Stamp Tax Verba 28.1 TGIS on Vertical Property: VPT Per Unit vs Global Assessment (CAAD 489/2016-T)

ARBITRAL DECISION

1. REPORT

On 29 July 2016, A…, with TIN … and resident at Avenue …, no. … – …, … – …, in Lisbon (hereinafter referred to as Claimant), came, under the combined provisions of articles 95.º, no. 2, letter a), of the General Tax Code (LGT), 99.º, letter a), of the Tax Procedure and Procedure Code (CPPT), 2.º, no. 1, letter a) and 10.º, no. 1, letter a), of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration (RJAT), to request the establishment of an Arbitral Tribunal and to present a request for arbitral pronouncement, in which the Tax and Customs Authority (hereinafter AT or Respondent) is the respondent, with a view to the declaration of illegality and consequent annulment of the assessments of Stamp Duty (Item 28.1, of the TGIS) relating to the year 2015 and to the property registered in the urban property register of the parish of …, municipality of Lisbon, under article …, in the total amount of € 11,740.90 (eleven thousand, seven hundred and forty euros and ninety cents).

The Claimant further requests that the Respondent be ordered to reimburse the amounts wrongfully paid, relating to the first and second instalments of each of the assessments contested (€ 7,756.17), increased by compensatory interest which it calculates at € 40.98 at the date of the request, as well as ordering the AT to pay the procedural costs, assigning to the process the economic value of € 11,781.88.

1.1. Summary of the Parties' Positions

a. Of the Claimant:

As grounds for the request to annul the acts of assessment of Stamp Duty (item 28.1, of the TGIS) relating to the year 2015 and to the property identified in the request for arbitral pronouncement, the Claimant invokes the following facts and legal grounds:

1. The urban property of which the Claimant is the owner comprises twelve storeys or divisions capable of independent use, with residential use, whose tax property value (VPT) was determined separately, in accordance with article 7.º, no. 2, letter b), of the Municipal Property Tax Code (CIMI);

2. The various storeys or divisions capable of independent use have a VPT ranging between € 42,690.00 and € 114,340.00, their sum corresponding to the amount of € 1,174,090.00;

3. The AT assessed Stamp Duty of Item 28.1, of the TGIS, at the rate of 1% on the total VPT of the property, albeit having as reference each of the storeys or divisions capable of independent use, in the amount of € 11,740.90, divided into three annual instalments;

4. It is the Claimant's understanding, contrary to the position adopted by the AT, that the VPT to be taken into account to determine the incidence of Stamp Duty of Item 28.1, of the TGIS, cannot be the overall VPT of the storeys or divisions capable of independent use intended for housing, of properties in full ownership;

5. The incidence of Stamp Duty of item 28.1, of the TGIS, is determined by the combination of two factors: residential use and the VPT contained in the register, equal to or exceeding € 1,000,000.00;

6. No. 2 of article 67.º, of the Stamp Duty Code, determines the subsidiary application of the provisions of the CIMI to matters relating to item 28.1, of the TGIS; thus, the VPT to be considered shall be that of each storey or division capable of independent use, as contained in the register, in accordance with no. 3 of article 12.º, of the CIMI, in view of the principle of universality of VPT;

7. Also in the context of Municipal Property Tax, the regime governing Stamp Duty of item 28.1, of the TGIS, an annual assessment is made for each of the storeys or divisions capable of independent use, to be paid in one or more instalments, depending on the respective value;

According to the Arbitral Decision issued in case no. 50/2013-T, there would only be incidence of the new stamp tax if one of the parts, storeys or divisions with independent use had a VPT exceeding € 1,000,000.00, and the AT could not use a criterion different from that established by the legislator in the context of Municipal Property Tax.

b. Of the Respondent:

Notified in accordance with the terms and for the purposes provided in article 17.º, of the RJAT, the AT presented a reply and attached the administrative file, defending the legality and maintenance of the assessment acts which are the subject of the present request for arbitral pronouncement, with the following grounds:

1. The subjection to Stamp Duty of item 28.1, of the TGIS, results from the combination of two facts: residential use and the VPT of the urban property registered in the register being equal to or exceeding € 1,000,000.00;

2. The concept of property is contained in article 2.º, no. 1, of the CIMI, with its no. 4 establishing that under the regime of horizontal property ownership, each autonomous fraction is considered as constituting a property, a normative provision from which it follows that a "property in full ownership with storeys or divisions capable of independent use" is a different reality from a property under the regime of horizontal property ownership, constituted by autonomous fractions (properties);

3. Article 12.º, no. 3, of the CIMI, relates exclusively to the form of registering property register data and, as to the assessment of Municipal Property Tax, where it is properties in full ownership, the value which serves as the basis for its calculation will be that registered in the property record as "total property value";

4. The thesis defended by the Claimant lacks legal support, because in the situations provided for in item no. 28.1, of the TGIS, the legislator reserves the aspects that require the necessary adaptations, such as is the case of properties in full ownership, with storeys or divisions capable of independent use in which, despite Municipal Property Tax being assessed in relation to each part capable of independent use, for the purposes of Stamp Duty the property as a whole is relevant, because the divisions capable of independent use are not considered as properties;

5. Thus, it results from the fact that Stamp Duty of Item 28.1, of the TGIS, applies to the ownership of urban properties whose VPT contained in the register, in accordance with the CIMI, is equal to or exceeding € 1,000,000.00, that the property value relevant for the purposes of the incidence of the tax is clearly the total property value of the urban property and not the property value of each of the parts that compose it, even if capable of independent use:

6. Taxation under Stamp Duty, Item 28.1, of the TGIS, complies with the criterion of suitability, in that it aims to tax the wealth embodied in the ownership of properties of high value, in a context of economic crisis, in which maximum efficiency was sought with minimum injury to other interests considered relevant, which legitimizes the choice of this mechanism for obtaining revenue, which is not open to criticism in light of the principle of proportionality;

7. In view of the foregoing, the AT considers that the collection notes of Stamp Duty, item 28, of the TGIS, contested in the present proceedings, remain entirely valid and legal, and the defect of violation of law by error as to the legal presuppositions should be judged unfounded, as they constitute a correct application of the law to the facts, absolving the Respondent entity from the request.

Attached to the Reply, the AT presented a request in which it requested the waiver of the meeting referred to in article 18.º, of the RJAT, as well as the submission of written pleadings, as no additional evidence production was requested, no exceptions were invoked, the facts on which the decision is requested are established and the matter is exclusively one of law.

2. PRELIMINARY MATTERS

2.1. The singular arbitral tribunal is competent and was regularly constituted on 4 November 2016, in accordance with articles 2.º, no. 1, letter a), 5.º and 6.º, all of the RJAT.

2.2. The Parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4.º and 10.º of the RJAT and article 1.º of Order no. 112-A/2011, of 22 March.

2.3. The process does not suffer from defects that would invalidate it and there are no exceptions to be considered.

2.4. The cumulation of claims is admissible, in accordance with the provisions of no. 1 of article 3.º of the RJAT, insofar as the request for arbitral pronouncement formulated, and its respective admissibility, depend on the appraisal of the same factual circumstances and the interpretation and application of the same principles or rules of law, in the specific case, item 28.1, of the General Table of Stamp Duty.

2.5. The Parties waived the holding of the meeting referred to in article 18.º, of the RJAT, as well as the submission of Pleadings, whether oral or written.

3. REASONING

3.1 FACTUAL MATTERS

The factual matters relevant to the understanding and resolution of the case, following critical examination of the documentary evidence submitted by the Claimant and the administrative file (PA) attached by the Respondent, are established as follows:

a. Both on the date of the occurrence of the tax event (31 December 2015) and on the date of the issuance of the assessments contested (5 April 2016), the Claimant was the owner of the urban property in full ownership, composed of 12 storeys or divisions of independent use, all intended for housing, registered in the property register of the parish of …, municipality of Lisbon (Finance Office of Lisbon…), under article …, with the total property value of € 1,174,090.00 (as per the copy of the property record attached to p. i.);

b. None of the storeys or divisions of independent use of the property identified has a tax property value equal to or exceeding € 1,000,000.00, ranging between € 114,340.00 (3rd E) and € 42,690.00 (AF E);

c. With respect to the property identified, the Claimant was notified by the AT of the issuance of the Stamp Duty assessments of item 28.1, of the TGIS, at the rate of 1%, on the tax property value of each of the storeys or divisions of independent use, with each collection document showing the "Property Value of the property – total subject to tax: € 1,174,090.00", as per the table below:

| Collection Note | Property Identification | VPT | Tax Collected |
|---|---|---|---|
| 2016 … | … …U-… AF D | € 72,880.00 | € 728.80 |
| 2016 … | … …U-… AF E | € 42,690.00 | € 426.90 |
| 2016 … | … …U-… C/V E | € 100,890.00 | € 1,008.90 |
| 2016 … | … …U-… C/VFT | € 94,990.00 | € 949.90 |
| 2016 … | … …U-… R/C D | € 113,180.00 | € 1,131.80 |
| 2016 … | … …U-…R/C E | € 101,930.00 | € 1,019.30 |
| 2016 … | … …U-… 1.º D | € 101,930.00 | € 1,019.30 |
| 2016 … | … …U-… 1.º E | € 113,180.00 | € 1,131.80 |
| 2016 … | … …U-… 2.º D | € 101,930.00 | € 1,019.30 |
| 2016 … | … …U-… 2.º E | € 113,180.00 | € 1,131.80 |
| 2016 … | … …U-… 3.º D | € 102,970.00 | € 1,029.70 |
| 2016 … | … …U-… 3.º E | € 114,340.00 | € 1,143.40 |

d. The Claimant proceeded to pay the first and second instalments of the assessments identified in the proceedings, on 29 April 2016 and 26 July 2016, respectively, as per the proof attached to p. i., for the total amount of € 7,756.17;

e. There are no facts relevant to the resolution of the case that should be considered as not proven.

3.2 OF LAW

a. The question to be decided

The main question brought to the proceedings by the Claimant is whether the subjection to Stamp Duty, in accordance with item no. 28.1, of the General Table of Stamp Duty (TGIS), of an urban property not constituted under horizontal property ownership, is determined by the Tax Property Value (VPT) corresponding to each of its economically independent parts with residential use, as it argues, or whether it is determined by the overall VPT of the property, which would correspond to the sum of all VPT of the storeys or divisions of independent use and with residential use that compose it, in accordance with the interpretation given by the AT to the said rule.

b. On the merits of the assessments of Stamp Duty for the year 2015

Item 28.1, of the TGIS, in the wording given to it by Law no. 83-C/2013 of 31 December (Budget Act for 2014), applicable to the assessments contested, establishes the subjection to Stamp Duty of the ownership, usufruct or surface rights of residential urban properties or building land the construction of which, authorized or planned, is for housing, whose tax property value contained in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000.00.

The concepts of urban property and residential urban property are defined in the CIMI, of subsidiary application to matters relating to item 28, of the TGIS, by force of the referral made by no. 2 of article 67.º, of the Stamp Duty Code.

Property is, in the definition of article 2.º, of the CIMI, "any portion of territory, including waters, plantations, buildings and structures of any nature incorporated or based in it, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or structures, under the circumstances aforesaid, endowed with economic autonomy in relation to the land where they are situated, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature" (no. 1) and, furthermore, the autonomous fractions of properties constituted under the regime of horizontal property ownership (no. 4).

Properties may be rural, urban or mixed, with urban properties being defined, in a residual manner, by article 4.º, of the CIMI, as being all those that should not be classified as rural, without prejudice to what is provided regarding mixed properties.

In article 6.º, no. 1, of the CIMI, the legislator came to establish the various types of urban properties, classifying them as a) residential, b) commercial, industrial or service, c) building land and, d) others, delimiting, in nos. 2, 3 and 4, of the same article, what should be understood by each of those designations.

Residential properties are, in accordance with no. 2 of article 6.º, of the CIMI, buildings or structures licensed for housing or which, in the absence of a license, have housing as their normal purpose.

With regard to the determination of the tax property value of properties under the regime of full ownership, article 7.º, of the CIMI, governs, with no. 2 of this article referring to urban properties with parts that can be classified under more than one of the classifications of no. 1 of article 6.º, of the CIMI, which is not the case of the Claimant's property, whose storeys or divisions of independent use are all intended for housing.

In accordance with article 7.º, no. 2, letter b), of the CIMI, "If the different parts are economically independent, each part is valued by applying the corresponding rules, and the value of the property is the sum of the values of its parts."

And this is the only provision of the Municipal Property Tax Code in which reference is made to the "[overall] value of the property", without, however, this having any relevance at the level of tax assessment, because each storey or part capable of independent use "is considered separately in the property register entry, which also distinguishes its respective tax property value" (article 12.º, no. 3, of the CIMI).

Having regard to the provisions of no. 3 of article 12.º, of the CIMI, and, in compliance with the rule of incidence of item 28.1, of the TGIS, which provides that the taxable matter consists of the "tax property value used for Municipal Property Tax purposes", the AT issued individualized assessments for each storey or division of independent use, having as reference the supposed "overall value" of the property, as this is greater than € 1,000,000.00.

Now, as there is no provision in the Municipal Property Tax Code that makes reference to an "overall value" of properties not constituted under the regime of horizontal property ownership, particularly when they comprise exclusively storeys or divisions of independent use intended for housing and, in the situation before these proceedings, none of the storeys or divisions of independent use with residential use has a VPT equal to or exceeding € 1,000,000.00, nothing authorizes the AT to adopt the (mixed) criterion used in the issuance of the Stamp Duty assessments contested, different from that established by the legislator.

On the other hand, as the Claimant rightly observes, what is deemed to result from the ratio legis underlying the rule of item 28, of the TGIS, introduced by Law no. 55-A/2012 of 29 October, is that the legislator intended to tax the ownership, usufruct and surface rights of residential units with VPT equal to or exceeding € 1,000,000.00, as an index of high taxpaying capacity. However, as it follows from the proven facts, none of the storeys or divisions capable of independent use and with residential use of the property of which the Claimant is the owner has a VPT equal to or exceeding that defined in the rule of incidence.

Furthermore, it is consolidated case law, both of the tax arbitral tribunals and of the Supreme Administrative Court, within the scope of the original wording of item 28.1, of the TGIS (which it is not seen why there should be divergences for situations covered by the current wording) and to which adherence is given, that, "I - With regard to properties in vertical ownership, for the purposes of the incidence of Stamp Duty (Item 28.1 of the TGIS, in the wording of Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential use and the VPT contained in the register equal to or exceeding € 1,000,000.

II - Where it is a property constituted in vertical ownership, the incidence of Stamp Duty must be determined, not by the VPT resulting from the sum of the VPT of all divisions or storeys capable of independent use (individualized in the property article), but by the VPT attributed to each of those storeys or divisions intended for housing." – see the summary of the recent Judgment of the STA, of 30/11/2016, Case no. 01097/16, available at http://www.dgsi.pt and other case law cited therein.

For the reasons set out, having found the defect of violation of law, by error in the application of the law, arising from the incorrect interpretation of the rule of incidence of item no. 28.1, of the TGIS, it is necessary to conclude that the assessments contested cannot be maintained in the legal order.

c. On the request for compensatory interest

In accordance with the provisions of no. 1 of article 43.º, of the General Tax Code (LGT), applicable subsidiarily to the tax arbitration process, in accordance with article 29.º, no. 1, letter a), of the RJAT, "Compensatory interest is due when it is determined, in an administrative objection or judicial dispute, that there was an error attributable to the services that resulted in the payment of the tax debt in an amount higher than legally due."

Thus, the cumulative requirements of the right to compensatory interest are: "– that there be an error in a tax assessment act; – that it be attributable to the services; – that the existence of that error be determined in a process of administrative objection or judicial dispute; – that from that error resulted the payment of a tax debt in an amount higher than legally due."[1]

The tax arbitration process was designed as an alternative means to the process of judicial dispute (see the legislative authorization granted to the Government by article 124.º, no. 2 (first part) of Law no. 3-B/2010, of 28 April – Budget Act for 2010), and it should be understood that the competence of the arbitral tribunals operating under the auspices of the CAAD includes the same powers that, in the process of judicial dispute, are attributed to the tax courts, such as that of appreciating the error attributable to the services.

In the case at hand, it is clear that, the illegality of the acts of assessment of Stamp Duty having been declared, as the incorrect interpretation and application of the objective rule of incidence contained in item 28.1, of the TGIS has been demonstrated, which justifies its annulment, it must be recognized that the Claimant has the right to compensatory interest on the amounts wrongfully paid, from the date of the respective payment, in accordance with the provisions of no. 5 of article 61.º, of the CPPT, since such illegality is exclusively attributable to the Tax Administration, which performed those tax acts without the necessary legal support.

4. DECISION

Based on the factual and legal grounds set out above and, in accordance with article 2.º, of the RJAT, the decision is, judging the present request for arbitral pronouncement entirely founded:

a. To declare the illegality of the assessments of Stamp Duty (item 28.1, of the TGIS) contested, by error in the legal presuppositions, determining its annulment;

b. To order the AT to reimburse the amounts wrongfully paid by the Claimant as Stamp Duty for the year 2015, increased by compensatory interest at the legal rate, from the date of the respective payment until the date of issuance of the credit notes.

VALUE OF THE PROCESS: In accordance with the provisions of article 306.º, nos. 1 and 2, of the CPC, 97.º-A, no. 1, letter a), of the CPPT and 3.º, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the process is fixed at € 11,740.90 (eleven thousand, seven hundred and forty euros and ninety cents), equivalent to the value of the assessments contested.

COSTS: Calculated in accordance with article 4.º of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 918.00 (nine hundred and eighteen euros), to be borne by the Tax and Customs Authority.

Lisbon, 27 January 2017.

The Arbitrator,

/Mariana Vargas/

Text prepared on computer, in accordance with no. 5 of article 131.º of the CPC, applicable by referral in letter e) of no. 1 of article 29.º of Decree-Law 10/2011, of 20 January.

The drafting of this decision is governed by the spelling agreement of 1990.

[1] See SOUSA, Jorge Lopes de, Tax Procedure and Procedure Code – annotated and commented, Volume I, Áreas Editora, 2006, p. 472.