Stamp Tax on Vertical Property: CAAD Rules on Verba 28 TGIS and Independent Housing Units (Process 519/2015-T)

CAAD: Tax Arbitration

Process No.: 519/2015-T

Subject: IS – Item 28 of TGIS – Full or Vertical Ownership

Arbitral Decision

Process No. 519/2015-T

I – Report

1. On 29 July 2015, A..., S.A., with Tax Identification No...., came under Law 10/2011 to request the constitution of the Singular Arbitral Tribunal against the Tax and Customs Authority seeking a declaration of the illegality of the acts of assessment of Stamp Tax, item 28.1, TGIS, relating to 2014 and reimbursement of the tax in the amount of €10,845.20 paid in the meantime.

2. In the Request for arbitral pronouncement, the Applicant chose not to appoint an arbitrator, having been, under the terms of no. 1 of article 6 of the RJAT, by decision of the President of the Deontological Council, designated as sole arbitrator the signatory, who accepted the appointment within the legally stipulated deadline.

3. The arbitral tribunal was constituted on 28 October 2015.

4. On 30 November 2015, the Tax and Customs Authority (TA or Respondent) presented a Response, requesting dispensation of the holding of the meeting provided for in article 18 of the RJAT as well as the presentation of written submissions.

5. The Applicant responded to the exception raised by the Respondent on 15 January and, with the agreement of the Parties, the tribunal decided to dispense with the holding of the meeting of article 18 of the RJAT as well as the presentation of written submissions, indicating as the deadline for pronouncement of the decision 28 April 2016.

6. After notification to clarify the Request regarding the object and value of the case, the Applicant clarified that it sought the annulment of the (single) act of assessment of Stamp Tax relating to 2014 and that the value of the Request was €16,267.97, which received opposition from the Respondent.

7. The Request for Pronouncement

The Applicant argues, in summary:

• It concerns the assessment of 1% stamp tax on all divisions allocated to housing, under item 28.1 of the General Table of Stamp Tax, on the property consisting of basement, shops and 5 floors of which it is the owner and legitimate proprietor, located at Street..., No.... and ...E, in Lisbon, registered in the property register under article ...º of the parish of..., in 2014, prior to the constitution of the property under horizontal ownership.

• The TA considered as a criterion for determining the incidence of stamp tax the sum of the individually attributed taxable property value (VPT) of each division subject to housing, considering that, as the property was not constituted in horizontal ownership, the criterion was the sum of the VPT - €2,287,080.00 - of the various floors/or divisions allocated to housing, although with independent use, and based on this criterion assessed, in 2015 relative to 2014, the amount of €10,845.40 (1st and 2nd instalments) taking into account the VPT of all divisions considered independent, assessments which it paid despite not agreeing with them.

• Regarding the concept of "property with housing allocation", Law No. 55-A/2012 and article 67, no. 2 of the Income Tax Code mandate the subsidiary application of the CIMI, resulting from the provisions of this code, namely articles 2 and 38, that the determination of VPT is in accordance with the provision in the same code.

• The TA considers the value relevant for the incidence of IS on properties in vertical ownership as the value determined as a whole, despite being constituted by several autonomous parts for housing with independent use, and that, in this way, exceed the one million euros provided for in item 28.1 of the TGIS, but this criterion of opportunity adopted by the TA does not appear acceptable, nor in accordance with the principle of tax legality.

• In that the registration in the property register of real estate in vertical ownership, constituted by different parts, floors or divisions with independent use, under the terms of the CIMI, follows the same registration rules as real estate constituted in horizontal ownership, the respective IMI, as well as the new IS, being assessed individually in relation to each of the parts, it leaves no doubt that the legal criterion for determining the incidence of the new tax must be the same.

• The TA itself admits this to be the criterion - the assessment itself issued is very clear in its essential elements - from which it results that the value of incidence is the corresponding to the VPT of each of the individualized fractions and the assessment documents individualized on the part of the property corresponding to the various floors, so that there would only be grounds for incidence of the new stamp tax if any of the parts, floors or divisions with independent use presented a VPT exceeding €1,000,000.00 which does not occur in the case "sub judice".

• The final part of item 28 of the TGIS provides that IS is incised on urban properties with a value equal to or exceeding €1,000,000.00 – "on the taxable property value used for the purpose of IMI", so the criterion defended by the TA violates the principles of legality and tax equality, as well as the prevalence of material truth over legal-formal reality, in clear detriment to the taxpayer.

• The legislator in introducing this legislative innovation considered as the determining element of taxpaying capacity urban properties, with housing allocation, of high value (luxury), more precisely, of value equal to or exceeding €1,000,000.00 - the measure designated as "special tax on urban residential properties of highest value" is based on the invocation of the principles of social equity and tax justice, calling to contribute in a more intense way the holders of properties of high value intended for housing, making the new special tax apply to "houses with a value equal to or exceeding 1 million euros."

• The legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or floor with independent use), reflects a taxpaying capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden, but the existence of a property in vertical or horizontal ownership cannot be, by itself, an indicator of taxpaying capacity. On the contrary, the law provides that both must receive the same tax treatment in obedience to the principles of justice, tax equality and material truth.

• Thus it is illegal and unconstitutional to consider that the reference value is that corresponding to the sum of the VPT attributed to each part or division, it would be a clear violation of the principle of equality and proportionality in tax matters and the discrimination operated by the TA is arbitrary and illegal.

• The constitution of horizontal ownership is not mandatory – in fact, presently, the taxpayer has already constituted the horizontal ownership regime on the property in question, not being subject to item 28.1 of the TGIS, but the value of the autonomous fractions is the same as when the property was in vertical ownership.

• The TA cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality (article 103, no. 2 of the CRP) and the principles of justice, equality and tax proportionality, as has been decided by the jurisprudence of the CAAD.

• The assessments of IS by reference to the fiscal year 2014, from which resulted tax to be paid in the amount of 10,845.20€ (which should now be reimbursed), relating to the taxation of urban properties with VPT equal to or exceeding €1,000,000, under the terms of the provision in Item No. 28 of the TGIS should be declared illegal and annulled, and the Respondent condemned, under the terms of article 43, no. 1 of the LGT and 61, nos. 2 and 5 of the CPPT, in the payment of indemnificatory interest.

1. The Response

The Respondent responded, in summary:

By way of Exception

• The Applicant seeks to challenge payments of item 28 of the IS, contained in the collection notices, but the act of assessment of item 28 of the IS is single, verifying the lack of autonomous challengeability of the payments of assessment acts contained in the collection notices which are the subject of this request for arbitral pronouncement, occurring the dilatory exception provided for in paragraph c), of no. 1, of art. 89 of the CPTA, subsidiarily applicable by art. 29, no. 1, paragraph c), of the RJAT, which prevents knowledge of the merits and results in the absolution of the TA from the suit.

By way of Challenge

• The taxable property value of all those floors with independent use and housing allocation which comprise the said urban property, was determined separately, under the terms of art. 7, no. 2, paragraph b), of the Code of the Municipal Property Tax (C.I.M.I.) but their sum amounts to €1,626,800.00, leading to the application of stamp tax of item 28.1 of the General Table, as amended by art. 4 of Law No. 55-A/2012.

• Item 28 of the General Table provides for the incidence of stamp tax on ownership, usufruct or right of surface of urban properties whose taxable property value contained in the register, under the terms of the Code of Municipal Property Tax (C.I.M.I.), is equal to or exceeding €1,000,000.00.

• The taxable property value relevant for the purposes of the incidence of the tax is, thus, the total taxable property value of the urban property and not the taxable property value of each of the parts that compose it, even when capable of independent use.

• Art. 80, no. 2, of the C.I.M.I. declares that, except as provided in arts. 84 and 92, to each property corresponds a single article registered in the register, that is, the principle that to each property corresponds a single matricial article is only excepted with respect to mixed properties (in which, according to said art. 84, each of the distinct parts is registered in the register in the part that corresponds to it) and with respect to properties constituted in horizontal ownership in which, despite, under the terms of art. 2, no. 4, of the C.I.M.I., each autonomous fraction being considered as constituting a property, each building under horizontal ownership regime corresponds to a single matricial registration.

• The urban property was not constituted under the horizontal ownership regime on 31 December 2013, date of the tax event of stamp tax (case in which each of the autonomous fractions would be considered as urban property, including for purposes of subjection to stamp tax of item 28.1 of the General Table) but under the vertical ownership regime.

• Art. 12, no. 3, of the C.I.M.I. says that each floor or property capable of independent use is considered separately in the matricial registration, which likewise discriminates the respective taxable property value on which IMI is assessed.

• This provision corresponds to the body of art. 232, rule 1, of the Code of Real Property Contribution and Tax on Agricultural Industry (C.C.P.I.I.A.), by which each dwelling or part of property was automatically taken for purposes of determining the taxable income on which assessment had to be imposed, the taxable income necessarily corresponding to the sum of the rent or rental value of each of the components of the property with economic autonomy.

• Also in this case the matricial registration makes reference to each of the parts and also to the taxable property value corresponding to each of them, ascertained separately under the terms of article 37 et seq. of the C.I.M.I., but the unity of the urban property in vertical ownership composed of several floors or divisions is not affected by the fact that all or part of those floors or divisions are capable of independent economic use because the property does not cease to be one alone, and its distinct parts are not legally equated to autonomous fractions under horizontal ownership regime.

• In the present case, the taxable property value on which the incidence of stamp tax of item 28.1 of the General Table depended had to be, as it was, the total global taxable property value of the property and not that of each of its independent parts - the matricial registration of each part capable of independent use is not autonomous, by register, but is contained in a description in the register of the property as a whole and the norms of procedures of assessment, on matricial registration.

• Nor do the norms on the assessment of parts capable of independent use allow to affirm that there must exist an equation of the property in full ownership regime to the vertical ownership regime under penalty of incurring in the vices of illegality and unconstitutionality.

• Any other interpretation would violate the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in art. 103, no. 2, of the Constitution of the Portuguese Republic (C.R.P.) whereby it is concluded for the legality of the challenged assessments, the pretension of the Applicant should be considered as unfounded and the Respondent absolved from all requests.

1. Questions to Decide

The fundamental legal question to be decided posed in the Request consists of knowing whether the scope of incidence of the Stamp Tax provided for in Item 28 of the TGIS includes urban properties not constituted in horizontal ownership but composed of floors or divisions capable of independent use with housing allocation, when the taxable property value attributed to each of those distinct parts is less than the value of €1,000,000.00, although the aggregate of the independent units allocated to housing reaches a total of VPT equal to or exceeding that amount.

As a preliminary matter, the question raised by the Respondent regarding the existence of a dilatory exception, of "lack of autonomous challengeability of the payments of assessment acts of stamp tax" arises and the appreciation regarding the possibility of acceptance of the correction to the Request, presented much later, after the Tribunal had raised clarification of the terms of the Request.

1. Sanitation

The arbitral tribunal is materially competent, under the terms of the provisions of articles 2, no. 1, paragraph a), of the Legal Regime of Arbitration in Tax Matters.

The parties enjoy legal personality and capacity and have legitimacy under the terms of articles 4 and 10, no. 2, of the Legal Regime of Arbitration in Tax Matters (RJAT) and article 1 of Ordinance No. 112-A/2011, of 22 March.

The process does not suffer from any nullity.

The exception raised by the Respondent will be appreciated after the fixing of the factual matter.

Proceeding to decide.

II Grounds

1. Proven Facts

It is considered proven that:

10.1. The Applicant, A..., S.A., is owner of the urban property located at Street..., No.... and ...E, in Lisbon, registered in the property register under article ...º of the parish..., previously article... of the parish of... (no. 4 of the Request for pronouncement, Response and Property Register whose content is given as reproduced).

10.2. The said property is composed of basement, shops and 5 floors, comprising 17 divisions with independent utility, with total taxable property value of €2,287,080.00, relating to two shops and fifteen independent units intended for housing (property register, attached with the Request).

10.3. The taxable property values of each of the divisions with independent use and allocated to housing, determined according to the CIMI, in 2012, are: €112,930.00 (1D); €112,930.00 (1E); €99,500.00 (1ºRetº); €112,930.00 (2D); €112,930.00 (2E); €99,500.00 (2ºRetº); €112,930.00 (3D); €112,930.00 (3E); €99,500.00 (3ºRetº); €112,930.00 (4D); €112,930.00 (4E); €99,500.00 (4ºRetº); €112,930.00 (5D); €112,930.00 (5E) and €99,500.00 (5º Retº), which amounts to a total of €1,626,800.00 (no. 5 of the Request for Pronouncement, property register attached to the Request and collection documents joined to the case with the Request whose content is given as reproduced).

10.4. The divisions allocated to housing were, relative to the year 2014, subject to assessment of Stamp Tax dated 20 March 2015, having as foundation item 28.1 of the General Table of Stamp Tax and by application of the rate of 1% to the value of the VPT of each independent use division referred to in 10.3. (Collection documents joined to the case with the Request).

10.5. The collection documents indicate as "taxable property value of the property – total subject to tax" the amount of €1,626,800.00 corresponding to the sum of the value of the fifteen divisions allocated to housing and that the assessment of Stamp Tax, and the tax collected indicated in each of the documents corresponds to the application of the rate of 1% to the value of the VPT of each of the divisions, which results in the following amounts of tax collected: €1,129.30 (1D); €1,129.30 (1E); €995.00 (1ºRetº); €1,129.30 (2D); €1,129.30 (2E); €995.00 (2ºRetº); €1,129.30 (3D); €1,129.30 (3E); €995.00 (3ºRetº); €1,129.30 (4D); €1,129.30 (4E); €995.00 (4ºRetº); €1,129.30 (5D); €1,129.30 (5E) and €995.00 (5º Retº) (Collection documents joined to the case with the Request).

10.6. The amounts of tax collected referred to in the previous number are paid in instalments, being determined as corresponding to the first instalment of the assessed tax, for payment in April 2014, the amounts of €376.44; €376.44; €331.68; €376.44; €376.44; €331.68; €376.44; €376.44; €331.68; €376.44; €376.44; €331.68; of €376.44; €376.44; €331.68 (documents identified with the numbers; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...), and corresponding to the second instalment of the assessed tax, for payment in July 2014, the amounts of €376.43; €376.43; €331.66; €376.43; €376.43; €331.66; €376.43; €376.43; €331.66; €376.43; €376.43; €331.66; €376.43; €376.43 and €331.66 (documents identified with the numbers 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...; 2015...) (Collection documents joined to the case with the Request).

10.7. The first and second instalments subject of the documents referred to in the previous number were paid in April and July, respectively (Collection documents joined to the Request).

10.8. The request for arbitral pronouncement was presented at the CAAD on 29 July 2015.

1. Facts Not Proven

It is not found proven in the case the payment of third instalments.

1. Grounds of Proof

The proof fixed was based on the documents filed by the Applicant – the Request for arbitral pronouncement and the eleven documents attached with the request - and in the Response of the Respondent, which, without opposition by the Applicant or the tribunal, did not file administrative proceedings.

1. Assessment of Law

13.1. Preliminary Question - the Lack of Challengeability

The Respondent, in its Response, raised a dilatory exception consisting of the "lack of autonomous challengeability of the payments of assessment acts of stamp tax" and argues that, in light of the content of the requests of the Applicant in response to successive requests for clarification by the Arbitral Tribunal, the evidence of the dilatory exception remains "at the moment when the request for arbitral pronouncement was presented".

It must be recognized that the drafting of the Request is not the best, containing various inaccuracies and imprecisions, unfortunately not detected initially by the Tribunal, which, having been dispensed with the meeting of article 18 of the RJAT, only later attended to the deficiencies of the Request and insufficiency of elements relating to the facts, all the more so as the Applicant had responded to the exception raised by the Respondent reaffirming that it challenged the IS assessment referring to 2014.

Not being, despite everything, a defective petition, but in light of the expressed contradictions, the Tribunal, in the understanding that we have had not only of the inquisitorial principle [1] but of the principle of "autonomy of the arbitral tribunal in conducting the process and in determining the rules to observe with a view to obtaining, within a reasonable time, a pronouncement on the merits regarding the claims made"[2], considered it appropriate to invite the Applicant to clarify the initial Request.

Finally the Applicant came, reiterating that it sought the assessment of the legality of the single tax act, to request the correction of the Request regarding the value and to inform that the instalments amounted, after all, to the amount of €16,267.97 and not €10,845.20, initially indicated and even reaffirmed later.

Everything considered, and recognizing full merit to the Respondent as to the invocation that Stamp Tax is assessed annually, consisting of a single tax act and that the collection documents in themselves are not subject of challenge, it is not considered that it should be decided for the existence of the invoked dilatory exception, admitting that the text of the Request allowed – despite imprecise and/or incorrect drafting, as well as in other respects – to understand that the Applicant was not properly challenging the instalments (the documents attached were intended to prove the payment made) since it stated that it was a matter of assessment of the assessment relating to 2014. There was a lapse as to the value of the action, which was later corrected. In any case, as fixed in the facts, the value of payments regarding third instalments was not proved.

Thus, the exception is considered unfounded, deciding as follows on the merits.

13.2. The Legality of the Assessment

13.2.1. Regime Approved by Law No. 55-A/2012, of 29 October

The fundamental legal question, controversial in these proceedings, consists of knowing whether in the case of properties in full ownership, with floors or divisions of independent use but not constituted under the horizontal ownership regime, the VPT to be considered for purposes of incidence of Stamp Tax provided for in item 28.1 of the TGIS should correspond to the VPT of each floor or division with housing allocation and independent use or to the sum of the VPT corresponding to the floors or divisions of independent use with housing allocation.

That is, it must be decided whether the VPT relevant as a criterion of tax incidence is that corresponding to the sum of the taxable property value attributed to the different parts or floors (global VPT) or, rather, the VPT attributed to each of the parts or residential floors.

This question has already been appreciated in many proceedings in the context of Tax Arbitration[3], with a record of great coincidence as to the conclusion resulting from the decisions handed down.

Item 28 of the General Table of Stamp Tax, attached to the Stamp Tax Code (CIS), was added by article 4 of Law No. 55-A/2012, of 29 October, with the following content:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable property value contained in the register, under the terms of the Code of Municipal Property Tax (CIMI), is equal to or exceeding €1,000,000 – on the taxable property value for the purpose of IMI:

28-1 – For property with housing allocation – 1%;

28.2 – For property, when the passive subjects that 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%."

According to the result of the amendments to the Stamp Tax Code introduced by article 3 of Law No. 55-A/2012, of 29/10, the Stamp Tax provided for in item 28 of the TGIS is incised on a legal situation (no. 1 of article 1 and no. 4 of article 2 of the CIS), in which the respective passive subjects are those referred to in article 8 of the CIMI (no. 4 of art. 2 of the CIS), to whom the burden of the tax is assigned (paragraph u) of no. 3 of article 3 of the CIS).

The CIS, as amended by Law No. 55-A/2012, either in article 4, no. 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever the properties are located in Portuguese territory"), or in article 23, no. 7 ("When it concerns the tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI"), in conjunction with art. 1 of the CIMI, considers the property itself as the tax fact, provided it reaches the value provided for in item 28 of the General Table of Stamp Tax.

The provision in Law No. 55-A/2012, of 29 October, regarding the new item 28 of the General Table of Stamp Tax, came into force the day following the publication of the law, that is, 30 October 2012 [4].

13.2.2. The Concept of Property Used in Item 28 of the TGIS

The concept of "property with housing allocation" used in item 28.1 is not expressly defined in any provision of the CIS nor in the CIMI, diploma to which no. 2 of art. 67 of the CIS refers.

In the case at issue, the property in full ownership (building located at Street... no.... and ... E, is composed of fifteen (15) divisions or parts capable of independent use intended for housing. The taxable property values of these fifteen divisions allocated to housing range between €99,500.00 and €112,930.00, totaling the amount of €1,626,800.00.

What is at issue is the exact meaning of the segment "taxable property value considered for the purposes of IMI", contained in the norm of incidence of stamp tax in the body of item 28 of the TGIS: in the case of properties in full ownership but with floors or divisions capable of independent use, with housing allocation, is the VPT relevant the sum of the VPT of the various divisions/floors with housing allocation, considered a single property, as the TA claims, or what must be taken into account is the VPT of each of the respective autonomous floors or divisions with housing allocation, as the Applicant argues?

Now the said segment (taxable property value considered for the purposes of IMI) is integrated in a text that defines as the object of incidence of stamp tax the "Ownership, usufruct or right of surface of urban properties whose taxable property value contained in the register, under the terms of the Code of Municipal Property Tax (CIMI), is equal to or exceeding €1,000,000 - (...)" (bold ours).

As has been repeatedly invoked and admitted, the IMI Code enshrines, both as to matricial registration and discrimination of the respective taxable property value and as to the assessment of the tax, the autonomization of the parts of urban property capable of independent use and the segregation/individualization of the VPT relating to each floor or part of property capable of independent use [5].

Thus, each property corresponds to a single article in the register (no. 2 of article 82 of the CIMI) but, according to no. 3 of art. 12 of the same Code, relating to the concept of property register (registration of the property, its characterization, location, VPT and ownership), "each floor or part of property capable of independent use is considered separately in the matricial registration, which discriminates the respective taxable property value", not being taken as a reference the sum of the taxable property values attributed to the autonomous parts of the same property but the value attributed to each of them individually considered.

As to the assessment of IMI - application of the rate to the taxable base - art. 119, no. 1, of the CIMT provides that "the competent collection document" contains the "discrimination of the properties, their parts capable of independent use, respective taxable property value and of the tax collected (...)"

That is, the rule is the autonomization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, capable of independent use [6], in accordance with the concept of property defined in no. 1 of article 2 of the CIMI: property is all the fraction (of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or based in it, with a character of permanence) provided it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the previous circumstances, endowed with economic autonomy (our presentation and underlining). [7]

Thus, when no. 4 of article 2 provides that "For the purposes of this tax, each autonomous fraction, under the horizontal ownership regime, is considered as constituting a property", it does not properly establish an exceptional or special regime for properties in horizontal ownership.

After all, each building in horizontal ownership (article 92) has only a single matricial registration (no. 1), generically describing the building and mentioning the fact that it is under the horizontal ownership regime (no. 2) and the matricial autonomy is concretized in the attribution to each of the autonomous fractions, thoroughly described and individualized, of a capital letter, according to alphabetical order (no. 3). This seems to be the specificity of buildings in horizontal ownership. But in other cases, of properties in vertical or full ownership, the divisions or floors with independent use have autonomy but without the legal status of horizontal ownership, the register also enshrines the tax autonomy evidencing the different units with indication of the type of floor/level.

Thus, the defense of the Respondent in the sense of the unity existing in properties in vertical ownership and that the "matricial registration of each part capable of independent use is not autonomous, by register, but is contained in a description of the property as a whole" (articles 44, 45 and 51 of the Response) fails to demonstrate the irrelevance of the economic and tax autonomy that we above found to be enshrined in the CIMI in the case of divisions or floors capable of independent use, without the status of horizontal ownership, integrated in buildings in full ownership.[8]

Nor does the argument of the Respondent hold when it invokes the regime established in the CCPIIA, in which the "taxable income necessarily had to correspond to the sum of the rent or rental value of each of the components of the property with economic autonomy" (arts. 40 and 41 of the Response).

It is that the Real Property Contribution, whose legal regime was approved by Decree-Law No. 45106, of 1 July 1963, was a tax on income[9], incised on the incomes of properties (art. 1 of the CCPIIA)[10], while in the Tax Reform of 1988/89, real property incomes came to be taxed in the context of taxes on the income of natural and legal persons (Codes of the IRS and IRC), introducing the distinction between the taxation of real property incomes and the taxation of taxable property values, the latter effected in the context of the Municipal Contribution [11].

Concluding, no reason is found, in matters of incidence of Stamp Tax provided for in item 28.1 of the TGIS, to give to fractions of properties in "vertical ownership", endowed with autonomy, treatment different from that granted to properties in horizontal ownership, when in either of those situations the IMI is applied to the taxable property value evidenced in the register for each of the autonomous units.

13.2.3. The Ratio Legis of Items 28 and 28.1 of the TGIS

The interpretation above sustained, resulting from the analysis of the letter of the law and its insertion in the set of other applicable tax norms, is the most consonant with the spirit of the legislative amendments introduced by Law No. 55-A/2012, of 29 October.

As has already been highlighted in other arbitral decisions, "the legislator in introducing this legislative innovation considered as the determining element of taxpaying capacity urban properties, with housing allocation, of high value (luxury), more precisely, of value equal to or exceeding €1,000,000.00 on which came to apply a special rate of stamp tax, seeking to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of surface of luxury urban properties with housing allocation. For this reason, the criterion was the application of the new rate to urban properties with housing allocation, whose VPT is equal to or exceeding €1,000,000.00" (...). "The grounds for the measure designated as 'special tax on urban residential properties of highest value' are based on the invocation of the principles of social equity and tax justice, calling to contribute in a more intense way the holders of properties of high value intended for housing, making the new special tax apply to 'houses with a value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to a dwelling (house, autonomous fraction or floor with independent use) reflects a taxpaying capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden." [12]

Attending to the legislative purpose, it is further concluded that the holding of fractions in full or vertical ownership does not reveal a greater taxpaying capacity than if they were constituted under the form of horizontal ownership. On the contrary, in most cases, as evidenced by Arbitral Decision No. 50/2013, "many of the existing properties in vertical ownership are old, with undeniable social utility, as in many cases they house residents with modest and more affordable rents, factors that necessarily must be taken into account."

This analysis from this angle also confirms the correctness of the interpretation that item 28 of the TGIS does not encompass each of the floors, divisions or parts capable of independent use when only from their sum results a VPT exceeding that provided for in the same item.

As decided in other arbitral proceedings, this tribunal understands that with respect to the date of constitution of the tax obligation, fiscal connection, determination of the taxable base, assessment and payment of stamp tax in question, the corresponding rules of the CIMI are applicable, by express referral of articles 5, no. 1, paragraph u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the CIS.

It appears to us illogical to subject to the new stamp tax autonomous parts without the legal status of horizontal ownership and not subject any of the residential fractions if the property were under the horizontal ownership regime, as well as the incoherence, in terms of taxation of patrimony, of the different treatment given to holders of fractions concentrated in the same property or dispersed through different properties, taxed in the first case and not taxed in the second, even though in either situation the total amount of the respective VPT reached the value of 1 million euros.

Thus, this arbitral tribunal concludes that the assessments of Stamp Tax, effected on the basis of item 28/28.1 of the TGIS, relating to each of the floors or parts capable of independent use, owned by the Applicant, subject of these proceedings, are affected by illegality, because the said legal provisions cannot be interpreted in the sense of their application to floors or parts capable of independent use of a property in vertical ownership, when only from the sum of each of those floors or parts is it possible to obtain a VPT equal to or exceeding €1,000,000.00 (one million Euros) not reaching the VPT of each of the said floors or parts that amount.

As results from the facts established, none of the floors intended for housing, in the property in vertical ownership subject of this process, has taxable property value equal to or exceeding €1,000,000.00, the legal requirement of incidence of IS provided for in Item 28 of the TGIS not being thus verified, with consequent illegality of the tax acts under consideration.

And, as has been peacefully understood, by application of article 24, no. 5 of the RJAT and being at issue in the case, a wrongful interpretation and application by the Respondent of a provision of tax incidence, indemnificatory interest is owed under the terms of articles 43 and 100 of the LGT.

1. Decision

With the grounds exposed, the arbitral tribunal decides:

a) To find the request for arbitral pronouncement well-founded and, in consequence, to declare illegal the tax acts of assessment of Stamp Tax (item 28 and 28.1 of the General Table of Stamp Tax) affecting the fractions of the property identified in these proceedings, and relating to 2014, ordering the annulment of the Stamp Tax assessed relative to the year in question, in the total amount of €16,267.93 (sixteen thousand two hundred and sixty-seven euros and ninety-three cents), the reimbursement of the amounts of tax that appear to have been paid, as well as the payment of indemnificatory interest under the legal terms.

b) To condemn the Respondent in costs.

1. Value of the Process

In accordance with the provision in no. 2 of article 315 of the CPC, in paragraph a) of no. 1 of article 97-A of the CPPT and also no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings is fixed to the process the value of €16,267.93 (sixteen thousand two hundred and sixty-seven euros and ninety-three cents).

1. Costs

For the purposes of the provision in no. 2 of article 12 and in no. 4 of article 22 of the RJAT and of no. 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,224.00 (one thousand two hundred and twenty-four euros), under the terms of Table I attached to the said Regulation, to be borne entirely by the Respondent.

Lisbon, 28 April 2016.

The Arbitrator

(Maria Manuela Roseiro)

[1] Jorge Lopes de Sousa, CPPT Annotated, Áreas Editora, 6th edition, 2011, II vol, p. 228 and 229.

[2] Cf. Carla Castelo Trindade, in "Legal Regime of Tax Arbitration", Almedina, 2016, p. 369.

[3] On the application of item 28 of the TGIS in the case of properties in full/vertical ownership, a very high number of decisions is already disclosed on the CAAD tax jurisprudence website.

[4] Article 6 of Law No. 55-A/2012 provides transitional provisions by virtue of which, in that first year of effectiveness, that is, 2012, but, being at issue in the case the year 2014, these provisions do not apply.

[5] "Another aspect that should be highlighted in the register concerns the need to make evident the autonomy which, within the same property, can be attributed to each of its parts, functionally and economically independent. In these cases, the matricial registration should not only make reference to each of the parts but should make express reference to the taxable property value corresponding to each of them" (Silvério Mateus and Freitas Corvelo, "Real Property Taxes and Stamp Tax, Commented and Annotated", Engifisco, Lisbon 2005, pages 159 and 160). And said the same authors (ibidem, p. 160): "This autonomization of the autonomous parts of a property, applicable especially to urban properties, was justified in the context of the old Real Property Contribution in which the taxable income corresponded to the rent or rental value of each of those components, continued to be justified in the case of the Municipal Contribution in which the taxable property value had underlying the actual or potential rent and continues to be relevant in the context of the IMI, given that the assessment factors provided for in articles 38 et seq. may not be the same for all of those components (...) the fact that a property is or is not rented continues to have relevance for the purposes of determining the taxable property value whether for the purposes of IMI or for IMT (see Article 17 of DL 287/2003)" (they referred to the original drafting "transitional regime for rented urban properties", a provision to be reviewed, according to its no. 5, when the law on urban rental was revised, which happened with Law No. 6/2006, of 27/02).

[6] On this aspect, and in line with the commentary cited in the previous note, see the grounds contained in the decision of process No. 248/2013-T: "The autonomization in the register of the parts functionally and economically independent of a property in full ownership relates to reasons of a fiscal and extrafiscal nature. On the tax level, this autonomization relates to the very determination of the taxable property value, which constitutes the taxable base of the IMI, given that the formula for determining that value, provided for in art. 38 of the same Code, includes indices that vary depending on the use attributed to each of those parts. On the extrafiscal level, this autonomization continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in urban rental legislation." There is also mentioned no. 1 of art. 15-O, of Decree-Law No. 287/2003, of 12/11, added by Law No. 60-A/2011, of 30/11 (providing that the safeguard clause relating to the aggravation of taxation in IMI resulting from the general assessment of urban properties, is applicable per property or part of urban property which is subject to said assessment) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[7] As observed in the decision of arbitral process No. 132/2013-T: "The norms (...) listed enshrine the principle of autonomization of the independent parts of an urban property, even when not constituted in horizontal ownership. That is, each part capable of independent use should be, for the purposes of IMI, valued in light of its specificities and allocation, resulting in an autonomous VPT, individualizable and corresponding to each part capable of independent use."

[8] Nor does the argument, presented many times by the TA, appear acceptable based on the civil law enshrining of horizontal ownership and intent to extend its use because there do not exist, either in the text of item 28 or in the legislative process that led to the approval of Law No. 55-A/2012, of 29 October, elements that would allow the identification and legitimization of any purpose in that direction.

[9] For all, Carlos Pamplona Corte-Real, Course of Tax Law, in CTF No. 268/270, April-June, 1981, p. 205.

[10] It incised on the value of the rents of rented properties (art. 113) and as to non-rented ones on the estimated value, rental value (art. 125). The incomes of properties were also subject to the incidence of the supplementary tax section A and section B, personal tax, which applied to the total income of natural and legal persons (articles 3 and 84, of the Supplementary Tax Code approved by DL No. 45399, of 30 November).

[11] Cf. no. 1 of the preamble to the Code of Municipal Contribution, approved by Decree-Law No. 442-C/88, of 30 November. The M.C. tax came to apply to the taxable value of properties (art. 1 of the CA) which is its taxable property value (art. 7 of the CA). With the Tax Reform on Patrimony, approved by DL 287/2003, of 12/11, the Code of Municipal Property Tax, the IMI applies to "the taxable property value of the properties" (art. 1) determined by assessment (art. 14).

[12] Excerpts from the Decision in process No. 50/2014-T, also referring to the Arbitral Decision in process No. 48/2013-T, as to the analysis of the discussion of the legislative proposal in the Assembly of the Republic.