Stamp Tax on Vertical Property Under Verba 28.1 TGIS: CAAD Ruling on €1M Threshold

ARBITRAL DECISION

The Arbitral Judge Francisco de Carvalho Furtado, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD), to form the Arbitral Tribunal constituted on 29 October 2015, decides as follows:

A) REPORT

1. On 29 July 2015, A…, S.A., legal entity no. …, with registered office at Rua…, nos … and …, …-… Lisbon, hereinafter identified as the Claimant, filed a request for arbitral pronouncement, pursuant to the provisions of articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter designated as RJAT), in conjunction with paragraph a) of article 99 and paragraph d) of no. 1 of article 102 of the Code of Tax Procedure and Process (CPPT), applicable by virtue of article 10, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.

2. In the aforementioned request for arbitral pronouncement, the Claimant seeks that the Arbitral Tribunal declare the illegality of the Stamp Duty assessment acts issued by the Tax and Customs Authority, with reference to the year 2014, in the total amount of € 12,776.64.

3. The request for constitution of the arbitral tribunal was accepted on 30 July 2015, by His Excellency the President of CAAD and was notified to the Tax and Customs Authority (hereinafter identified as the Respondent), on the same date.

4. The Claimant did not proceed to nominate an arbitrator, wherefore, pursuant to the provisions of article 6, no. 1 of the RJAT, the undersigned was designated by the President of the Deontological Council of CAAD to integrate the present Singular Arbitral Tribunal, the appointment having been accepted in the terms legally provided.

5. The Tribunal was constituted, pursuant to the provisions of article 11 of the RJAT, on 29 October 2015.

6. On 30 November 2015, the Respondent filed its Reply.

7. On 11 July 2016, the meeting referred to in article 18 of the RJAT was held.

8. On 29 July 2016, the Respondent filed its submissions.

9. On 4 August 2016, the Claimant filed its submissions.

The Claimant supports its claim, in summary, as follows:

a) The Claimant is the owner of an urban property, in separate ownership, composed of various units, some intended for residential use and others for commerce, with independent use, and relative to which all the prerequisites are met for horizontal ownership to have been established;

b) The Taxable Patrimonial Value of each of the units with independent use intended for residential purposes, individually considered, is less than € 1,000,000.00 (one million euros);

c) The aggregate value of the units allocated to residential use is greater than € 1,000,000.00 (one million euros);

d) The contested Stamp Duty assessments were made under item 28 and 28.1 of the General Table of Stamp Duty;

e) The Stamp Duty assessment acts were made individually in relation to each of the units with independent use;

f) The assessment acts concerned assets whose taxable patrimonial value is less than one million euros, wherefore they are illegal;

g) The Claimant considers, therefore, that, given that the Taxable Patrimonial Value of each of the units allocated to residential use with independent use, individually considered, is less than € 1,000,000.00 (one million euros), item 28.1 of the General Table of Stamp Duty is not applicable;

h) The interpretation that the Tax and Customs Authority makes of item 28 and 28.1 of the General Table of Stamp Duty violates the principle of material justice and equality, provided for in article 13 of the Constitution of the Portuguese Republic (CRP);

i) Given that this concerns units with independent use, the Tax and Customs Authority could not have added the taxable patrimonial value of each one, but rather should have evaluated and verified the prerequisites for tax assessment individually;

j) The Tax and Customs Authority should have interpreted item 28 and 28.1 of the General Table of Stamp Duty, taking into account all interpretative elements;

k) What the legislator intended with this rule was to impose tax on "luxury residential properties", which does not occur in the case at hand;

l) This interpretation and application of the Law violates the principle of contributory capacity provided for in article 104 of the CRP;

m) The tax acts violate the principle of the prevalence of substance over form, insofar as they deny the substance of the property in favour of a merely formal criterion;

n) Requests that it be recognized its right to compensatory interest;

o) Concludes by requesting the annulment of the Stamp Duty assessment acts complained of.

In its Reply, the Respondent invoked, in summary, the following:

a) The Claimant does not contest the assessment acts but only the payment of two instalments of the assessment act, contained in collection notes;

b) The Tribunal is incompetent to review the claim formulated, which is the annulment of a collection note;

c) Collection notes are not challengeable per se but only assessment acts, wherefore the Respondent should be absolved of the claim;

d) This concerns a property in full ownership, with divisions susceptible to independent use;

e) Taxation in Stamp Duty depends on the verification of two facts: residential allocation and taxable patrimonial value equal to or greater than one million euros;

f) Attempting to apply by analogy, to the full ownership regime, the horizontal ownership regime is abusive and illegal;

g) Item 28.1 of the General Table of Stamp Duty applies to parts susceptible to independent use, which do not have the same treatment as autonomous units;

h) The unity of the urban property in full ownership is not affected by the circumstance that there are divisions susceptible to independent use;

i) Any other interpretation violates the principle of legality of the essential elements of taxation provided for in article 103 of the CRP;

j) Horizontal ownership and vertical ownership are distinct legal realities to which the legislator attributed distinct fiscal consequences;

k) These distinct fiscal consequences are not arbitrary;

l) The Constitutional Court has already decided not to declare unconstitutional the rule contained in item 28 and 28.1 of the General Table of Stamp Duty (Decision no. 590/2015, rendered in case no. 542/2014);

m) The constitutional principle of equality does not imply the prohibition of all and any discrimination, but only that which appears to be arbitrary;

n) The taxation arising from Item 28 and 28.1 of the General Table of Stamp Duty complies with the criterion of adequacy as it aims at the taxation of wealth manifested in the ownership of properties of high value;

o) This is a legitimate option of the legislator;

p) The Respondent, by virtue of the provisions of article 266, no. 2 of the CRP, could never cease to apply a rule on the grounds of unconstitutionality;

q) The prerequisites for recognition of the right to compensatory interest are not met;

r) Concludes by requesting the dismissal of the action and the rejection of the claim formulated by the Claimant.

B) PRELIMINARY EXAMINATION

The parties have legal personality and capacity, are legitimate and are represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

With regard to the jurisdiction of the Tribunal, it is important to analyze and decide on the matter of the exceptions raised by the Respondent.

Although the Respondent distinguishes the exceptions raised (incompetence of the Tribunal and unimpugnability of the acts), it is found that the facts invoked to support one and the other are the same, wherefore they shall be examined here simultaneously.

The Respondent bases its claim, as regards the exception of incompetence of the Arbitral Tribunal, on the fact that a tax act was not challenged, but rather the payment of the instalments of Stamp Duty embodied in the respective collection notes.

The object of the proceedings corresponds, thus, in the view of the Respondent, not to the annulment of a tax act, but rather to collection notes issued for payment in instalments.

Now, according to the Respondent, this matter does not fall within the scope of jurisdiction of tax arbitral tribunals, provided for in article 2 of the RJAT, thus exceeding, the object of the request for arbitral pronouncement, the scope of jurisdiction of the Arbitral Tribunal.

In turn, as regards unimpugnability, the Respondent contends that, since Stamp Duty is assessed annually and consisting of a single tax act, the law does not permit the challenge per se of collection documents.

It is important, therefore, to decide:

Paragraph a) of no. 1 of article 2 of the RJAT establishes that Arbitral Tribunals are competent to examine claims for a declaration of illegality of assessment acts for taxes, self-assessment, withholding at source and payment on account.

In turn, as regards the Respondent's submission to the jurisdiction of arbitral tribunals, article 4, no. 1 of the RJAT provides that this depends on an ordinance of the members of the Government responsible for the areas of finance and justice. To this extent, the jurisdiction of the arbitral instance is thus delimited by the ordinance binding the Tax and Customs Authority to the jurisdiction of the Administrative Arbitration Centre. [1] Pursuant to article 2 of the aforementioned Ordinance, the Tax and Customs Authority binds itself to the jurisdiction of the arbitral tribunals operating in the CAAD whose purpose is to examine claims relating to taxes whose administration is entrusted to it, pursuant to no. 1 of article 2 of the RJAT, in which are expressly included claims for a declaration of illegality of assessment acts for taxes, self-assessment, withholding at source and payment on account.

It is concluded, therefore, that the tax arbitral proceedings have as their object, immediate or mediate, the tax assessment act, as an act of determination of the amount of tax to be paid (collection), by application of a rate to the taxable base. Now, the examination of the exception raised depends, therefore, on the question of whether the Claimant challenges the Stamp Duty assessment act or whether, on the contrary, it merely challenges each of the Stamp Duty instalments per se. In cases where the tax must be paid in instalments, the assessment is notified to the taxpayer together with the notification for payment of each instalment, being able to be challenged only in its entirety and not instalment by instalment. [2] In this regard, José Casalta Nabais contends that "Assessment in the broad sense, that is, as the set of all operations aimed at determining the amount of tax, comprises: 1) The subjective assessment aimed at determining or identifying the taxpayer or subject of the tax legal relationship, 2) The objective assessment through which the taxable or tax base is determined and, likewise, the rate to apply is determined, in the case of plurality of rates, 3) Assessment in the strict sense expressed in the determination of the collection through the application of the rate to the taxable or tax base, and 4) the (possible) deductions from the collection." [3] For each tax fact there shall be, in principle, a single assessment, by which the collection to be paid shall be determined.

Article 23, no. 7 of the Stamp Duty Code further provides that "in the case of tax due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually (…)" applying, with the necessary adaptations, the rules contained in the IMI Code". In the same sense, article 44, no. 5 of the Stamp Duty Code establishes that "where there is an assessment of the tax referred to in item no. 28 of the General Table, the tax is paid within the periods, terms and conditions defined in article 120 of the IMI Code".

That is, in light of the provisions of article 113, no. 2 of the IMI Code, "the assessment (…) is effected in the months of February and March of the following year", the tax being payable in three instalments, in the months of April, July and November, respectively, according to its amount. [4] In summary, from the conjunction of the legal provisions referred to above it is possible to conclude that Stamp Duty is assessed annually, payment in instalments being nothing more than a technique for collection of the tax and not a partial payment thereof. [5] Thus, the assessment is but one and only it constitutes an injurious act, susceptible to being challenged.

That said,

From the analysis of the request for arbitral pronouncement it results that the Claimant requests the constitution of the Arbitral Tribunal with a view to "(…) examination of the legality of the 14 stamp duty tax assessment acts (…)", petitioning, ultimately that "(…) the assessment acts complained of herein be annulled (…)". Now, immediately, the collection notes attached are more than 14 and the Claimant, at the beginning of the Initial Request makes express mention of "Stamp Duty Assessment Item 28.1 of the TGIS, Collection for 2014 – assessment of 20-03-2015".

That is, a declaration of illegality is requested of the tax assessment act for Stamp Duty, to which correspond the respective payment instalments.

Contrary to what the Respondent states, it is thus clear that the object of the request for arbitral pronouncement is the tax assessment act and not each of the stamp duty instalments individually considered.

This is borne out by the fact that the Claimant itself, in the delimitation of the object of the arbitral action, restricts the institution of the respective proceedings to the annulment of the Stamp Duty assessment acts relating to the year 2014, indicating as the value of the economic benefit of the claim the overall value of the assessment in the amount of € 12,776.64, which corresponds to the application of the tax rate to the collection. Thus, although the Claimant references Stamp Duty instalments, proceeding to their attachment and identification, the fact is that it does not restrict the object of the request for arbitral pronouncement to any of the Stamp Duty instalments in particular, but rather to the assessment of Stamp Duty considered as a whole.

Thus collapses the argument invoked by the Respondent regarding the incompetence of the Arbitral Tribunal, and likewise, for the same reasons, regarding the unimpugnability of the acts, wherefore the exceptions in question are judged to be without merit.

The Tribunal is, therefore, competent and is regularly constituted, pursuant to articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT.

There are no nullities or other preliminary issues affecting the entire proceedings, wherefore it is now necessary to decide the merits of the claim.

C) OBJECT OF THE ARBITRAL PRONOUNCEMENT

The following question is posed to the Tribunal, in accordance with the above description:

a) Should item 28.1 of the General Table of Stamp Duty be interpreted as providing within its scope properties with residential allocation, in full ownership with units susceptible to independent use, which are characterized by the fact that none of the divisions susceptible to independent use has a Taxable Patrimonial Value greater than € 1,000,000.00 (one million euros), but the sum of the individual Taxable Patrimonial Values is greater than the stated value of € 1,000,000.00 (one million euros)?

b) Do items 28 and 28.1 of the General Table of Stamp Duty violate the principles of equality, justice and contributory capacity?

c) Are the prerequisites met for the Claimant to be recognized the right to compensatory interest?

D) FACTS

D.1 – Facts Established

The following facts of relevance to the decision are considered established, based on the documentary evidence attached to the file:

a) The Claimant is the owner of the property registered in the urban property matrix under article … of the parish of …, municipality and district of Lisbon - cf. documents 29 and 30 attached to the Initial Request;

b) The property is composed of units susceptible to independent use, in relation to which Stamp Duty assessment acts were issued individually - cf. documents 1 to 29 attached to the Initial Request;

c) The Taxable Patrimonial Value of each of the divisions with independent use is less than € 1,000,000.00 (one million euros) - cf. documents 1 to 29 attached to the Initial Request;

d) The Claimant was notified of the Stamp Duty assessment acts relating to the year 2014 identified in collection documents nos. 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015… and 2015…; made on 20 March 2015, assessed pursuant to item 28.1 of the General Table of Stamp Duty ("TGIS");

e) The Claimant proceeded to pay the assessed Stamp Duty – document attached to the additional request.

As to the facts established, the Tribunal's conviction was based on the documentary evidence referred to, attached to the file and in the appended administrative proceeding.

No other facts capable of affecting the decision on the merits, in light of the possible legal solutions, were established and which, consequently, should be recorded as not proven.

E) ON THE LAW

As results from the relevant procedural documents, the question to be decided concerns the interpretation of Item 28.1 of the General Table of Stamp Duty, specifically on the question of whether it is intended to apply to properties with residential allocation, in full ownership, with divisions susceptible to independent use, which are characterized by the fact that none of these divisions has a Taxable Patrimonial Value greater than € 1,000,000.00 (one million euros), but the sum of the individual Taxable Patrimonial Values is greater than the stated value of € 1,000,000.00 (one million euros). In accordance with the general canons of legal hermeneutics, in particular in light of the provisions of no. 1 of article 9 of the Civil Code, applicable in the interpretation of tax law by virtue of no. 1 of article 11 of the General Tax Law, "interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied." It is, therefore, this interpretative exercise that must now be undertaken.

In the first place, in light of the rules of legal exegesis, it is important to pay attention to the literal element of the relevant rules and, first and foremost, to Item 28 of the General Table of Stamp Duty. Thus:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value registered in the matrix, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 — calculated on the taxable patrimonial value used for purposes of IMI:

28.1 — For residential property or land for construction whose construction, authorized or planned, is for residential purposes, pursuant to the IMI Code — 1%;

28.2 — For property, when the taxable persons who are not natural persons are residents 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%."

From the analysis of the literal element it is concluded that the tax fact relevant for purposes of applying item 28 of the General Table of Stamp Duty under analysis concerns the rights described, constituted over:

a) urban properties;

b) "residential";

c) whose taxable patrimonial value is equal to or greater than € 1,000,000.00;

d) such taxable patrimonial value being that used for purposes of IMI.

It is also important to bear in mind the provisions of article 23, no. 7 of the Stamp Duty Code which provides that: "In the case of tax due for 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." Similarly, no. 2 of article 67 of the Stamp Duty Code provides that "To matters not regulated in this Code concerning item no. 28 of the General Table, the provisions of the CIMI shall apply, on a subsidiary basis."

Of relevance to the decision, it is also important to bear in mind article 12, no. 3 of the Municipal Property Tax Code, which provides that "each storey or part of a property susceptible to independent use is considered separately in the registration in the matrix, which also identifies the respective taxable patrimonial value."

Finally, article 119, no. 1 of the Municipal Property Tax Code prescribes that "The services of the General Directorate of Taxes send to each taxpayer, before the end of the month prior to payment, the respective collection document, with specification of the properties, their parts susceptible to independent use, respective taxable patrimonial value and the collection imputed to each municipality of the location of the properties."

It results, therefore, from the letter of the Law that the legislator's intention was to create a tax whose incidence is assessed by the economic destination of the urban property and by the Taxable Patrimonial Value used for purposes of Municipal Property Tax, with the assessment being effected in the same terms as the aforementioned Municipal Property Tax.

Having analyzed the literal element of the legal provisions, it is now important also to analyze the teleological element (cf. articles 9, no. 1 of the Civil Code and 11 of the General Tax Law).

In order to ascertain the legislator's intention with this tax innovation, we may have recourse to the records of the debate that is at the origin of this legislative initiative. As results from the discussion of Draft Law no. 96/XII (Parliamentary Gazette, Series I, no. 9/XII/2, of 11 October 2012), which is at the origin of Law no. 55-A/2012, of 29 October, the purpose is to create a special taxation on properties of high value, intended for residential purposes. This measure is part of a set of other measures whose objective is the creation of a more just and equitable tax system, in which taxpayers are called upon to contribute according to their real contributory capacity. It was thus stated that: "This rate shall be 0.5% to 0.8%, in 2012, and 1%, in 2013, and shall apply to properties valued at equal to or greater than 1 million euros." and, likewise, "These measures, Madam President, Honourable Members of Parliament, represent a decisive step in achieving a more just and equitable tax system in the demanding circumstances the Country faces. By broadening the tax base, requiring increased effort from taxpayers holding high-value real property, as well as from company shareholders, and strengthening the powers of the tax administration in monitoring manifestations of wealth and transfers to tax havens, the Government fulfils its program and creates the conditions for a more just distribution of the tax burden." (cf. Parliamentary Gazette, Series I, no. 9, of 10 October 2012, p. 32). On the other hand, from reading the intervention of Members of Parliament from various parties it is verified that, without exception, reference is made herein to the taxation of luxury real estate property aimed at reaching the wealthy: See in this sense the intervention of Member Pedro Filipe Soares who states: "It is that luxury property does not stop at real estate property (…)." Similarly, Member Paulo Sá referred to "(…) as the PCP, on several occasions proposed, particularly regarding the taxation of luxury real estate property." (cf. Parliamentary Gazette, Series I, no. 9, of 10 October 2012, pp. 36, 38, 39 and 40).

From all of this, from the interpretative exercise carried out, it results that the legislator's intention was, unequivocally, to tax those who demonstrate having increased contributory capacity through the ownership, usufruct or holding of the right of superficies of luxury properties. Now the use of the word property by the Secretary of State immediately refers to the concept of physical space used for residential purposes by its owner/usufructuary/holder of the right of superficies. That is, it is suggested that the legislator intends that the incidence of this tax manifests itself in taxpayers who hold urban properties (properties) whose physical configuration and characteristics suggest their use, in their entirety, by the holder of the right, for residential purposes. Now this is not the case in the present proceedings, because the configuration of a property composed of units with independent use does not suggest a unitary residential use thereof, but rather a residential use division by division. It does not, therefore, appear that it was the legislator's intention to tax through Item 28 of the General Table of Stamp Duty properties in full ownership composed of divisions susceptible to independent use, where each of the divisions, individually considered, does not have a Taxable Patrimonial Value equal to or greater than € 1,000,000.00 (one million euros). The intention will be to tax urban properties with residential allocation, whose physical and economic unit has a Taxable Patrimonial Value greater than € 1,000,000.00 (one million euros).

That said, and based on the applicable legal provisions, starting from the literal analysis and going up to its spirit, it is important to determine with exactness the meaning and scope of the concept of property and its respective Taxable Patrimonial Value, which determines the incidence of Item 28 of the General Table of Stamp Duty. From the outset, it seems safe to assert that the concept of property is not univocal, neither in the various branches of law, nor in the various taxes existing, assuming in each case specific contours and characteristics (cf. GOMES, Nuno de Sá, The Fiscal Concepts of Property, Science and Fiscal Technique no. 101, May 1967). Thus, it will be important to delimit the concept for purposes of application of item 28 of the General Table of Stamp Duty. In taxes on property, only the Municipal Property Tax Code establishes, or attempts to establish, this concept, although without precisely delimiting its respective contours. Thus, and as correctly pointed out by the Supreme Administrative Court (2nd Section) in Decisions rendered in Resources 1109/11 and 1004/11, on 30 May 2012 and 27 June 2012, respectively, "In accordance with article 2 of the CIMI, the concept of property is based on three elements: an element of a physical nature (portion of territory, encompassing waters, plantations, buildings and constructions of any nature therein incorporated or situated, with a character of permanence), an element of a legal nature (requirement that the thing - movable or immovable - is part of the patrimony of a natural or legal person) and an element of an economic nature (requirement that the thing have economic value under normal circumstances). This is a concept of property that differs both from the concept of property contained in no. 3 of article 8 of the Income Tax Code (However, for Rui Duarte Morais ("On the Income Tax Code", 2nd edition, Almedina, 2008, p. 116) the Income Tax Code does not define what property is, whereby in a systematic interpretation, we understand we should resort to the notion contained in the CIMI. This is because "In reality, no. 3 of article 8 of the Income Tax Code presents the definitions of rural, urban and mixed property, for purposes of this tax. Apart from such notions, being too simplistic, they do not proceed to a rigorous delimitation of these concepts (cf. articles 3 to 6 of the CIMI), there are property realities not insertable in any one of these categories (it would be the case of properties which do not have as a physical component a portion of soil). and that contained in no. 2 of article 204 of the Civil Code. (In this context, cf. Nuno Sá Gomes, "The Fiscal Concepts of Property", in Notebooks of Science and Fiscal Technique, no. 54 (and also published in Science and Fiscal Technique nos. 101 and 102 – May and June 1967), a study which, although referring to the legislative evolution culminating in the former Property Contribution Code, maintains some relevance.)"

As to the physical and legal components, as defined by the Supreme Administrative Court, there does not appear to be any dispute. Indeed, in the case at hand, the cause of action was structured by the Claimant to the effect of arguing that the divisions susceptible to individual use have economic value, whose constitutive elements influence a Taxable Patrimonial Value of their own, which implies that they should be considered autonomously for purposes of the incidence of Item 28 of the General Table of Stamp Duty. Now, the value/economic destination of properties has been determinative of the delimitation of the various fiscal concepts of property. Indeed, article 6, no. 2 of the Municipal Property Tax Code, whose rules should be applied here as we have seen, distinguishes various concepts of urban properties in accordance with their respective economic destination. Indeed, that provision determines the concept starting from the physical structure and correcting it through its economic destination. Now, in the case at hand, there is no doubt that the divisions susceptible to independent use have economic value under normal circumstances, which is revealed in the very attribution of a concrete and autonomous Taxable Patrimonial Value. On the other hand, it is verified that the tax legislator made no distinction between horizontal and vertical ownership. Indeed, as correctly pointed out in the Arbitral Decision rendered in case no. 50/2013-T, to whose reasoning adherence is given, "in the view of the legislator, what matters is not the formal legal precision of the concrete situation of the property but rather its normal use, the purpose to which the property is intended. We further conclude that for the legislator the situation of the property in vertical or horizontal 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."

And as regards the determination of the Taxable Patrimonial Value, the criterion used by the legislator is also decisively influenced by the economic destination of the real property. That is, the legislator also gave preference to the material reality over the formal legal reality. A solution which is well understood in light of the constitutional principles inherent in articles 103, no. 1 (just distribution of wealth) and 104, no. 3 (taxation of property as a guarantee and contribution to equality among citizens), both of the Constitution of the Portuguese Republic. Now, equality among citizens is only achieved if, more than formal reality, taxation, in this case of property, is based on material truth, on the facts of real life. Now, in material terms there is no difference whatsoever between a building in horizontal ownership and a building (physical element of the concept) in vertical ownership composed of divisions with independent use. Indeed, and as has already been mentioned, tax law also makes no distinction, either at the level of registration in the matrix (articles 12 and 91 et seq of the Municipal Property Tax Code), or at the level of taxation, instructing article 119 of the Municipal Property Tax Code that tax be assessed individually on each division susceptible to independent use and based on the concrete Taxable Patrimonial Value (of each of the divisions with independent use) – which, in compliance with the Law, occurred in the case at hand. That is, based on a single building, both the registration in the matrix, the evaluation, and the assessment of Municipal Property Tax proceeds in the same manner – division by division.

As defended by José Maria Pires (Lessons on Property Taxes and Stamp Duty, Almedina, 2010) as regards the determination of the taxable patrimonial value of real properties, the legislator adopted pragmatic criteria related to the actual use of properties, such pragmatism being more evident in cases, like those at hand, of properties with autonomous parts susceptible to independent use. "In such cases the evaluation must necessarily reflect the existence of more than one allocation given that this multifunctionality is relevant in determining the value of such properties, regardless of the purpose for which they are licensed. (…) In this second case, naturally it is the actual use of each of the parts susceptible to independent use that is relevant in determining the allocation coefficient (….). Here too the legislator followed a principle of pragmatism of valuing the actual functionality of each property. (…) In truth, in such cases, the IMI Code provides that the evaluation of each of the parts susceptible to independent use be evaluated separately and, moreover, that each of such parts be registered autonomously in the property matrices. Such autonomization, although integrated in the same matrix registration number also encompasses the taxable patrimonial value, the Law providing that each such part have its own value. The Law goes even further, establishing that in the actual assessment of IMI, this must be effected separately for each of such parts susceptible to independent use, as provided for in article 119 of the CIMI" (PIRES. José Maria, Lessons on Property Taxes and Stamp Duty, Almedina 2010, pp. 84 and 85). That is, the evaluation, which is undertaken in concreto for each of the divisions with independent use, is influenced by material truth (the actual economic destination of the property) and not by formal reality.

Thus from the interpretative exercise undertaken, it results that the essential criterion of the legislator in the matter of taxes on property was that of material substance of the property. That is, more than formal legal precision what is at issue is the actual use of the buildings and their component parts. And this pragmatic criterion and of material truth manifests itself in the determination of the taxable patrimonial value which is done individually by reference to each of the divisions susceptible to individual use, as occurs in a building in horizontal ownership.

Thus, the Taxable Patrimonial Value which constitutes the incidence of Item 28, no. 1 of the General Table of Stamp Duty is that which results from the letter and ratio of the combined application of articles 2, 6, no. 1, paragraph a), 12 and 119 of the Municipal Property Tax Code and Item 28, no. 1 of the General Table of Stamp Duty or, that is, that which results from the material truth of the configuration and use of the property.

As we have already seen, the criteria for determining the Taxable Patrimonial Value relevant for assessing the incidence of Stamp Duty provided for in Item 28 of the respective General Table, must necessarily be those provided for in the Municipal Property Tax Code, not only because it is the regulation subsidiarily applicable (cf. articles 23, no. 7 and 67, no. 2 of the Stamp Duty Code), but essentially because that Item of the General Table of Stamp Duty mandates attention to "the taxable patrimonial value used for purposes of IMI". Now, having analyzed the Municipal Property Tax Code, it is verified that it makes no distinction between urban properties with residential allocation in the form of horizontal ownership and urban properties with residential allocation in the form of full or vertical ownership. Indeed, both are provided for in no. 2 of article 6 of the Municipal Property Tax Code under the designation of residential urban properties, and as we have already seen, the rules for registration in the matrix are unified. And unified too are the rules for assessment of Municipal Property Tax (and therefore of Stamp Duty provided for in item 28 of the General Table of Stamp Duty), which concerns the Taxable Patrimonial Value of each of the divisions susceptible to independent use. Now, it was precisely this which occurred in the concrete case, there being as many assessments as there are divisions with independent use allocated to residential purposes.

In light of the foregoing, determining that the Municipal Property Tax Code mandates that assessment of that tax be made individually on each of the divisions susceptible to independent use – which occurred, as we have seen -, the same criterion must be used for the assessment of Stamp Duty provided for in Item 28, no. 1 of the respective General Table. The incidence of Stamp Duty (provided for in Item 28, no. 1 of the General Table of Stamp Duty) should, therefore, be assessed in light of the Taxable Patrimonial Value of each of the divisions susceptible to independent use. Indeed, if the legal criterion of Municipal Property Tax – which is the applicable one when Item 28 of the General Table is at issue -, imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, assessments which are based on the concrete Taxable Patrimonial Value of each of the divisions with independent use, it is that concrete Taxable Patrimonial Value which is relevant for assessing the incidence of Stamp Duty.

And this conclusion, in light of the interpretative exercise undertaken, is supported both by the literal element and by the ratio of the relevant legal rules. Indeed, on the one hand, the literal element mandates attention to the Taxable Patrimonial Value used for purposes of IMI (which is the concrete taxable patrimonial value of each division with independent use), and the legislator always manifested the intention to tax the owners/usufructuaries/holders of the right of superficies of properties of high value, thus reaching those who by way of their property used for residential purposes is indicative of increased contributory capacity.

In light of what has been set forth, it is important to assess whether any of the divisions susceptible to independent use has a taxable patrimonial value greater than € 1,000,000.00 (one million euros). From the evidence adduced at trial it results that this is not the case, wherefore, inevitably, it must be concluded to the illegality of the assessment acts contested due to error as to the prerequisites and violation of article 1, no. 1 of the Stamp Duty Code and Item 28, no. 1 of the General Table of Stamp Duty, with the declaration of illegality and annulment of the same being necessary, as requested.

Finally, the Claimant requests reimbursement of the amounts paid, increased by compensatory interest, pursuant to the provisions of article 43 of the General Tax Law. Against this claim the Respondent objects, not only because it considers the assessment acts executed to be legal, but also because it merely complied with the Law, which it contends is objective and without margin for discretion, whereby no fault can be attributed to it. Let us examine this:

Article 43 of the General Tax Law provides that the taxpayer shall have the right to be compensated by compensatory interest whenever the undue payment of tax is attributable to error of the services.

"The error attributable to the services which carried out the assessment is demonstrated when they proceed with a gracious complaint or challenge of that same assessment and the error is not attributable to the taxpayer (for example, there will be annulment due to error attributable to the taxpayer when the assessment is based on erroneous factual prerequisites, but the error is based on an erroneous indication in the statement which the taxpayer submitted)." (Campos, Diogo Leite de; Rodrigues, Benjamim Silva, Sousa, Jorge Lopes de, General Tax Law, Annotated and Commented, 4th Ed. 2012 Encounter of Writing, Lisbon, p. 342). Also the Supreme Administrative Court concretizes the concept of error attributable to the services (although with reference to article 78 of the General Tax Law, but which has full application here) as any illegality independent of proof of fault of any of the persons or entities that comprise it. "As is mentioned in Decision of 12/12/2001, case 26.233: "where there is an error of law in the assessment, due to application of national rules which violate EU law and it being carried out by the services, it is to the tax administration that this error is attributable, whenever the erroneous application of the law is not based on any information from the taxpayer. On the other hand, this attribution to the services is independent of the fault of any of its officials in effecting an assessment affected by error" as "the tax administration is generally obliged to act in accordance with the law (articles 266°, no. 1 of the CRP and 55° of the General Tax Law), whereby, independent of proof of the fault of any of the persons or entities that comprise it, any illegality not resulting from action by the taxpayer shall be attributable to the fault of the services themselves". Cf., in the same sense and throughout, Decisions of 06/02/2002 case 26.690, 05/06/2002 case 392/02, 12/12/2001 case 26.233, 16/01/2002 case 26.391, 30/01/2002 case 26.231, 20/03/2002 case 26.580, 10/07/2002 case 26.668." (cf. Decision of the Supreme Administrative Court – 2nd Section, rendered in Case no. 1009/10, on 22 March 2011, being Rapporteur His Excellency Judge Counsellor Dr. Isabel Marques da Silva, available at:

http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/b1e7cc04381b03af802578620046b202?OpenDocument&ExpandSection=1).

In the case at hand, the Stamp Duty assessment acts are illegal, because carried out with error of fact and of law and offense against the applicable legal rules and principles, and such error does not emerge from any conduct by the Claimant, whereby it is attributable to the Services.

In light of the foregoing, the claim for condemnation of the tax administration to pay to the Claimant compensatory interest pursuant to the provisions of article 43, no. 1 of the General Tax Law is warranted.

DECISION

In light of the foregoing, this Arbitral Tribunal decides to render judgment in full in favor of the claim and consequently: declare the illegality of the Stamp Duty assessment acts, annulling them; condemn the Respondent to reimburse the tax unduly paid increased by compensatory interest, and; condemn the Respondent to pay the costs.

The value of the action is set at € 12,776.64 (twelve thousand seven hundred and seventy-six euros and sixty-four cents), pursuant to the provisions of article 97-A, no. 1, paragraph a) of the CPPT, applicable by virtue of article 29, no. 1, paragraph a) of the RJAT.

The value of the Arbitration Fee is set at € 918.00, pursuant to Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Respondent, pursuant to articles 12, no. 2, 22, no. 4 of the RJAT and 4 of the aforementioned Regulation.

Let notification be made.

Lisbon, 15 September 2016.

The Arbitral Judge,

Francisco de Carvalho Furtado

Text prepared by computer, pursuant to the provisions of no. 5 of article 131 of the Code of Civil Procedure, applicable by referral of paragraph e) of no. 1 of article 29 of the RJAT.

The preparation of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

[1] Cf. Ordinance no. 112-A/2011, of 22 March.

[2] Cf. arbitral decision rendered in case no. 27/2015-T, available at www.caad.org.pt.

[3] Cf. "Tax Law", 3rd Edition, Almedina, 2005, p. 318 by virtue of the arbitral decision rendered in case no. 736/2014-T, available at www.caad.org.pt.

[4] Cf. paragraph c) of no. 1 of article 120 of the IMI Code.

[5] In this sense, see the arbitral decision rendered in case no. 408/2014-T, available at www.caad.org.pt.