Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A, resident at Avª ... Lisbon with TIN ... and B, resident at Avª ... Lisbon, with TIN[1] ... submitted a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of no.1 of article 2, of no. 1 of article 3 and of paragraph a) of no. 1 of article 10, all of the RJAT[2], with the Tax and Customs Authority (AT)[3] being called as a party, with a view to the annulment of a tax assessment act concerning stamp duty of the year 2013, levied on an immovable property registered in the property register under urban article no. ... of the parish of ... of the municipality of Lisbon of which the applicants are usufructuaries.
2 – The request for constitution of the arbitral tribunal was made without exercising the option of appointment of an arbitrator, having been accepted by His Excellency the President of the CAAD[4] and automatically notified to the AT on 16/07/2014.
3 – In accordance with the provisions of no.1 of article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties, within the legally applicable time limits, Arlindo José Francisco was appointed as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre his acceptance of the appointment within the regularly established time limit.
4 - The tribunal was constituted on 16/09/2014 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012 of 31 December.
5 – With their request the applicants seek the declaration of illegality of the tax assessment acts regarding item 28 of the General Stamp Duty Tax Table (TGIS)[5] that were levied on the tax value of the urban property already identified, of which they are usufructuaries in the proportion of 1/2 for each one.
6- They invoke, in summary, for this purpose the following:
6.1 –That the Tax Property Values (VPT)[6] registered in the property register under the provisions of the Municipal Property Tax Code (CIMI)[7] are not greater than € 1,000,000.00, since they relate to a property in vertical ownership composed of floors or parts of property susceptible of independent use, and, just as happens with the Municipal Property Tax (IMI)[8], the Stamp Duty Tax (IS)[9] should be calculated for each of the parts susceptible of independent use.
6.2 – As none of them has a Tax Property Value equal to or greater than € 1,000,000.00, there would be no grounds for the levy of the Stamp Duty Tax, provided for in item 28 of the General Stamp Duty Tax Table.
6.3 - Furthermore, they believe that the legal form of ownership cannot be determining for the incidence of the tax, that is, a property in vertical ownership and another in horizontal ownership, with the same characteristics, should receive the same tax treatment for purposes of Stamp Duty Tax.
6.5 – Concluding by the invalidity of the assessments in question since they violate not only the Law but also the Constitution of the Portuguese Republic itself (CRP)[10].
7 – For its part the AT understands:
7.1- That the applicant's arguments are unfounded since there cannot be analogy, for purposes of the levy of Stamp Duty Tax, between the horizontal ownership regime and the vertical ownership regime.
7.2- The AT further states that a property in full ownership and a property in horizontal ownership have different valuations and taxation from which different legal effects result; whereas in horizontal ownership there is a division of full ownership and autonomy of each fraction, in property in full ownership there is a single legal reality;
7.3 - Each part susceptible of independent use is not autonomous, by way of registration, having a description of the property in its entirety, and the legislator may submit it to a discriminatory legal framework benefiting the more evolved one.
7-4 – It concludes that the tax assessment acts challenged here are legal and should be maintained in the legal order as they do not violate any legal or constitutional provision.
II – PRELIMINARY MATTERS
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, are shown to be legitimate and are regularly represented in accordance with articles 4 and 10 no.2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.
In its reply the AT requested the waiver of the hearing referred to in article 18 of the RJAT and the production of written statements.
The applicant was notified on 22/10/2014 to make submissions within 10 days, and made none, and its silence was understood, by the tribunal, as non-opposition to what was requested by the AT, and thus, taking into account the provisions of paragraph e) of article 16 of the RJAT, the tribunal considered unnecessary the hearing provided for in article 18 of the aforementioned statute, as well as the production of written or oral statements and set the date for the rendering of the decision, according to order of 05/11/2014.
III – LEGAL REASONING
1 – The issue to be resolved in this case is the following:
To determine whether a property in full ownership with parts or divisions susceptible of independent use, with residential use, should be subject to Stamp Duty Tax based on the Tax Property Value corresponding to the sum of each of the parts or independent divisions with residential use when equal to or greater than €1,000,000.00, or whether the Stamp Duty Tax should only be levied on the Tax Property Value of each of the parts or independent divisions when, considered individually, equal to or greater than €1,000,000.00;
2 – Facts
The facts relevant and proven on the basis of the elements attached to the file are the following:
a) The applicants are usufructuaries in the proportion of ½ for each of an urban property in full ownership with parts or divisions susceptible of independent use, registered in the urban property register of the parish of ..., municipality of Lisbon under no. ....
b) The property consists of eight floors with 34 divisions susceptible of independent use, of which 8 are intended for commerce and the remaining 26 with residential use.
c) The AT calculated the Stamp Duty Tax based on the overall Tax Property Value of the parts or divisions susceptible of independent use registered for residential use.
d) Each of the floors or divisions susceptible of independent use registered for residential use has a Tax Property Value well below the € 1,000,000.00 that item 28 of the General Stamp Duty Tax Table requires for there to be taxation in Stamp Duty Tax.
e) The AT calculated the Stamp Duty Tax individually for each of the floors or divisions susceptible of independent use, making their sum at the end, calculating the Stamp Duty Tax payable.
f) The applicants did not prove payment of the Stamp Duty Tax in question.
3 – On the Law
a) The legal issue to be resolved is whether, in accordance with the provisions of item 28.1 of the General Stamp Duty Tax Table, the sum of the Tax Property Value of each of the parts or divisions susceptible of independent use should be considered, given that none of them has a value equal to or greater than € 1,000,000.00.
b) Taking into account that the Stamp Duty Tax Code (CIS)[11] refers to the Municipal Property Tax Code (CIMI) for the regulation of the concept of property and matters not regulated regarding item 28 of the General Stamp Duty Tax Table (no. 6 of article 1 and no.2 of article 67, both of the CIS), it is in the CIMI that we must observe the concepts that will allow us to resolve the issue.
c) The generalist concept of property is contained in article 2 of the CIMI. In article 3 of the same statute the legislator, using criteria of use and location, established the concept of rustic properties, coming then, in a classification by negation, in its article 4, to establish that urban properties shall be all those that should not be classified as rustic.
d) Article 6 of the cited CIMI divides urban properties into: residential, commercial, industrial or for services, land for construction and others.
e) In the present case we are in the presence of an urban property with parts or divisions susceptible of independent use with residential use and others with use for commerce or services.
f) Each of the parts or divisions susceptible of independent use that compose the immovable in question fulfils the concept of property established in article 2 of the CIMI, insofar as they are physically and economically independent and form part of the patrimony of a natural or legal person, in the present case natural, in co-ownership.
g) Under no. 4 of article 2 of the CIMI each autonomous fraction, in the horizontal ownership regime, is considered as constituting a property, but there is nothing in the law that permits discrimination between properties in horizontal and vertical ownership with respect to their condition as residential properties.
h) In levying the Municipal Property Tax and Stamp Duty Tax, it was levied on each of the parts of the property with independent use with residential use, calculating the tax due by each one.
i) However, as regards Stamp Duty Tax, there were no grounds for taxation, since all of them lack an essential requirement, namely having individually a Tax Property Value equal to or greater than € 1,000,000.00.
j) The AT's procedure consisted of the individual calculation of Stamp Duty Tax and verifying that the overall Tax Property Value was greater than € 1,000,000.00, it considered there was tax liability under item 28 of the General Stamp Duty Tax Table.
k) But this procedure has no legal support, since none of the parts or divisions with independent use with residential use, each one of them fulfilling the concept of property enunciated in article 2 of the CIMI, has a Tax Property Value equal to or greater than € 1,000,000.00, the requirement necessary for there to be taxation in Stamp Duty Tax.
l) Nor should it be said that there is a different valuation and taxation of an immovable in full ownership with parts or divisions susceptible of independent use, in comparison to an immovable in horizontal ownership. In truth it does not exist in Municipal Property Tax just as it cannot exist in Stamp Duty Tax, since the applicable legislation is the same.
m) The criterion of taxation must be uniform, that is, if a residential fraction of a property in horizontal ownership is only taxed in Stamp Duty Tax if its Tax Property Value is equal to or greater than €1,000,000.00, equally a floor or part of property susceptible of independent use of a property in vertical ownership with residential use shall only be taxed in Stamp Duty Tax if its Tax Property Value is equal to or greater than €1,000,000.00.
n) As has already been stated the floor or part of property susceptible of independent use of a property in vertical ownership meets the concept of property established in the CIMI, just as the autonomous fractions of properties in horizontal ownership.
o) From this perspective and considering that none of the parts or divisions susceptible of independent use with destination or residential use has a Tax Property Value equal to or greater than €1,000,000.00 it is necessary to conclude that the acts of levy of Stamp Duty Tax are illegal as the conditions defined in item 28 of the General Stamp Duty Tax Table were not observed.
p) We follow the conclusion of Professor Miguel Patrício in case 132/2013 in considering the interpretation made by the AT, not in conformity with the Law and the Constitution of the Portuguese Republic, which is transcribed: "If it is true that no. 4 of art. 2 of the CIMI refers that, "for purposes of this tax, each autonomous fraction, in the horizontal ownership regime, is considered as constituting a property", it is also true that there is nothing in the law that points to discrimination between properties in horizontal and vertical ownership with regard to their identification as «residential urban properties». From this it is concluded that autonomous parts of properties in vertical ownership with residential use should be considered as «residential urban properties».
In effect, it does not make sense to distinguish in the law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus). Moreover, to distinguish, in this context, between properties constituted in horizontal ownership and in full ownership would be an "innovation" without associated legal support, especially because, as has been affirmed here, nothing indicates, either in item no. 28, or in the provisions of the CIMI, a justification for that particular differentiation. Note, by way of example, what article 12, no. 3, of the CIMI says: "each floor or part of property susceptible of independent use is considered separately in the property registration, which also discriminates the respective tax property value."
The uniform criterion that is required is thus the one that determines that the incidence of the rule in question only takes place when some of the parts, floors or divisions with independent use of a property in horizontal or full ownership with residential use possesses a Tax Property Value greater than €1,000,000.00. Setting as the reference value for the incidence of the new tax the overall Tax Property Value of the property in question, as the now defendant party intended, finds no basis in the applicable legislation, which is the CIMI, given the reference made by the cited art. 67, no. 2, of the CIS.
Finally, as has already been recalled in various Arbitral Decisions (see AD no. 48/2013-T and AD no. 50/2013-T), it is not discerned, in the works relating to the discussion of bill no. 96/XII in the Parliament of the Republic, the invocation of an interpretative ratio distinct from the one presented here. In effect, such a measure, referred to as "special tax on residential urban properties of higher value", was justified by the need to comply with the principles of social equity and tax justice, imposing more significantly on the holders of properties with high value intended for residential use, and, to that extent, making the new "special tax" incide on "houses with a value equal to or greater than 1 million euros."
Now, if such logic appears to make sense when applied to «residential» - whether it be «house», «autonomous fraction» or «part of property with independent use» / «autonomous unit» -, because it is assumed an above-average contributory capacity and, to that extent, justifies the need for the realization of an additional contributory effort, it would make little sense to go on to disregard the calculations "unit by unit" when only through the sum of the Tax Property Values of the same (because held by the same individual) would the million euros threshold be exceeded.
Furthermore, admitting the differentiation of treatment could produce results incomprehensible from a legal point of view and contrary to the objectives that the legislator said it had in adding item no. 28. By way of example, suppose the following scenario, which appears plausible in light of the interpretation made by the now defendant party: a citizen who is the owner of a property constituted in full ownership intended for residential use, with the overall value of the autonomous units equal to or greater than €1,000,000.00 and the Tax Property Value 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 previous one but which has been constituted in horizontal ownership, with the overall value of the autonomous fractions equally equal to or greater than €1,000,000.00 and the Tax Property Value of each one less than €1,000,000.00, will not be subject to taxation under the aforementioned 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 purposes of taxation, the respective Tax Property Values? The answer can be illustrated through another scenario: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 fractions possesses a Tax Property Value less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the overall Tax Property Value exceeded that value; whereas another citizen with identical 20 fractions distributed by 5, 10 or 20 properties would not be subject to any taxation under the aforementioned item no. 28...
If this line of reasoning makes sense – thus justifying the non-aggregation of the Tax Property Values of the fractions of properties in horizontal ownership –, no plausible reason is seen for why the same should not be applied to the autonomous units of properties in full ownership.
Observing now the case under analysis, it is ascertained that the Tax Property Values of the floors (autonomous units) of the property with residential use 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 the stamp duty tax referred to in item no. 28 of the General Stamp Duty Tax Table cannot be levied on the same, being therefore illegal the assessment acts challenged by the applicant.
- From what was previously stated, it is understood, in summary, that the interpretation made by the AT is not in conformity with the Law and the Constitution of the Portuguese Republic, by violation of the principle of equality (art. 13 of the Constitution of the Portuguese Republic), as well as what is provided in art. 104, no. 3, of the Constitution of the Portuguese Republic. There is no doubt that an interpretation more in conformity with the Law and the Constitution, such as the one exposed previously, could permit the protection of the aforementioned principle. But it is also evident that there remain, in the present case, sufficient grounds to consider that the aforementioned item no. 28, even so, would continue to suffer from unconstitutionality by violation of the cited principle of equality.
In effect, how can it be justified, including in light of principles of social equity and tax justice defended by the legislator – note, in this respect, that the statement of the Council of Ministers of 20/9/2012 referred to the measure, among others, as being fundamental "to reinforce the principle of social equity in austerity" –, that this taxation is incurred only on residential real estate patrimony and not on non-residential real estate patrimony? And how to make this discrimination compatible with what is provided in art. 104, no. 3, of the Constitution of the Portuguese Republic?
Considering the above, it is concluded that item no. 28, in opening the possibility of taxing in a differentiated way the ownership of real estate patrimony of equal value held by different persons by reason of criteria that can contend, without the minimal necessary justification, with, namely, the principle of contributory capacity (such as the case of the "dispersion" or "concentration" of the residential real estate patrimony of each one), cannot fail to be considered unconstitutional, given the violation of the principle of equality.
IV - OPERATIVE PART
In light of the above the tribunal decides as follows:
a) To declare the request for arbitral pronouncement well-founded with the consequent annulment of the acts of levy of Stamp Duty Tax challenged here;
b) Case value: € 10,364.14 having in view the provisions contained in article 299, no. 1 of the Civil Procedure Code (CPC)[12], 97-A of the Tax Procedure and Process Code (CPPT)[13] and article 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT)[14];
c) Costs to be borne by the defendant, under the authority of no.4 of article 22 of the RJAT, fixing their amount at € 918.00 in accordance with Table I of the RCPAT.
Let it be notified.
Lisbon, 20 January 2015
Text prepared by computer, in accordance with article 131, no. 5 of the Civil Procedure Code, applicable by reference from article 29, no.1, paragraph e) of the RJAT, with blank spaces and reviewed by me.
The preparation of this decision is governed by the orthography prior to the orthographic agreement.
The sole arbitrator,
Arlindo José Francisco
[1] Acronym for Tax Identification Number
[2] Acronym for Regulatory Framework for Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Administrative Arbitration Centre
[5] Acronym for General Stamp Duty Tax Table
[6] Acronym for Tax Property Value
[7] Acronym for Municipal Property Tax Code
[8] Acronym for Municipal Property Tax
[9] Acronym for Stamp Duty Tax
[10] Acronym for Constitution of the Portuguese Republic
[11] Acronym for Stamp Duty Tax Code
[12] Acronym for Civil Procedure Code
[13] Acronym for Tax Procedure and Process Code
[14] Acronym for Regulations on Costs in Tax Arbitration Proceedings
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