ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 491/2014 – T

Subject Matter: Stamp Tax – item 28.1 of the General Table of Stamp Tax; vertical ownership; indemnity interest

1. Report

A – General

1.1. "A", holder of fiscal identification number …, with tax residence at Avenue …, no. …, in Lousã (hereinafter referred to as "Claimant"), submitted, on 15.07.2014, a request for the establishment of a singular arbitral tribunal in tax matters, which was accepted, seeking, on the one hand, the declaration of illegality of twenty-four tax assessment acts for Stamp Tax of the year 2013, relating to item 28.1 of the General Table of Stamp Tax (hereinafter "TGIS"), relating to a property of which it is the owner, as shall be seen further below, and on the other hand, recognition of the right to indemnity interest for the payment of unduly assessed tax obligations.

1.2. Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of the Centre for Administrative Arbitration (CAAD) designated Nuno Pombo as arbitrator, and the parties, after being duly notified, did not manifest opposition to such designation.

1.3. By order dated 24.07.2014, the Tax and Customs Administration (hereinafter referred to as "Respondent") proceeded to designate Dr. Teresa Rebelo Ferreira and Dr. Helena Rito to intervene in the present arbitral proceedings, in the name and representation of the Respondent.

1.4. In accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 08.10.2014.

1.5. On 10.10.2014 the highest official of the Respondent's service was notified to remit to the Arbitral Tribunal a copy of any existing administrative file and, if it so wished, within a period of 30 days, to submit a response and request the production of additional evidence.

1.6. On 07.11.2014 the Respondent submitted its response.

B – Position of the Claimant

1.7. The Claimant is the owner of the property in full or vertical ownership located at Street …, nos. …- …, in Setúbal, with the matrix article …, of the Union of Parishes of Setúbal (…), with 8 (eight) storeys and 13 (thirteen) units with independent use, with a total asset value of € 1,179,090.00 (one million one hundred and seventy-nine thousand and ninety euros), to which corresponds the property register that the Claimant annexes to its request as document no. 2, whose contents are deemed to be reproduced (hereinafter, the "Property").

1.8. The Claimant was notified of the Stamp Tax assessments (hereinafter referred to as "ST") which are mentioned in the preamble of the request for arbitral determination (attached under the joint designation of document no. 1 to said request, whose contents are deemed to be reproduced), which were based on article 1 of the Stamp Tax Code (hereinafter the "STC"), on item 28.1 of the TGIS, added by article 4 of Law No. 55-A/2012, of 29 October, whose payment due dates relate some to the end of April 2014 and others to the end of July 2014, relating, respectively, to the first and second instalments of ST levied on the Property.

1.9. The Respondent, for the purposes of applying item 28.1 of the TGIS to the Property, fixed at € 1,089,480.00 (one million and eighty-nine thousand four hundred and eighty euros) the "Patrimonial Value of the Property – total subject to tax".

1.10. The Claimant, on 28.04.2014, proceeded to pay the first instalment of the tax that was required of it by the assessments referred to above, as is proven by the documents attached to the request for arbitral determination with nos. 1 and 3, and therefore also requests that it be recognized the right to receive indemnity interest, calculated from the date on which these assessments were paid until the actual reimbursement of such unduly demanded amounts.

1.11. The 13 (thirteen) units susceptible to independent use were "individually appraised in March 2013 and each had a tax patrimonial value (hereinafter "TPV") comprised between € 89,610.00 and € 90,790.00", as confirmed by copies of the notifications attached as doc. no. 4 to the request for arbitral determination.

1.12. Many of the units susceptible to independent use "are leased at rents that in their great majority do not exceed €200.00, with the highest rent being €660.00", as can be verified by copy of the lease contracts attached as doc. no. 7 to the request for arbitral determination.

1.13. The Claimant argues that it was necessary to segregate the storeys or units susceptible to independent use for the purpose of ST assessment, and that it does not follow from the law that the TPV of a property composed of several independent units corresponds to the sum of the TPV of the storeys or units susceptible to independent use, especially since, pursuant to paragraph 3 of article 12 of the Property Tax Code (CIMI), "each storey or part of property susceptible to independent use is considered separately in the property registration, which also specifies its respective tax patrimonial value", being consequently the subject of separate Property Tax (IMI) assessment.

1.14. Furthermore, not all units susceptible to independent use are devoted to residential purposes, inasmuch as one of them is devoted to commercial activities, and therefore the Property cannot be qualified, in its entirety, as residential.

1.15. In the opinion of the Claimant, the Property "was, on the date of the assessments, materially identical to a property under the regime of horizontal ownership", and there is no legal justification for discrimination between properties under horizontal and vertical ownership regimes as regards their identification as "residential urban properties", the discrimination promoted by the Respondent being therefore a violation of the principle of tax legality, provided for in article 103, paragraph 2 of the Portuguese Constitutional Law and also the principles of justice, equality, fiscal proportionality, good faith and tax capacity, whereby the assessments now in question have a confiscatory nature, violating the essential content of the right to property.

1.16. Intending to tax luxury properties, the Respondent's insistence on applying item 28.1 of the TGIS to "simple units assessed at less than 100,000.00 € (one hundred thousand euros)" is not comprehensible, in manifest opposition to the principle of substance over form and in clear disregard of the principle of material truth, to which article 55 of the General Tax Law (hereinafter, "GTL") appeals.

C – Position of the Respondent

1.17. The Respondent, in its response, understands that the subjection to ST of item 28.1 of the TGIS "results from the combination of two facts, namely, the residential use and the patrimonial value of the urban property registered in the tax roll being equal to or greater than € 1,000,000.00".

1.18. The Respondent expresses the understanding that the situation of the Property is literally subsumed in the provision of the item in question, adding that in properties under the regime of full ownership there are no autonomous units to which tax law can attribute the qualification of property, the Claimant being, consequently, the owner of a single property considered as a unit, and not of each one of the parts or units susceptible to independent use of which it is composed.

1.19. What the Claimant intends is for the interpreter and applier of tax law to apply, by analogy, to the regime of full ownership, the regime of horizontal ownership, a claim that, in the reading of the Respondent, proves abusive and illegal.

1.20. The Respondent further argues that it is prevented from interpreting item 28.1 of the TGIS in any manner other than as it has done, since any other interpretation would violate "the letter and spirit" of the said item and "the principle of legality of the essential elements of the tax provided for in article 103, paragraph 2, of the Portuguese Constitutional Law", since "it falls to the law – Law of the Assembly of the Republic and authorized Decree-Law – to establish the essential elements of the incidence of taxes".

D – Conclusion of the Report

1.21. By order dated 23.12.2014, in line with what was suggested by the Respondent, the arbitral tribunal dispensed with the meeting provided for in article 18 of the Legal Regime of Arbitration in Tax Matters (hereinafter, "LRAT"), since the parties had already brought to the proceedings the necessary and sufficient factual elements for the delivery of the decision, which was expected could take place by 09.02.2015.

1.22. The arbitral tribunal is materially competent, pursuant to the provisions of articles 2, paragraph 1, subparagraph a) of the LRAT.

1.23. The parties enjoy legal personality and capacity and have standing pursuant to article 4 and paragraph 2 of article 10 of the LRAT, and article 1 of Ordinance No. 112-A/2011, of 22 March.

1.24. The cumulation of claims made in the present request for arbitral determination, in homage to the principle of procedural economy, is justified since the contested assessment acts rest on the same factual basis and appeal to the application of the same rules of law, and the compensation claim formulated is equally acceptable in principle, since article 3 of the LRAT, by expressly admitting the possibility of "cumulation of claims even if relating to different acts", accommodates, without hermeneutical abuse, the appraisal of a claim that derives, in necessary terms, from the judgment that the arbitral tribunal holds regarding the validity of the assessments in question.

1.25. The proceedings do not suffer from any nullity nor have the parties raised any exceptions that prevent the appraisal of the merits of the case, therefore the conditions are met for the delivery of the arbitral decision.

2. Statement of Facts

2.1 Proven Facts

2.1.1. The Claimant is the sole owner of the Property (doc. no. 2, attached with the request for arbitral determination).

2.1.2. The Property is constituted in full or vertical ownership, having thirteen storeys or units susceptible to independent use (docs. nos. 1 and 2, attached with the request for arbitral determination).

2.1.3. Not all storeys or units susceptible to independent use are devoted to residential purposes, with one storey – the basement – devoted to "warehouses and industrial activity" (doc. no. 2, attached with the request for arbitral determination).

2.1.4. None of the storeys or units susceptible to independent use has a TPV equal to or greater than € 1,000,000.00 (one million euros) (doc. no. 2, attached with the request for arbitral determination).

2.1.5. The Property has a TPV of € 1,179,090.00 (one million one hundred and seventy-nine thousand and ninety euros) – (doc. no. 2, attached with the request for arbitral determination).

2.1.6. The Respondent, for the purposes of applying item 28.1 of the TGIS to the Property, proceeded to the arithmetic sum of the patrimonial values of each of the storeys or units with residential use, excepting, therefore, the storey (the basement) which has non-residential use, fixing at € 1,089,480.00 (one million and eighty-nine thousand four hundred and eighty euros) the "Patrimonial Value of the Property – total subject to tax" (docs. nos. 1 and 2, attached with the request for arbitral determination).

2.1.7. The Claimant was notified of the ST assessments referred to in the preamble of the request for arbitral determination (doc. no. 1, attached with the request for arbitral determination).

2.1.8. On 28.04.2014, the Claimant proceeded to pay € 3,631.68 (three thousand six hundred and thirty-one euros and sixty-eight cents) relating to the first instalment of the tax that was required of it, and whose payment deadline expired at the end of April 2014.

2.2 Unproven Facts

There are no facts relevant to the appraisal of the merits of the case that have been ruled as unproven.

3. Matters of Law

3.1 Questions to be Decided

It follows from what has been stated above that the questions to be appraised are, fundamentally, two:

a) Whether a property constituted in full or vertical ownership, but with storeys or units with independent uses, is a "property with residential use" for the purposes of the application of article 1 of the STC and item 28.1 of the TGIS, added by article 4 of Law No. 55-A/2012, of 29 October; and

b) Whether, should the claim for declaration of illegality be upheld and the consequent annulment of the contested assessments, the Claimant, within the scope of the present arbitral proceedings, may obtain the condemnation of the Respondent to pay indemnity interest relating to the amounts it paid for the satisfaction of the tax unlawfully demanded by it.

3.2. Item 28.1 of the TGIS

Law No. 55-A/2012, of 29 October, among several amendments it made to the STC, added, by its article 4, item 28 to the TGIS, which has the following wording:

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

28.1 – For property with residential use – 1%;

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

As can be seen, item 28.1 refers to "properties with residential use". Now, not only does this concept not appear defined in any provision of the STC, but it is also not used in the CIMI, statute to which article 67, paragraph 2 of the STC expressly refers when matters not regulated in the STC concerning item 28 are at issue.

3.3. "Vertical Ownership" and the Application of Item 28.1 of the TGIS

Without prejudice to the interest, not merely dogmatic, of establishing the meaning and scope of the concept of "property with residential use", it is necessary, first and foremost, to answer the question of whether, for the purposes of applying item 28.1 of the TGIS, the TPV of each of the storeys or units with independent use of a given building can be summed and considered as being devoted to residential use, as the Respondent did regarding the Property (excepting the basement, which is devoted to a different purpose, non-residential).

a) The property register of immovable property in full or vertical ownership and the collection of Property Tax

It is important to clarify from the outset that "each storey or part of property susceptible to independent use is considered separately in the property register, which also specifies its respective tax patrimonial value", as can be read in paragraph 2 of article 12 of the CIMI. Also, Property Tax, in properties subject to the regime of full ownership, gives typical significance to each storey or part of property susceptible to independent use (article 119, paragraph 1 of the CIMI).

That is, it is clear that the legislator, in the CIMI, did not intend to adhere to the rigor of the formal nature of real rights inciding on properties, but rather to the use given to them, namely in cases where a property, from a legal perspective, is composed of different storeys or parts susceptible to independent use.

It may be said, not without reasonableness, that the legislator, for purposes of taxation in the Property Tax regime, chose to confer autonomy, independence, to each of the parts or each of the storeys of a single property, provided that they show themselves to be of independent use, to the point of providing for individual registration in the property register of each of those independent parts and of imposing on taxation in the Property Tax regime a collection also autonomous. Notwithstanding the legal existence of a single property, it is the legislator itself who not only recommends but imposes the autonomous consideration of each of the independent parts, for purposes of taxation of property.

b) The application of item 28.1 of the TGIS to each of the independent parts

If this is the case for Property Tax, as has been sought to be demonstrated, it cannot fail to be so also for Stamp Tax, namely for purposes of applying item 28.1 of the TGIS.

Moreover, if the tax, Property Tax or Stamp Tax, were purely proportional, this problem would not exist or would be harmless, since the sum of the parts would necessarily correspond to the whole. Such is not the case, however, in the present proceedings.

As has been seen, the ST to which item 28.1 of the TGIS appeals is only due with respect to properties with residential use and, in these, only to those presenting a TPV equal to or greater than € 1,000,000.00 (one million euros).

There is no reason for disregarding the autonomy of each of the parts susceptible to independent use of the Property, nor can it be concluded that, for purposes of applying item 28.1 of the TGIS, a unity is required that, while indisputable in terms of real rights, is not so in taxation on real estate property.

Considering both the letter and spirit of the law, it is not perceived that it is the legislator's intention to apply item 28.1 of the TGIS to each of the parts of a property when only from the sum of all of them results a TPV equal to or greater than the legal threshold.

c) The ratio legis of item 28.1 of the TGIS

What is stated above does not ignore the confessed purpose of the proponent of the legislative amendment already referred to. The interpretation adopted herein is in harmony with what appears to have been the unequivocal intention of the Government, author of the proposal that resulted in this legislative intervention.

Upon the presentation and discussion, in Parliament, of draft law no. 96/XII (2nd), the State Secretary for Tax Affairs stated expressly[1]:

"The Government proposes the creation of a special tax on residential urban properties of higher value. It is the first time in Portugal that a special tax on high-value properties destined for residential purposes has been created. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to properties of value equal to or greater than 1 million euros."

Now, the State Secretary for Tax Affairs presents this draft law referring, without hesitation, to the term "houses". "Houses of value equal to or greater than 1 million euros", note well.

Thus, despite the infelicity of the legislative technique adopted, it results with perfect clarity that item 28.1 of the TGIS cannot be interpreted in the sense that it comprises each of the storeys, units or parts susceptible to independent use when only from the respective sum results a TPV equal to or greater than what the same item provides. In fact, none of the "houses" of the Property to which we have been referring present, of themselves, "value equal to or greater than 1 million euros", nor a tenth of that, for that matter.

d) Conclusion

Based on the foregoing, it is the understanding of the arbitral tribunal that the assessment of ST based on item 28.1 of the TGIS is infected with illegality with respect to each of the storeys or parts susceptible to independent use of the Property, because the mentioned item cannot be interpreted in the sense that it may be applied to storeys or parts susceptible to independent use of a property in full or vertical ownership, when only from the sum of each of these storeys or parts can be obtained a TPV equal to or greater than € 1,000,000.00 (one million euros), not exceeding the TPV of each of said storeys or parts this legal threshold.

The understanding of the arbitral tribunal rejects the judgment of unconstitutionality invoked by the Respondent. It is known that it falls to the law – law of the Assembly of the Republic or authorized Decree-Law – the fixing of the essential elements of the incidence of taxes. However, the understanding adopted by the arbitral tribunal does not overlook the principle of legality provided for in paragraph 2 of article 103 of the Portuguese Constitutional Law, because, as has been sought to be demonstrated by the arguments presented above, the solution advocated results from normative provisions that do not suffer from any organic unconstitutionality.

3.4 Indemnity Interest

Subparagraph b) of paragraph 1 of article 24 of the LRAT provides that "the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the tax administration from the end of the deadline provided for appeal or challenge, and this administration must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for the spontaneous execution of sentences of tax judicial tribunals, restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose".

It is not ignored that the legislative authorization granted to the Government by article 124 of Law No. 3-B/2010, of 28 April, on the basis of which the LRAT was approved, determines that the arbitral tax process constitutes an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters. Even though subparagraphs a) and b) of paragraph 1 of article 2 of the LRAT ground the competence of arbitral tribunals in "declarations of illegality", it seems reasonable the understanding according to which their competencies comprise the powers that in judicial challenge proceedings are attributed to tax courts, being certain that in judicial challenge proceedings, in addition to the annulment of tax acts, claims for compensation can be appraised, namely relating to indemnity interest.

In fact, the principle of cognoscibility of compensation claims, in administrative reclamation or in judicial proceedings, is justified whenever the damage sought to be redressed results from a fact attributable to the Tax and Customs Administration. Manifestations of this principle are found in paragraph 1 of article 43 of the General Tax Law and in article 61 of the Code of Tax Procedure and Process.

Thus, having the Claimant paid the tax that was required of it by the contested assessments, at least the first instalment, it has the right to indemnity interest counted from the date of payment(s) until its full reimbursement.

3.5 Question Made Moot: Unconstitutionality Invoked by the Claimant

The Claimant raised the question of the unconstitutionality of item 28.1 of the TGIS, with the wording given to it by the same statute, should it be interpreted in the sense that the ST provided for therein could apply to each of the storeys or independent parts of the Property.

Since the arbitral tribunal did not accept the understanding of the applicability of item 28.1 of the TGIS to the case at hand, the appraisal of that question is rendered moot and procedurally useless, as is any other defects from which the contested assessments may suffer.

4. Decision

Based on the grounds and findings set forth above, the arbitral tribunal decides:

a) To uphold the request for arbitral determination with the consequent annulment of the contested assessments, with all legal consequences;

b) To uphold the claim for condemnation of the Respondent to pay indemnity interest, at the legal rate, to be counted from the date of payment(s) of the taxes now declared to be unduly demanded until its full reimbursement.

5. Case Value

In accordance with the provisions of paragraph 2 of article 315 of the Code of Civil Procedure, subparagraph a) of paragraph 1 of article 97-A of the Tax Procedure and Process Code and also paragraph 2 of article 3 of the Fee Regulation in Tax Arbitration Proceedings, the case value is fixed at € 10,894.80 (ten thousand eight hundred and ninety-four euros and eighty cents).

6. Costs

For the purposes of the provisions of paragraph 2 of article 12 and paragraph 4 of article 22 of the LRAT and paragraph 4 of article 4 of the Fee Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), in accordance with Table I attached to said Regulation, to be borne entirely by the Respondent.

Register and Notify.

Lisbon, 9 February 2015

The Arbitrator

(Nuno Pombo)

Text prepared by computer, pursuant to paragraph 5 of article 131 of the Code of Civil Procedure, applicable by referral of subparagraph e) of paragraph 1 of article 29 of Decree-Law No. 10/2011, of 20/01.

The wording of this decision follows the old spelling convention.

[1] See Official Journal I Series no. 9/XII -2, of 11 October, page 32.