Summary
Full Decision
ARBITRAL DECISION
I – REPORT
On 29 July 2016, the taxpayer A…, resident at Street…, No.…, …-… Maia, with tax identification number … (hereinafter referred to as the "Claimant"), submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to obtaining an arbitral decision, pursuant to the provisions of Articles 2, No. 1, subsection a), 3, No. 1, and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter referred to as RJAT), following the tax assessments for the levy of Stamp Tax (IS) for the year 2015, dated 5 April 2016, for each of the floors with independent use that form part of the urban property registered under article matricial …, in the urban property register of the Parish Union of … and …, in the municipality of Porto, in the total amount of € 11,118.40 (eleven thousand, one hundred and eighteen euros and forty cents).
In the request for arbitral decision, the Claimant opted not to appoint an arbitrator.
Pursuant to No. 1 of Article 6 and subsection b) of No. 1 of Article 11 of the RJAT, with the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the signatory as sole arbitrator, who accepted the appointment within the legally stipulated period.
The arbitral tribunal was constituted on 29 November 2016.
On 12 January 2017, the Respondent, duly notified for this purpose, filed a reply.
The meeting provided for in Article 18 of the RJAT, as well as the submissions, at the request of the Respondent, were dispensed with, which the Tribunal granted for reasons of procedural efficiency and expedition and the prohibition of performing futile acts, with neither party manifesting any opposition.
The position of the Claimant, expressed in the request for arbitral decision, is, in summary, as follows:
- The tax assessments that are the subject of the present arbitral decision are vitiated by errors concerning the factual and legal prerequisites and by violation of the law.
- Where a property, such as the one in question, comprises floors or divisions with independent use, the subject matter of stamp tax is determined, not by the total patrimonial value for IMI purposes (VPT) of the property, as the Respondent contends, but by the VPT attributed to each of its floors or divisions.
- Indeed, having regard to the rules of the Municipal Property Tax Code (CIMI) applicable to matters not regulated in the Stamp Tax Code concerning item 28 of the General Table (see Article 67, No. 2 of the Stamp Tax Code), each floor or division of a property susceptible of independent use is considered separately in the property register (see Article 12, No. 3 of the CIMI).
- Clearly, the legislator understood that a value equal to or greater than €1,000,000.00, when imputed to a dwelling, represents a capacity to pay above average and, as such, likely to determine a special contribution to ensure fair distribution of the fiscal burden, thus introducing a principle of taxation on wealth evidenced in the ownership, usufruct, or right of superficies of luxury urban properties with residential purpose. This is not the case here, since the property in question does not present such characteristics, being a very old property that accommodates several elderly tenants paying modest rents.
- As such, since the VPT of any of the sixteen fractions intended for housing listed in the register of the property to which these proceedings relate, in accordance with the CIMI, is less than €1,000,000.00, the stamp tax of item No. 28.1 of the TGIS does not apply to it.
- Indeed, the Respondent cannot sustain the view that the cause of the application of item No. 28.1 of the TGIS is the failure to constitute the property, comprising sixteen residential fractions, under a condominium ownership scheme, with the legal form of property ownership being determinative of such application.
- Moreover, if the property in question were in a condominium ownership scheme, none of its residential fractions would be subject to the new IS.
- For this reason, material truth is what must prevail in this matter as the determining criterion of capacity to pay and not mere legal-formal reality of the property, with the discrimination operated by the Respondent constituting an arbitrary and illegal discrimination.
- Indeed, the Tax Authority cannot distinguish where the legislator itself understood that it should not do so, at the risk of violating the coherence of the tax system, as well as the principle of tax legality provided for in Article 103, No. 2 of the Constitution of the Portuguese Republic (CRP), and also the principles of tax justice, equality, and proportionality.
- For all the foregoing, the IS assessments referring to the year 2015, in the total amount of €11,118.40, corresponding to the property in question, should be annulled, with all legal consequences.
The position of the Respondent expressed in its reply is, in abbreviated summary, as follows:
- What is at issue are assessments resulting from the direct application of item 28.1 of the TGIS, which provides for Stamp Tax to apply to the ownership, usufruct, or right of superficies of urban properties whose patrimonial value recorded in the register, in accordance with the CIMI, is equal to or greater than €1,000,000.00.
- Thus, there is no error attributable to the services, which merely acted, as they should, in strict compliance with the legal norm.
- Indeed, for purposes of IS, what is relevant is the property as a whole, since divisions susceptible of independent use are not considered as property, but only autonomous fractions under a condominium ownership scheme, in accordance with No. 4 of Article 2 of the CIMI.
- As such, the VPT upon which the application of the Stamp Tax of item 28.1 of the General Table depends had to be, as it was, the total patrimonial value of the property and not that of each of its independent parts.
- The unity of the urban property in vertical ownership composed of various floors or divisions is, however, not affected by the fact that all or part of such floors or divisions are susceptible of independent economic use. Such a property remains only one, and thus its distinct parts are not legally equated to autonomous fractions under a condominium ownership scheme.
- Therefore, the VPT upon which the application of IS of item 28.1 of the TGIS depends had to be the total VPT of the property and not that of each of its independent parts. The fact that the IMI was calculated based on the VPT of each part of the property with independent economic use does not equally affect the application of item 28.1 of the TGIS.
- In this regard, the Respondent concludes that the request for arbitral decision is entirely unfounded, with the conformity to law of the act at issue in these proceedings being evident.
II – QUESTION TO BE DECIDED
In light of the foregoing, the principal question to be decided is as follows:
Are the tax assessments of the Stamp Tax levies of Item 28.1 of the General Table, Attached to the Stamp Tax Code, referring to the year 2015, dated 05 April 2016, for each of the floors with independent use that form part of the urban property registered under article …, in the urban property register of the Parish Union of … and …, in the municipality of Porto, in the total amount of €11,118.40 (eleven thousand, one hundred and eighteen euros and forty cents), issued by the Tax Authority and Customs Authority, vitiated by errors concerning the factual and legal prerequisites and also by violation of the law?
III – PROCEDURAL MATTERS
The Tribunal is regularly constituted and is materially competent, pursuant to Articles 2, No. 1, subsection a), 5, No. 2, and 6, No. 1, of the RJAT.
The request for arbitral decision is timely, in accordance with No. 1 of Article 10 of the RJAT.
The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10, No. 2, of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.
The proceedings are not vitiated by defects that would invalidate them.
All matters considered, a decision must be rendered.
IV – FACTUAL FINDINGS
Taking into account the tax administrative file and the documentary evidence attached to the proceedings, it is now necessary to present the factual matter relevant to the understanding of the decision, which is established as follows:
The Claimant A… is the legitimate owner of the urban property registered under article …, in the urban property register of the Parish Union of … and …, in the municipality of Porto, constituted in full ownership with floors or divisions susceptible of independent use (see document attached to these proceedings as doc. No. 33 annexed to the Arbitral Petition).
The Tax Authority attributed to the property in question, for purposes of application of Item 28.1 of the TGIS, the "patrimonial value of the property – total subject to tax" of €1,111,840.00 (one million, one hundred and eleven thousand, eight hundred and forty euros) – (see stamp tax assessments for 2015 attached to these proceedings as docs. Nos. 1 to 32 annexed to the Arbitral Petition).
In accordance with the taxable patrimonial value attributed to the property in question, the Tax Authority proceeded with the respective IS assessments based on Item 28.1 of the General Table of Stamp Tax, dated 05 April 2016, notified to the Claimant in the total amount of €11,118.40 (eleven thousand, one hundred and eighteen euros and forty cents), having determined the following partial payments for each floor or division susceptible of independent use:
| Property Register Entry | VPT | Collection |
|---|---|---|
| …-U-…-…-RD | € 79,930.00 | € 799.30 |
| …-U-…-…-RE | € 79,930.00 | € 799.30 |
| …-U-…-…-1D | € 66,010.00 | € 660.10 |
| …-U-…-…-1E | € 66,010.00 | € 660.10 |
| …-U-…-…-2D | € 66,010.00 | € 660.10 |
| …-U-…-…-2E | € 66,010.00 | € 660.10 |
| …-U-…-…-3D | € 66,010.00 | € 660.10 |
| …-U-…-…-3E | € 66,010.00 | € 660.10 |
| …-U-…-…-RD | € 79,930.00 | € 799.30 |
| …-U…-…-RE | € 79,930.00 | € 799.30 |
| …-U-…-…-1D | € 66,010.00 | € 660.10 |
| …-U-…-…-1E | € 66,010.00 | € 660.10 |
| …-U-…-…-2D | € 66,010.00 | € 660.10 |
| …-U-…-…-2E | € 66,010.00 | € 660.10 |
| …-U-…-…-3D | € 66,010.00 | € 660.10 |
| …-U-…-…-3E | € 66,010.00 | € 660.10 |
(see Stamp Tax assessments attached to these proceedings as docs. Nos. 1 to 32 annexed to the Arbitral Petition).
The assessments referenced in the preceding item correspond to the 1st and 2nd installments.
The assessments relating to the 1st installments were paid in full by the Claimant in the month of April 2016 (see documents attached to these proceedings as docs. Nos. 38 to 53 annexed to the Arbitral Petition).
The facts stated in the preceding number constitute uncontested matter and have been demonstrated by documentary evidence in the proceedings.
There are no facts deemed unproven, as all facts relevant to the evaluation of the request have been deemed proven.
V – LEGAL GROUNDS
We shall now determine the applicable law to the facts underlying the issue already stated (see supra No. 10).
Thus, the issue that arises consists of determining the legality of the understanding whereby Item 28.1 of the TGIS should be interpreted (or not) as providing, within its scope, properties in full ownership with parts or divisions susceptible of independent use, with residential purpose, which are characterized by the fact that none of these parts or divisions has been attributed a VPT equal to or greater than €1,000,000.00.
The subject matter of Stamp Tax of properties with residential purpose resulted from the addition of Item 28 of the TGIS, effected by Article 4 of Law 55-A/2012, of 29 October, which typified the following taxable events, in accordance with the current wording:
"28 – Ownership, usufruct, or right of superficies of urban properties whose taxable patrimonial value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the patrimonial value for purposes of IMI (Added by Article 4 of Law No. 55-A/2012 of 29 October):
28-1 – For a residential property or land for construction whose authorized or intended construction is for residential purposes, in accordance with the provisions of the IMI Code (Amended by Law No. 83-C/2013 of 31 December) – 1%
28.2 – For a property, when the taxpayers that 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 (Added by Article 3 of Law No. 55-A/2012 of 29 October) – 7.5%."
This law entered into force on the day following its publication, that is, on 30 October 2012.
However, Law 55-A/2012 says nothing regarding the qualification of the concepts at issue, namely, regarding the concept of "property with residential purpose" contained in Item 28.1.
In this regard, it is necessary to determine its true meaning, in accordance with the techniques and interpretive elements generally accepted by doctrine, in accordance with Article 9 of the Civil Code and Article 11 of the General Tax Law (LGT).
In this respect, attention should be paid to the concept of property that results from the provisions of Article 2 of the IMI Code – "any portion of land, including waters, plantations, buildings and constructions of any nature incorporated or placed therein, with a 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 circumstances above, endowed with economic autonomy in relation to the land on which they are located, although situated in a portion of land that constitutes an integral part of a different patrimony or does not have the nature of patrimony." – by referral from Article 67, No. 2 of the IS Code, amended by the said Law, which provides that "to matters not regulated in the present code concerning Item 28 of the General Table, the CIMI applies subsidiarily.", thus complying with the determination of the VPT according to the provisions of Article 38 et seq. of the same code.
In the IMI Code, reference should also be made to Article 6, which indicates the different types of urban properties, among which it mentions residential ones in subsection a) of No. 1, clarifying in No. 2 that "residential, commercial, industrial, or service buildings or constructions are those buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes."
In a first analysis, we can already conclude that the legislator was concerned with the normal use of the property, the purpose for which it is intended, and not with the precision of the concept itself.
We can also add that "(…) for the legislator, the situation of the property in vertical or condominium ownership was not relevant, as 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." An opinion expressed, which we adhere to, in the Arbitral Decision handed down in case No. 50/2013-T.
Thus, the legislator, in the rule for the application of Item 28.1 of the TGIS, did not find it relevant to distinguish between properties in condominium ownership and properties in vertical ownership. Therefore, we advance that the argument advanced by the Respondent reported in Article 37 of its Reply does not hold, when it states that "It is thus a consequence that the taxable event of the stamp tax of item 28.1 consists in the ownership of urban properties whose taxable patrimonial value recorded in the register, in accordance with the CIMI, is equal to or greater than €1,000,000.00, the patrimonial value relevant for purposes of the application of the tax being, thus, the total patrimonial value of the urban property and not the patrimonial value of each of the parts that compose it, even when susceptible of independent use."
It is further important to note Article 12, No. 3 of the IMI Code, which provides that "each floor or part of a property susceptible of independent use is considered separately in the property register, which also discriminates the respective taxable patrimonial value."
And also the provisions of Article 119, No. 1 of the IMI Code, which determines that "The services of the Directorate-General for Tax collect from each taxpayer, by the end of the month prior to the month of payment, the corresponding collection document, with a breakdown of the properties, their parts susceptible of independent use, respective taxable patrimonial value, and the collection attributed to each municipality of the location of the properties."
Now, considering that the registration in the property register of immovable property in vertical ownership, composed of different parts, floors, or divisions with independent use, in accordance with the IMI Code, using the criterion already referred to in Article 67, No. 2 of the Stamp Tax Code – "to matters not regulated in the present code concerning Item 28 of the General Table, the CIMI applies subsidiarily." – follows the same registration rules as immovable property constituted in condominium ownership, with the respective IMI, as well as the IS of Item 28.1, being assessed individually in relation to each of the parts, it is clear that if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in condominium ownership, the same must be observed for the definition of the rule for the application of Stamp Tax of Item 28.1.
Considering what has been stated in the preceding points, the application of stamp tax only takes place if one of the parts, floors, or divisions with independent use presents a VPT greater than €1,000,000.00, which in the concrete case does not occur, as stated in the property register of the property in question (see point A of No. 12).
Therefore, the Tax Authority can never consider as the reference value for the application of stamp tax the total value of the property, when the legislator itself established a different rule under the IMI Code. As mentioned, in accordance with that code, there is no difference between a building in condominium ownership and a building in vertical or full ownership composed of parts or divisions susceptible of independent use – being this the code applicable to matters not regulated regarding Item 28 of the TGIS (see Article 67, No. 2 of Law 55-A/2012, of 29/10).
This equal treatment that the legislator did not include in the rule for application set out in Item 28.1 of the TGIS, the legislator also provided for in Article 119 of the IMI Code, when it establishes that the tax must be assessed individually on each part or division susceptible of independent use, taking into consideration the VPT of each of these parts or divisions susceptible of independent use, individually considered. From which it follows that the VPT that should be considered in the application of Item 28.1 of the TGIS is that which results from the letter and purpose of Articles 2, 6 No. 1 subsection a), 12, and 119, all of the IMI Code.
Let it be clear that this conclusion is in line with the overwhelming majority of the CAAD jurisprudence known to this Tribunal (see, among many, Cases 544/2015-T, 552/2015-T, 554/2015-T, 560/2015-T, 562/2015-T, 573/2015-T, 576/2015-T, 581/2015-T, 589/2015-T, 597/2015-T, 606/2015-T, 632/2015-T, 643/2015-T, 644/2015-T, 651/2015-T, 659/2015-T, 681/2015-T, 718/2015-T, 755/2015-T, 768/2015-T, 777/2015-T, 10-2016-T, 20/2016-T.), and also, in the same sense, cases Nos. 243/2014-T, 505/2014-T, and 455/2015-T, which found the requests to be wholly well-founded and annulled the stamp tax assessments assessed against the Claimant for 2012, 2013, and 2014.
Mindful of what we have just stated, we cannot support, with due respect, the position of the Respondent, inasmuch as it is not acceptable that the criterion sought, of considering the value of the sum of the VPT attributed to the parts, floors, or divisions with independent use, on the argument that the property is not constituted under a condominium ownership scheme, finds no legal support and is contrary to the criterion applicable under the IMI Code and, by referral, under IS.
In the case at hand, the property in question is in full ownership and contains 16 floors and/or divisions with independent use, devoted to residential purposes, as was proven by document No. 33 attached to the Request for Arbitral Decision and none of these floors has a patrimonial value equal to or greater than €1,000,000.00, as results from the document attached to the proceedings, from which it is concluded that the legal prerequisite for the application of IS provided for in Item 28.1 of the TGIS is not met.
Finally, in addition to the annulment of the assessments and consequent reimbursement of the amounts unduly paid, the Claimant further petitions for the payment of the corresponding compensatory interest.
Pursuant to Article 24, No. 5 of the RJAT, "the payment of interest, regardless of its nature, is due in accordance with the terms provided for in general tax law and in the Code of Tax Procedure and Process." This provision allows for the recognition of the right to compensatory interest in arbitral proceedings. Thus, the request is admitted.
In accordance with Article 43, No. 1 of the LGT, compensatory interest is due when it is determined, in a voluntary reconsideration or judicial challenge, that there has been an error attributable to the tax authority services from which results the payment of the tax debt in an amount greater than legally due.
The right to compensatory interest to which the aforementioned LGT provision refers presupposes that tax has been paid in an amount greater than due and that such results from an error, of fact or of law, attributable to the services of the Tax Authority (see Decision of the Supreme Administrative Court, Case No. 01215/12, of 10.04.2013).
In the present case, both conditions are met, thus establishing the obligation of compensatory interest in favor of the Claimant, which is hereby declared.
VI – DECISION
For these reasons, this Arbitral Tribunal decides as follows:
a) In favor of the Claimant's request, considering illegal the stamp tax assessments in question, due to errors concerning the factual and legal prerequisites and violation of Article 1, No. 1 of the Stamp Tax Code and Item 28.1 of the TGIS, with the said assessments to be annulled, given that none of the parts or divisions susceptible of independent use that are the subject of the assessments challenged in this arbitral decision have a taxable patrimonial value greater than €1,000,000.00, as was demonstrated in these proceedings;
b) Condemn the Respondent to refund the amounts unduly assessed and paid by the Claimant, based on Article 1, No. 1 of the Stamp Tax Code and item 28.1 of the TGIS;
c) Further condemn the Respondent, since we are dealing with a defect relating to the tax legal relationship, as the existence of this defect implied the injury to a subjective legal situation, embodied in the imposition on the Claimant of the performance of a patrimonial obligation contrary to law, to the payment of compensatory interest, in accordance with the terms and conditions provided for by law (see Articles 43 and 100 of the LGT and Article 61 of the Code of Tax Procedure and Process).
The case value is fixed at €11,118.40, in accordance with Article 97-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by force of subsections a) and b) of No. 1 of Article 29 of the RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
The amount of costs is fixed at €918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Tax Authority and Customs Authority, since the request was wholly well-founded, in accordance with Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the said Regulation.
Notify accordingly.
Lisbon, 29 May 2017.
The Arbitrator
(Jorge Carita)
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