional provision, and must be maintained in the legal order.

E - FACTUAL FINDINGS

1. Before entering into the appraisal of these questions, it is necessary to present the factual matter relevant to their understanding and decision, carried out on the basis of documentary evidence, and taking into account the alleged facts.

2. As to the relevant facts, this tribunal considers the following facts to be established:

3. The Claimant is the owner of an urban property corresponding to a property in full ownership (not horizontal).

4. The said property is composed of four shops and thirteen floors with independent use, having thirteen divisions for residential allocation, situated on Avenue..., numbers... to..., in Lisbon, Parish of..., Municipality of Lisbon.

5. The tax property value of the property is €1,514,060.00, and the value of the fractions of independent use with residential allocation of the property is €1,035,280.00.

6. The assessment notices for the respective property concern the following floors and divisions, the tax property value of which divisions with independent use that compose the urban property was determined separately, in accordance with the provisions of article 7, number 2, subparagraph b), of the Municipal Property Tax Code (CIMI), resulting in the issuance of the following tax acts, here impugned:

i. Tax Act no. 2015..., with a tax collection to be levied of 724.48 €, and with a TPV of 72,448.80 €, concerning the Ground Floor D;

ii. Tax Act no. 2015..., with a tax collection to be levied of 757.80 €, and with a TPV of 75,768.00 €, concerning the 1st Floor;

iii. Tax Act no. 2015..., with a tax collection to be levied of 847.70€, and with a TPV of 84,770.00 €, concerning the 1st Mezzanine;

iv. Tax Act no. 2015..., with a tax collection to be levied of 789.60€, and with a TPV of 78,960.00€, concerning the 1st;

v. Tax Act no. 2015..., with a tax collection to be levied of 769.60€, and with a TPV of 78,960.00€, concerning the 2nd;

vi. Tax Act no. 2015..., with a tax collection to be levied of 757.80€, and with a TPV of 75,768.00 €, concerning the 2nd Floor;

vii. Tax Act no. 2015..., with a tax collection to be levied of 847.70 €, and with a TPV of 84,770.00 €, concerning the 2nd Mezzanine;

viii. Tax Act no. 2015..., with a tax collection to be levied of 797.50€, and with a TPV of 79,759.00€, concerning the 3rd;

ix. Tax Act no. 2015..., with a tax collection to be levied of 765.40€, and with a TPV of 76,540.00€, concerning the 3rd Floor;

x. Tax Act no. 2015..., with a tax collection to be levied of 856.20€, and with a TPV of 85,620.00€, concerning the 3rd Mezzanine;

xi. Tax Act no. 2015..., with a tax collection to be levied of 797.50€, and with a TPV of 79,750.00€, concerning the 4th;

xii. Tax Act no. 2015..., with a tax collection to be levied of 765.40€, and with a TPV of 76,540.00€, concerning the 4th Floor;

xiii. Tax Act no. 2015..., with a tax collection to be levied of 856.20€, and with a TPV of 85,620.00€, concerning the 4th Mezzanine.

1. The tax property value of the fractions of independent use with residential allocation of the property at the date of the levies is €1,035,280, with none of the parts or floors with residential allocation and independent use having a tax property value greater than €1,000,000.00.

2. The AT levied the stamp duty provided for in items no. 28 and 28.1 of the General Table of Stamp Duty (TGIS), in the wording introduced by article 4 of Law no. 55-A/2012, of 29/10, at the rate of 0.5% and 1%, considering as "TPV - total subject to tax", from the stamp duty levy assessments, a tax collection resulting from the levy amounting to the global value of €10,353.00.

3. The Respondent was notified for payment of stamp duty, calculated on the global value of the thirteen (13) fractions with residential allocation and taxed individually on each fraction.

4. The Claimant proceeded with the payment of the tax in the amount of € 10,353.00 (ten thousand three hundred and fifty-three euros), corresponding to the collection and the respective three installments.

F - UNPROVEN FACTS

1. Of the facts with interest for the decision of the case, contained in the challenge, all those that are the object of concrete analysis, those not contained in the factuality described above were not proven.

G - QUESTIONS TO BE DECIDED

1. Given the positions of the parties assumed in the arguments presented, the following central questions constitute matters to be decided, which must therefore be appraised and decided:

a. The preliminary question, alleged by the Respondent regarding the exception of lack of jurisdiction of the arbitral tribunal.

b. The alleged by the Claimant:

(i) The alleged by the Claimant, the declaration of illegality of the tax assessment acts regarding Stamp Duty, no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015 ... and no. 2015..., which established a global tax to be paid of € 10,353.00 (ten thousand three hundred and fifty-three euros).

c. The preliminary question regarding the determination of the value of the present arbitral case.

H - REGARDING THE EXCEPTION OF LACK OF JURISDICTION OF THE ARBITRAL TRIBUNAL

1. Faced with the formulation of the Claimant's request, the latter seeks the annulment of the stamp duty assessment acts determined under item 28, year 2014, regarding the 13 fractions of independent use with residential allocation of the sole property in question, already identified.

2. The Respondent raises the exception of lack of jurisdiction of the arbitral tribunal, on the ground that the Claimant is not impugning the tax assessment act, but rather the assessment act contained in a document that is a collection notice, that is, payment of an installment, and that the object of the case is the annulment not of a tax act (or of 1/3 of a tax act, which would not be legally possible), but rather of collection notices for the payment of the 3rd installment of a tax.

3. The Respondent alleges that this matter, which is not contained in any way in the body of norms that delimits the jurisdiction of tax arbitral tribunals, contained in article 2 of the RJAT.

4. The Respondent further argues that the impugnability of the acts, which the Claimant impugns the installments relating to the payment of a unit value of tax, whereby the present collection documents are not impugnable per se, and therefore the invoked exception should be upheld and the AT should be absolved of the claim.

5. The Claimant, duly notified to respond to the exception invoked by the Respondent, argued in the following terms:

6. The Claimant argues in its request for an arbitral award that it impugns and requests the annulment of the assessment acts, and the circumstance that it referred in its request to the first installment was because when it filed the request for an arbitral award, only that one had matured, the second had not yet matured and the Claimant had not even yet received the notifications regarding the third installment.

7. The Claimant alleges that it clearly and expressly mentions the stamp duty levy with reference to the year 2014, saying furthermore that it disagrees with the assessment acts, arguing that it must be understood that the object of the challenge is the assessment act regarding the entire year 2014 and not just the first installment.

8. The Claimant further requests in accordance with article 265, number 2 of CPC applicable by virtue of article 29, number 1, subparagraph e) of Decree-Law no. 10/2011, the expansion of the claim or the consequence of the original claim, and alteration of the claim value from €3,451.00 to € 10,353.00.

9. The Respondent, duly notified to respond to the response and to the request for expansion of the arbitral request of the Claimant, did not present its response.

10. Faced with the position assumed by the parties, in view of the exception invoked and the request for expansion of the arbitral request, it is incumbent on this tribunal to decide in the following manner.

11. It results from the Urban Property Ledger of the property that there are 13 fractions of independent use with residential allocation, the claimant initially attached the 13 assessment notices regarding each of the fractions of independent use with residential allocation of the property, relating to the 1st installment of Stamp Duty.

12. The value conferred on the arbitral petition by the Claimant concerns the sum of the tax levied in the assessment acts of Stamp Duty here impugned by the claimant, in the total amount of €3,451.00.

13. While the value of the collection from the acts here impugned is € 10,353.00 (ten thousand three hundred and fifty-three euros).

14. Regarding the challenge of stamp duty assessment acts, when issued in installments, the following is stated.

15. It is an indivisible act of a Stamp Duty levy, in accordance with the combined provisions of articles 120 and 113, number 1, both of the IMI Code, applicable by reference to number 7 of article 23 of the Stamp Duty Code, in the wording given to it by Law no. 55-A/2012, of 29 October, it results that, in the situations referred to in item 28 of TGIS, an annual levy is made, with payment in installments being nothing more than a technique for collecting the tax and not a partial payment thereof.

16. As it is not a divisible tax act, in the sense of "if partial annulment of a tax act is requested, the court cannot, in principle, annul it entirely"[1], therefore the request for annulment of the assessment act of IS of any of the three installments will be impugnable exclusively as regards the act of determination of the collection and not as regards the tax to be paid in that installment.

17. Thus the request for annulment of the act may be requested at any time from the date of notification of one of the installments or from the rejection of the administrative complaint.

18. Whereas the assessment act of Stamp Duty that can be voidable and impugnable is the act of determination of the collection, and that the same cannot be divisible and impugnable autonomously, its annulment implies the annulment of the payment acts, respectively the three installments.

19. On the question of the indivisibility of a Stamp Duty levy (item 28 of TGIS), the CAAD has already ruled, in case no. 205/2013-T (available at https://caad.org.pt/tributario/decisoes/), according to the excerpt transcribed:

"11. The Respondent further challenges the value of the case considering that it is €8,940.94 and not €28,822.80, as indicated by the claimant. The claimant maintains that 'the act impugned in these proceedings is the assessment act with no. ... of 22/02/2013, relating to the first installment of stamp duty, for the year 2012, in the amount of €8,940.94, attached by the claimant to the request for an arbitral award as Doc. 1'. However, it happens that the value of the levy no. ... of 22/02/2013, as stated in the said document is, in reality, €26,822.00 and not €8,940.94.'

Note that there is no such levy of €8,940.94. This value is only the first installment of a levy that was from the outset made and in the amount indicated by the Claimant. From the circumstance that the value of the levy can be paid in several installments, it does not follow that there are three levies. It is, rather, a levy that can be paid in several installments (underlined in original), with the taxpayer not being prevented from challenging it due to the fact that the payment period for only one of them has passed."

1. The payment installments of a Stamp Duty levy, in accordance with Item 28, of TGIS, are not autonomously impugnable, having their origin in a single annual obligation, according to the teachings of Braz Teixeira: "It is necessary not to confuse periodic installments, which, although being realized by successive acts, at different moments, have their origin in the same obligation and constitute the various parcels of the same installment that has been divided, with installments that must be made periodically, not due to a division of the global installment, but rather to the birth, also periodic, of new obligations, by the persistence of the factual presuppositions of taxation."

2. Now, in cases where the tax must be paid in installments, the levy is notified to the taxpayer together with the notification for payment of each of the installments, being able to be challenged only in its entirety and not installment by installment.

3. On the lack of jurisdiction of the arbitral tribunal to annul an installment of a Stamp Duty levy, the Collective Arbitral Tribunal constituted in case no. 442/2014-T ruled recently, according to the excerpt transcribed (decision available at https://caad.org.pt/):

"(...) the Claimant is correct in arguing that the value of the case should be that of the levies whose declaration of illegality it requests and not the value of the 1st installment of each of the properties referred to, since it is the illegality of the annual levies that the Claimant seeks. Moreover, the jurisdiction of the arbitral tribunals functioning at CAAD covers requests for declaration of illegality of assessment acts and not of the installments through which the amounts levied are collected."

1. It is the illegality of the annual levy that the Claimant seeks annulment of.

2. As we have verified, this tax is indivisible, therefore its challenge means the annulment of the three installments, and not the other way around, and the decision must address the act as a whole, its annulment implies its total annulment.

3. As the three installments are not issued simultaneously, and as the act to be annulled is not divisible, one cannot consider that the non-challenge through the administrative channels of one of the installments means that the taxpayer has lost its right to defend itself regarding the same.

4. Faced with the formulation of the Claimant's request, the latter seeks the annulment of the stamp duty assessment act determined under item 28, year 2014, which defined a collection to be paid of €10,353.00, not limiting and not arguing its position with the annulment of the 1st installment of Stamp Duty.

5. There is no expansion of the claim, since, as the acts are indivisible, the challenge of one benefits the rest, however the value attributed by the Claimant initially to the arbitral claim does not correspond to its claim.

6. Whereas the tax act in question here is the stamp duty assessment act determined under item 28, year 2014, the value of the arbitral case must be that corresponding to the impugned tax, or in this case the collection of Stamp Duty, respectively €10,353.00.

7. Given that the Claimant proceeded with the correction and payment of the arbitration fee for the procedural value of €10,353.00, corresponding to the collection, and complying with the principles of procedural economy, there is no lack of jurisdiction of the tribunal as to the value of the case, thus not exceeding its competencies.

8. Given the foregoing, this tribunal delimits the procedural matter as to the annulment of the Stamp Duty tax act for the year 2014, regarding its collection as a whole concerning the building in question, and defines the value of the present arbitral claim at € 10,353.00.

I - REGARDING THE VALUE OF THE CLAIM

1. Reiterating the above and respecting the formulation of the Claimant's request, the latter seeks the annulment of the stamp duty assessment acts determined under item 28, year 2014, regarding the 13 fractions of independent use with residential allocation, of the sole property in question, already identified, regarding its pro-rata share.

2. From the Urban Property Ledger of the property it results that there are 13 fractions of independent use with residential allocation, the claimant attached 13 assessment notices regarding each of the fractions of independent use with residential allocation of the property.

3. Given the foregoing, this tribunal fixes the value of the case at €10,353.00, corresponding to the sum of the collections of the impugned assessment acts.

J - MATTER OF LAW

1. Given the positions of the parties assumed in the pleadings presented, the central question to be decided by this arbitral tribunal consists in appraising the legality of the stamp duty assessment acts, which fell on the residential fractions of the claimant in the urban property described above, due to violation of law, due to the erroneous interpretation and application of item 28.1 of TGIS in the amendments introduced by article 4 of Law no. 55-A/2012, of 29 October.

2. In the case sub judice, it is necessary to determine whether the fractions subject to the tax are covered by the criteria for the incidence of stamp duty, in accordance with item no. 28 of TGIS, in the amendments introduced by article 4 of Law no. 55-A/2012, of 29 October.

3. It is incumbent to verify, first, whether the fractions are for residential allocation and, secondly, whether the TPV of the fractions contained in the property record is equal to or greater than €1,000,000.00, and for this it is necessary to appraise the fundamental question of what is the TPV of a property in vertical ownership (that is, not horizontal) to be considered for purposes of the said item. Whether the TPV corresponds to each of the parts of the property with residential allocation individually, or whether, instead, it is determined by the total TPV of the property, which would correspond to the sum of all TPVs of the residential fractions that compose it.

4. The factual matter is fixed and proven, and therefore we will now determine the law applicable to the disputed facts, giving priority, in compliance with the provisions of subparagraph a) of number 2 of article 124 of CPPT, to the defects whose merit would determine a more stable and effective protection of the interests of the Claimant, as to the defect of law due to error as to the presuppositions of the right to levy, as to the question of the classification of urban properties under a regime of full or vertical ownership, within the scope of the incidence of article 28, number 1 of TGIS, introduced by the Regime of Law no. 55-A/2012, of 29 October.

5. The alteration of the regime as to the subjection to stamp duty of properties with residential allocation by the addition of item 28 of the General Table of Stamp Duty, made by article 4 of Law 55-A/2012, of 29/10 and amended by Law no. 83-C/2013, of 31 December, came to typify the following tax facts, through the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the property record, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 – on the tax property value used for purposes of IMI:

28.1 – Per residential property or per land for construction the building of which, authorized or anticipated, is for residential purposes, in accordance with the provisions of the Property Tax Code - 1%;

28.2 – Per property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by an ordinance of the Minister of Finance – 7.5%."

1. Item 6 of Law no. 55-A/2012 contains transitional provisions which established the rules relating to the levy of the tax, provided for in that item:

"1 – In 2012, the following rules must be observed by reference to the levy of the stamp duty provided for in item no. 28 of the respective General Table:

a) The tax fact occurs on 31 October 2012;

b) The taxpayer of the tax is the one mentioned in number 4 of article 2 of the Stamp Duty Code on the date referred to in the previous subparagraph;

c) The tax property value to be used in the levy of the tax corresponds to that resulting from the rules provided for in the Municipal Property Tax Code by reference to the year 2011;

d) The levy of the tax by the Tax and Customs Authority must be made by the end of November 2012;

e) The tax must be paid, in a single installment, by the taxpayers by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential allocation evaluated in accordance with the Property Tax Code: 0.5%;

ii) Properties with residential allocation not yet evaluated in accordance with the Property Tax Code: 0.8%;

iii) Urban properties when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by an ordinance of the Minister of Finance: 7.5%.

2 – In 2013, the levy of stamp duty provided for in item no. 28 of the respective General Table must fall on the same tax property value used for purposes of levying municipal property tax to be made in that year.

3 – The non-delivery, total or partial, within the stated period, of the amounts levied as stamp duty constitutes a tax infraction, punished in accordance with the law."

1. On the interpretation of this statute, the award 53/2013-T[2] has already ruled, which writes:

"A concept was used in said item 28.1 and in subitems i) and ii) of subparagraph f) of number 1 of article 6 of Law 55-A/2012, which is not used in any other tax legislation in these precise terms which is that of 'property with residential allocation'. Namely in CIMI, which in several norms of the CIS in resources introduced by that Law is indicated as a statute of subsidiary application regarding the tax provided for in said item no. 28 [articles 2, number 4, 3, number 3, subparagraph u), 5, subparagraph u), 23, number 7, and 46 and 67 of the CIS], such a concept is not used as defined in those terms."

1. As to the concept of properties, it is necessary to resort to the concepts of properties used in CIMI, in which the species of properties are enumerated in its articles 2 to 6, which is transcribed:

Article 2

Concept of Property

1 – For purposes of this Code, property is any parcel of land, including waters, plantations, buildings and constructions of any nature incorporated therein or built thereon, with the character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the previous circumstances, endowed with economic autonomy in relation to the land on which they are located, although situated on a parcel of land that constitutes an integral part of a diverse patrimony or does not have patrimonial nature.

2 – Buildings or constructions, even if mobile by nature, are considered as having the character of permanence when devoted to non-transitory purposes.

3 – The character of permanence is presumed when buildings or constructions are situated on the same site for a period exceeding one year.

4 – For purposes of this tax, each autonomous fraction, in a horizontal property regime, is considered as constituting a property.

Article 3

Rural Properties

1 – Rural properties are lands situated outside of an urban cluster that are not to be classified as land for construction, in accordance with number 3 of article 6, provided that:

They are devoted or, in the absence of concrete allocation, have as their normal destination an use generating agricultural income, such as are considered for purposes of income tax on natural persons (IRS);

Not having the allocation indicated in the previous subparagraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Also rural properties are lands situated within an urban cluster, provided that, by force of legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are, in fact, having this allocation.

3 – Also rural properties are:

Buildings and constructions directly devoted to the production of agricultural income, when situated on the lands referred to in the previous numbers;

Waters and plantations in the situations referred to in number 1 of article 2.

4 – For purposes of this Code, urban clusters are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public roads, with their perimeter delimited by points distanced 50 m from the axis of the roads, in the transverse sense, and 20 m from the last building, in the sense of the roads.

Article 4

Urban Properties

Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article.

Article 5

Mixed Properties

1. Whenever a property has rural and urban parts it is classified, in its entirety, in accordance with the main part.

2. If none of the parts can be classified as main, the property is considered mixed.

Article 6

Species of Urban Properties

1 - Urban properties are divided into:

Residential;

Commercial, industrial or for services;

Land for construction;

Others.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of license, that have as their normal destination each of these purposes.

3 – Land for construction is considered to be land situated inside or outside an urban cluster, for which a license or authorization has been granted, admitted prior communication or issued favorable prior information of a subdivision or construction operation, and also those that have been so declared in the acquisition title, except for lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are devoted to spaces, infrastructure or public equipment. (Amended by Law no. 64-A/08, of 31-12)

4 – Land situated within an urban cluster that are not land for construction and are not covered by the provision of number 2 of article 3 are classified in the prediction of subparagraph d) of number 1, and also buildings and constructions licensed or, in the absence of license, that have as their normal destination other purposes than those referred to in number 2 and also those in the exception of number 3.

1. On the interpretation of tax norms, for the case sub judice, article 11 of the General Tax Law tells us, which establishes the essential rules for the interpretation of tax laws, doing so in the following terms:

Article 11

Interpretation

In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

Whenever, in tax norms, terms proper to other branches of law are employed, they must be interpreted in the same sense as they have there, unless otherwise directly provided by law.

Persisting the doubt about the meaning of the norms of incidence to be applied, the economic substance of the tax facts must be considered.

Gaps resulting from tax norms covered in the legislative reserve of the Assembly of the Republic are not susceptible to analogical integration.

1. To this provision, it is also necessary to resort to the general principles of law interpretation, for which number 1 of article 11 of the LGT provides, which are established in article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of Law

1 – Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative thought, 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.

2 – However, the interpreter cannot consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3 – In fixing the meaning and scope of the law, the interpreter will presume that the legislator adopted the most correct solutions and knew how to express its thought in adequate terms.

1. Faced with the legal grounds already stated, and considering the articles transcribed and enumerated, the following hypotheses of interpretation of the concept of "property with residential allocation" emerge, as to the Concept of "property with residential allocation" as referring to residential properties, and as to the Concept of "property with residential allocation" as a concept distinct from "residential properties".

2. It results from articles 2 to 6 of CIMI transcribed above, that the legislator does not use, in the classification of properties, the concept of "property with residential allocation", nor is this concept, with this terminology, found in any other statute.

3. Due to the absence of exact terminological correspondence of the concept of "property with residential allocation" with any other used in other statutes, several interpretative hypotheses can arise.

4. The text of the law, being the starting point for the interpretation of the expression "properties with residential allocation", being on the basis of it that the "legislative thought" must be reconstructed, as required by number 1 of article 9 of the Civil Code, applicable by force of the provision of article 11, number 1, of the LGT, already transcribed.

5. On the interpretation of the concept of "property with residential allocation", it is important to cite award 53/2013-T[3] which has already ruled on this matter. An award which likewise upholds two interpretative hypotheses regarding the concept of "property with residential allocation", respectively in the same sense as the present decision, as to the concept of "property with residential allocation" as referring to residential properties, and as to the Concept of "property with residential allocation" as a concept distinct from "residential properties".

6. Award 53/2013-T writes, on the concept of "property with residential allocation" as referring to residential properties:

"The concept closest to the literal tenor of this expression used is manifestly that of 'residential properties', defined in number 2 of article 6 of CIMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of license, that have as their normal destination residential purposes.

If it is to be understood that the expression 'property with residential allocation' coincides with that of 'residential properties', it is manifest that the levies will be defective due to error as to the factual and legal presuppositions, since all the properties regarding which Stamp Duty was levied under the referred item no. 28.1 are land for construction, without any building or construction required to meet that concept of 'residential properties'.

For this reason, if one adopts the interpretation that 'property with residential allocation' means 'residential property', the levies whose declaration of illegality is sought will be illegal, for there being on any of the lands any building or construction.

However, the non-coincidence of the terms of the expression used in item no. 28.1 of TGIS with what is extracted from number 2 of article 6 of CIMI points in the direction that it was not intended to use the same concept."

1. On the interpretation of the second hypothesis: Concept of "property with residential allocation" as a concept distinct from "residential properties", award 53/2013-T is quoted again, in which it writes:

"The word 'allocation', in this context of use of a property, has the meaning of 'action of destining something to a determined use'. ([4])

'When, as is usually the case, norms (legislative formulas) contain more than one meaning, then the positive function of the text is translated into giving stronger support to or suggesting more strongly one of the possible meanings. For among the possible meanings, some will correspond to the most natural and direct meaning of the expressions used, while others will only fit within the verbal framework of the norm in a forced, artificial manner. Now, in the absence of other elements that induce the selection of the less immediate sense of the text, the interpreter must opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely its technical-legal meaning, in the assumption (not always accurate) that the legislator knew how to express its thought correctly'. ([5])

The relevance of the text of the law is especially emphasized in the matter of interpretation of norms of incidence of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on patrimony, on acts, etc.), which leaves no appreciable margin for application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item no. 28.1, hastily included outside of the General State Budget, by a tax legislator without perceptible overall tax guidance, that goes implementing successive norms of tax increases as required by the setbacks of budgetary execution, the impositions of international institutional creditors (represented by the 'troika') and the supervision of the Constitutional Court.

In fact, although in the 'Statement of Motives' of the Bill no. 96/XII/2nd ([6]), on which Law no. 55-A/2012 was based, reference is made to the praiseworthy concern of the Government to 'strengthen the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary for compliance with the adjustment program' and its commitment 'to ensure that the distribution of these sacrifices will be made by all and not just by those who live off the income of their work', it is manifest, on the one hand, that these reasons of equity, surely existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of item no. 28.1, by taxing additionally the properties with residential allocation and not also the properties that do not have it, gives a hint that the concerns of social equity and the proclaimed intention of distribution of the sacrifices by all, reaches much more some than properly all.

In this context, given that there are no safe interpretative elements that allow detection of legislative coherence in the solution adopted in said item no. 28.1 or the correctness or incorrectness of the adopted solution (relevant for interpretative purposes in light of number 3 of article 9 of the Civil Code), the tenor of the legal text must be the primordial element of interpretation, in compliance with the presumption, imposed by that same number 3 of article 9, that the legislator knew how to express its thought in adequate terms.

In light of those meanings of the words 'allocation' and 'allocate', which are 'to give destination' or 'to apply', the formula used in that item no. 28.1 of TGIS manifestly encompasses properties that are already applied to residential purposes, so it is important to inquire whether it will also encompass properties that, despite not yet being applied to residential purposes, are destined for these and those whose destination is unknown. (…)

For this reason, it will be necessary to clarify when it can be understood that a property is allocated to a residential purpose, namely whether it is when such a destination is fixed in a licensing act or similar, or only when the effective attribution of that destination is concretized.

From the outset, the comparison of item no. 28.1 of TGIS with number 2 of article 6 of CIMI, which defines the concept of residential properties, manifestly points in the direction that an effective allocation is necessary.

In fact, a building or construction licensed for residential purposes or, even without a license, but which has residential purposes as its normal destination, is, in light of number 2 of that article 6, a residential property.

For this reason, in the presupposition that the legislator of Law no. 55-A/2012 knew how to express its thought in adequate terms (as required by article 9, number 3 of the Civil Code which presumes this), if it intended to refer to those properties already licensed for residential purposes or that have residential purposes as their normal destination, it would certainly have used the concept of 'residential properties', which would express perfectly and clearly its thought, in light of the definition given by that number 2 of article 6 of CIMI.

Consequently, it must be presumed that the use of a different expression is intended to address a distinct reality, whereby, in good hermeneutics, 'property with residential allocation' cannot be a property merely licensed for residential purposes or destined for that purpose (that is, it will not suffice that it be a 'residential property'), having to be a property that already has effective allocation to that purpose.

That this is the sense of the expression 'allocation', in the same context of classification of properties as does CIMI, is confirmed by article 3 in which, regarding rural properties, reference is made to those 'that are allocated or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income', which evidences that the allocation is concrete, effective. In fact, as is seen from the final part of this text, a property may have as its destination a determined use and be or not be allocated to it, which evidences that the allocation is, at the level of the connection of a property to a determined use, something more intense than mere destination and may or may not occur, downstream of this and not upstream. ([7])

The correctness of this interpretation in the sense that only properties that are effectively allocated to residential purposes are within the scope of incidence of item no. 28.1 of TGIS is also confirmed by the perceivable ratio legis of the restriction of the field of application of the norm to properties with residential allocation, in the context of the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied', which article 9, number 1, of the Civil Code also erects as interpretative elements. ([8]).

From the outset, the limitation of Stamp Duty taxation to 'properties with residential allocation' allows to perceive that it was not intended to encompass within the scope of incidence of the tax properties allocated to services, industry or commerce, that is, properties devoted to economic activity, which is understandable in a context in which, as is well known, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching maximum historical levels, with an avalanche of business closures derived from economic unsustainability. (emphasis in original)

Bearing in mind this situation and being well-known and public that the revitalization of economic activity and the increase in exports are the ways out of the crisis, it is understood that legislative measures were not taken that would make economic activity difficult, namely the increase in tax burden that makes it difficult and affects competitiveness in international terms.

For this reason, it must be concluded that the available interpretative elements, including the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied', point clearly in the direction that it was not intended to encompass within the scope of incidence of item no. 28.1 the situations of properties that are not yet allocated to residential purposes, namely land for construction held by companies. ([9])"

1. Given the foregoing, it is verified that the 39 fractions intended for residential purposes are covered by the norm of incidence of item 28.1, as they are urban properties and properties with residential allocation, the concept of which results from article 2 of CIMI.

2. It now remains, however, to decide for purposes of application of item no. 28 of TGIS, which the TPV to be considered in properties in vertical regime (that is, not horizontal), if individually determined by the TPV that corresponds to each of the parts of the property with residential allocation, or if determined by the total TPV of the property, which would correspond to the sum of all TPVs of the residential fractions that compose it.

3. On this subject, the CAAD Arbitral Tribunal has already decided through decision no. 50/2013-T, and 132/2013-T.

4. For purposes of the case sub-judice, it is important to state regarding decision 50/2013-T, which tells us, on the treatment to be conferred for purposes of item 28.1 of TGIS to properties in vertical ownership and cumulatively which TPV (individual or global) to consider:

"From this we can conclude that, in the legislator's view, it does not matter the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose for which the property is intended. We further conclude that for the legislator the situation of the property in vertical ownership or in horizontal ownership was not relevant, since no reference or distinction is made between them. What is relevant is the material truth underlying its existence as an urban property and its use."

1. It is also important to state from the respective decision:

"Using the criterion that the law itself introduced in article 67, number 2 of the Stamp Duty Code, 'to matters not regulated in the present code relating to item 28 of the General Table applies subsidiarily'.

Now, being so, considering that the registration in the property matrix of properties in vertical ownership, composed of different parts, floors or divisions with independent use, in accordance with CIMI, follows the same registration rules as properties composed in horizontal property regime, with the respective IMI, as well as the new IS, being levied individually in relation to each of the parts, it leaves no doubt that the legal criterion for defining the incidence of the new tax must be the same. (…)

Therefore, if the legal criterion imposes the issuance of individualized levies for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, clearly it has established the criterion, which must be unique and unambiguous, for the definition of 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 TPV greater than €1,000,000.00.

The AT cannot thus consider as the value of reference for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in the context of CIMI, and this is the code applicable to matters not regulated regarding item 28 of TGIS.

The criterion sought by the AT, of considering the value of the sum of the TPVs attributed to the parts, floors or divisions with independent use, with the argument that the property is not established in a horizontal property regime, finds no legal basis and is contrary to the criterion that applies in the context of CIMI and, by reference, in the context of IS.

To which is added the fact that the law itself expressly establishes, in the final part of item 28 of TGIS, that the IS to fall on urban properties of value equal to or greater than €1,000,000.00 – 'on the tax property value used for purposes of IMI.' .

Thus, the adoption of the criterion defended by the AT violates the principles of legality and fiscal equality, as well as the prevalence of material truth over legal-formal reality.

The tax legislator in article 12, number 3 of CIMI states that 'each floor or part of property susceptible to independent use is considered separately in the property registration which also discriminates the respective tax property value.', does not make any distinction as to the regime of properties that are in horizontal ownership or vertical ownership, if the property were in a horizontal ownership regime, none of its residential fractions would suffer incidence of the new tax, whereby the AT cannot treat equal situations in a different manner.

1. In the same sense the CAAD Arbitral Tribunal decision no. 132/2013-T decided:

"It is further added that admitting such differentiation of treatment could produce incomprehensible results from a legal standpoint and contrary to the objectives that the legislator said it had for adding item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation that was made by the respondent: a citizen who is the owner of a property established under full ownership intended for residential purposes, with the global value of the autonomous units equal to or greater than €1,000,000.00 and the TPV of each one less than €1,000,000.00, is subject to an 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 previous one but which has been established in a horizontal property regime, being equally, the global value of the autonomous fractions equal to or greater than €1,000,000.00 and the TPV of each one less than €1,000,000.00, will not be subject to taxation under the mentioned item no. 28...

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for taxation purposes, the respective TPVs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 fractions has a TPV less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the global TPV exceeded that value; whereas another citizen with identical 20 fractions distributed among 5, 10 or 20 properties would not be subject to any taxation under the mentioned item no. 28...

If this line of reasoning makes sense – justifying, therefore, the non-aggregation of the TPVs of fractions of properties in horizontal ownership – no plausible reason is seen why the same should not be applied to the autonomous units of properties under full ownership.

Observing now the case under analysis, it is found that the TPVs of the floors (autonomous units) of the property with residential allocation vary between €104,140.00 and €113,780.00, whereby any one of them is less than €1,000,000.00. From this it is concluded, as a result of what was stated, that on the same stamp duty cannot fall that referred to in item no. 28 of TGIS, being, therefore, illegal the assessment acts impugned by the claimant."

1. Given the foregoing, and applying what the decisions transcribed above tell us, to the present case, it results that for purposes of application of item 28 of TGIS to properties in vertical ownership, the same rules of CIMI are applied as to properties in horizontal ownership, and in the same sense the TPV for purposes of application of the item is the individual TPV of each independent residential fraction, and in the present case none of the fractions exceeds the criterion of incidence of €1,000,000.00.

2. The material truth is the one that imposes itself as the determining criterion of taxpaying capacity and not the mere legal-formal reality of the property, since the establishment of horizontal property ownership implies a mere legal alteration of the property not even requiring a new assessment which now, such finding does not appear coherent with the decision of the AT to tax the residential parts of a property in vertical ownership, based on the global TPV of the property and not on that which is effectively attributed to each part.

3. The current legal regime does not impose the obligation of establishment of horizontal property ownership whereby the action of the AT is translated into an arbitrary and illegal discrimination. The AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of fiscal legality provided for in article 103, n. of the CRP, and also the principles of justice, equality and fiscal proportionality.

4. As none of the fractions intended for residential purposes has a tax property value equal to or greater than €1,000,000.00, as results from the documents attached to the record, it is concluded that the legal presupposition for the incidence of IS provided for in Item 28 of TGIS is not met.

5. In this manner, this tribunal concludes by declaring the illegality of the levies sub judice, by being defective due to violation of that item no. 28.1, due to error as to the legal presuppositions, which justifies the declaration of its illegality and annulment (article 135 of CPA).

L - DECISION

Therefore, given all the foregoing, this Arbitral Tribunal decides:

1. To uphold the request for declaration of illegality of the tax assessment acts regarding Stamp Duty, no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015..., no. 2015 ... and no. 2015..., which established a tax collection and global tax to be paid of € 10,353.00 (ten thousand three hundred and fifty-three euros), due to defect of violation of law as to the norm contained in item 28, number 1, due to error as to the legal presuppositions, which justifies the declaration of its illegality and annulment.

2. To order the Respondent to refund to the Claimant this amount unduly levied and paid.

3. The value of the case is fixed at € 10,353.00 corresponding to the levy amount in consideration of the economic value of the case assessed by the value of the stamp duty levies impugned, and in accordance the costs are fixed, in the respective amount of €918.00 (six hundred euros), to be borne by the respondent in accordance with article 12, number 2 of the Tax Arbitration Regime, article 4 of the RCPAT and Table I attached thereto. – number 10 of article 35, and numbers 1, 4 and 5 of article 43 of the LGT, articles 5, number 1, subparagraph a) of RCPT, 97-A, number 1, subparagraph a) of CPPT and 559 of the CPC).

Notify.

Lisbon, 12 January 2016

The Arbitrator

Dr. Paulo Ferreira Alves

[1] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented" II Volume, 6th Edition, Áreas Publishing, 2011, p. 319.

[2] On this matter the CAAD Arbitral Tribunal awards no. 42/2013-T, 48/2013-T, 49/2013-T have already decided.

[3] On the interpretation of the concept of "property with residential allocation" for purposes of item 28.1 of TGIS, see the decisions issued by the CAAD Arbitral Tribunal in cases no. 42/2013; 48/2013; 49/2013; 53/2013; 75/2013; 158/2013; 251/2013; 310/2013.

[4] Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, Volume I, page 102.

[5] BAPTISTA MACHADO, Introduction to Law and the Legitimating Discourse, page 182.

[6] Bill no. 99/XII/2nd is available at http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=37245

[7] Other norms of CIMI make it clear that the term 'allocation' is used to reference already existing situations and not merely future ones, even if foreseeable, such as 'destination'. This is the case of article 9 of CIMI, which, after establishing that 'the tax is due from' 'the 4th year following, inclusive, that in which a plot of land for construction has come to figure in the inventory of a company that has as its object the construction of buildings for sale' or 'the 3rd year following, inclusive, that in which a property has come to figure in the inventory of a company that has as its object its sale' [subparagraphs d) and e) of number 1], determines that 'for purposes of the provision of subparagraphs d) and e) of number 1, the taxpayers must notify the tax service of the area of the situation of the properties, within 60 days counted from the verification of the fact determining its application, the allocation of the properties to those purposes'. The 'allocation of the properties to those purposes', in the context of this article 9, is reduced to the concrete attribution to the properties of the purpose 'for sale', materialized by its inventory registration, it not being sufficient that they have been constructed or acquired with a view to their sale.

[8] Not in mind, in this approach, the special cases provided for in item no. 28.2, of ownership of the properties by legal persons resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by an ordinance of the Minister of Finance to which, as in other norms, strong tax penalties are attributed, because these are situations normally associated with tax evasion.

[9] Outside the special cases provided for in item no. 28.2.