Stamp Tax on Vertical Property Under Verba 28.1 TGIS: CAAD Arbitration Case 529/2016-T

ARBITRAL DECISION

1. Report

1.1

"A..., Lda.", hereinafter referred to as the "Applicant", tax identification number..., with registered office at..., no..., in Lisbon, requested the constitution of a singular arbitral tribunal, under the combined provisions of article 2, no. 1, paragraph a) and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT") and articles 1 and 2 of Order no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (AT) is the respondent.

1.2

The request for arbitral determination, presented on 30 August 2016, has as its object the declaration of illegality and consequent annulment of the stamp tax (IS) assessments hereinafter referenced, provided for in item 28.1 of the respective General Table of Stamp Tax (TGIS), in the amount of €28,589.50 (twenty-eight thousand, five hundred and eighty-nine euros and fifty cents), relating to the year 2015.

1.3

The Applicant chose not to appoint an arbitrator.

1.4

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the AT on 19 September 2016.

1.5

The undersigned was appointed by the President of the Deontological Council of CAAD as arbitrator of the singular arbitral tribunal, in accordance with the provisions of article 6 of RJAT, and notification of acceptance of the appointment was communicated within the applicable timeframe.

1.6

On 7 November 2016, the Parties were notified of such appointment and did not object to it, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the CAAD Deontological Code.

1.7

Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11 of RJAT, the singular arbitral tribunal was constituted on 22 November 2016.

1.8

The Respondent was notified, by arbitral order of 22 November 2016, to, pursuant to article 17, no. 1 of RJAT and within the period of 30 days, present its answer and, if desired, request the production of additional evidence.

1.9

It was further notified to present, within the same timeframe, the administrative file (PA) referred to in article 111 of the Code of Tax Procedure and Process (CPPT).

1.10

On 21 December 2016, the Respondent presented its Answer, defending itself by exception and by challenge, respectively arguing for the merit of the dilatory exception invoked (non-challengeability of the object of the request for arbitral determination) with the consequent dismissal of the action, or, subsidiarily, for the rejection of the request for arbitral determination.

1.11

It did not attach to the proceedings the respective Administrative File (PA).

1.12

Considering that the Parties did not request the production of any evidence other than documentary evidence and that the Applicant attached such to the request for arbitral determination, the Arbitral Tribunal, in light of the principles of autonomy in the conduct of proceedings, celerity, simplification and procedural informality, inherent in no. 2 of articles 19 and 29 of RJAT, by order of 21 December 2016, dispensed with the holding of the meeting provided for in article 18 of the same decree-law as well as the presentation of arguments by the Parties.

1.13

The date of 30 December 2016 was set for the pronouncement of the respective final arbitral decision.

2. Procedural Sanitation

2.1

The Parties have legal personality and capacity, are legitimised and are regularly represented (articles 4 and 10, no. 2 of RJAT and article 1 of Order no. 112-A/2011, of 22 March).

2.2

The proceedings do not suffer from any nullities.

2.3

The Arbitral Tribunal is regularly constituted and has material competence to know and decide the request, cf. article 2, no. 1, paragraph a) of RJAT.

2.4

There are no other circumstances that prevent knowledge of the merits of the case.

3. Position of the Parties

3.1 Of the Applicant

The Applicant supports its request for arbitral determination, summarily, as follows:

It alleges that the stamp tax assessments which are the object of the request for arbitral determination are illegal due to violation of the rule of incidence of item 28.1 of the TGIS.

It considers that, as the property is in vertical ownership, divided into twenty-one floors or divisions of independent use (twenty of which with residential allocation), the AT cannot, as it did, sum the taxable property values (VPT) of floors and divisions capable of independent use, given that none of these floors or divisions, by itself, has a VPT equal to or exceeding €1,000,000.

And that the rule of incidence, in the interpretation put into practice by the AT, is unconstitutional due to violation of the principle of equality.

It concludes, arguing for the merit of the request for arbitral determination and thereby for the annulment of the challenged assessments with all the consequences provided for in law.

3.2 Of the Respondent

Defending itself by exception, it considers that the tax assessment acts contained in the collection notices which are the object of the request for arbitral determination are not autonomously challengeable, thus occurring the dilatory exception provided for in no. 2 and in paragraph i), no. 4, of article 89 of the Code of Administrative Court Procedure (CPTA), subsidiarily applicable by paragraph c), no. 1, article 29 of RJAT, which should prevent knowledge of the merits by the tribunal and result in the dismissal of the AT from the action.

Defending itself by challenge, it invokes the following arguments:

That the request for declaration of illegality and consequent annulment of the contested assessments should be judged without merit, given that it argues that although the assessment of IS, under the conditions provided for in item 28 of the TGIS, is processed in accordance with the rules of the Code of Municipal Property Tax (CIMI), the truth is that the legislator reserves aspects that require the necessary adaptations.

It understands that such is the case of properties in full ownership, even if with floors or divisions capable of independent use, because, although the IMI is assessed with respect to each part capable of independent use, for the purposes of IS the property is relevant in its entirety.

It concludes, arguing for the complete rejection of the request for arbitral determination and dismissal of the Respondent, since the contested assessments embody a correct interpretation and application of law to the facts, suffering from no defect of violation of law.

4. Subject Matter of the Dispute

The question which constitutes the thema decidendum reduces to ascertaining whether, in a property not subject to the regime of horizontal property ownership, the subjection to stamp tax, pursuant to item 28.1 of the General Table of Stamp Tax, is determined by the taxable property value (VPT) corresponding to each one of the parts of the property, economically independent and with residential allocation, as the Applicant argues, or whether, on the contrary, it is determined by the global VPT of the property, which would correspond to the sum of all the VPTs of the floors or divisions of independent use and with residential allocation that comprise it, as the AT sustains.

5. Grounds

5.1 Proven Facts

As relevant to the appreciation and decision of the substantive question raised, the following facts are established as proven:

5.1.1

The Applicant is the owner of the urban property, located at Avenue..., no..., in Lisbon, registered in the land register of the parish of..., municipality of Lisbon, under article..., constituted by twenty-one floors or divisions with independent use (full or vertical ownership), of which twenty are allocated to residential use and one, the ground floor, to storage and storerooms (doc. no. 2).

5.1.2

The property is not constituted under the regime of horizontal property ownership, provided for in articles 1414 et seq. of the Civil Code.

5.1.3

The taxable property value (VPT) of the property, in the global amount of €2,958,550.00, was determined separately for the various floors or divisions with independent use, in accordance with the provisions of article 7, no. 2, paragraph b) of CIMI.

5.1.4

The VPT of the floors or divisions with independent use, intended for residential use, amounts to €2,858,950.00.

5.1.5

Separately, the VPT of each floor or division with independent use is less than €1,000,000.00, varying between €126,510.00 and €163,210.00.

5.1.6

The stamp tax assessments (item 28.1 of the TGIS) referred to in the proceedings relate to the year 2015 and were made on 5 April 2016, for payment in three installments during the months of April, July and November 2016, containing the respective collection notices the following identification elements, according to the documents attached to the request for arbitral determination (doc. no. 1).

5.2 Unproven Facts

There are no facts relevant to the decision of the case that should be considered unproven.

5.3 Motivation

As regards the factual matter, the Tribunal does not have the duty to pronounce on all alleged facts, instead having the duty to select those relevant to the decision, taking into account the ground (or grounds) of claim that supports the request formulated by the plaintiff [(cf. articles 596, no. 1 and 607, nos. 2 to 4 of the CPC, applicable ex vi of article 29, no. 1, paragraphs a) and e) of RJAT)] and record whether it considers it proven or unproven (cf. article 123, no. 2 of CPPT).

According to the principle of free assessment of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceedings and in accordance with its experience of life and knowledge of persons (cf. article 607, no. 5 of the CPC). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents, cf. article 371 of the Civil Code) does the principle of free assessment of evidence not dominate in the appreciation of the evidence produced.

Thus, the Tribunal's conviction was based on the body of documentation attached to the proceedings as well as on the positions assumed by the Parties.

5.4 Law (Grounds)

Because the dilatory exception invoked may result in dismissal of the action, cf. article 576, no. 2 of the Code of Civil Procedure (CPC), it should be known of officiously and as a priority (article 578 of the CPC).

In fact, in accordance with the provisions of article 608 of the Code of Civil Procedure (CPC), applicable by virtue of the provision in paragraph e), no. 1, article 22 of RJAT, "(…) the judgment knows, in the first place, of procedural questions that may determine the dismissal of the action, according to the order imposed by their logical precedence" and the judge must "resolve all questions that the parties have submitted to its appreciation, except those whose decision is prejudiced by the solution given to others (…)"

Questions to be decided:

• On the non-challengeability of the object of the request for arbitral determination; and

• On the illegality of the challenged assessments.

On the non-challengeability of the object of the request for arbitral determination -

For the Respondent, the Applicant's claim consists in the declaration of illegality and annulment of the acts of assessment of stamp tax for the year 2015 (item 28.1 of the TGIS), relating to the first installment, whose payment period deadline occurred in the month of April 2016 and to which correspond the respective collection documents.

Thus, the question to be appreciated consists in ascertaining whether the Applicant challenges the acts of assessment of stamp tax or whether, on the contrary, it merely challenges one of the installments, in casu the first of three installments, insofar as the dates and the periods for challenge are differentiated.

If this were the Applicant's claim, which, it should be said immediately, does not follow from the wording of the petition or from its operative part, it would be pertinent to have regard to the operations of assessment in the broad sense and in the strict sense[1]:

"Assessment in the broad sense, that is, as the set of all operations intended to determine the amount of tax, comprises:

1 - the subjective assessment intended to determine or identify the taxpayer or passive subject of the tax legal relationship,

2 - the objective assessment through which the collectible or taxable matter of the tax is determined,

3 - assessment in the strict sense expressed in the determination of the tax through the application of the rate to the collectible or taxable matter, and

4 - the (eventual) deductions from the tax".

As follows from the notion of assessment transcribed above, for each tax fact there will be, in principle, a single assessment by which the tax to be paid will be determined, an understanding which follows from the provision in article 23, no. 7, of the CIS, according to which "in the case of 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 Code of IMI".

In turn, in accordance with the provision in article 113, no. 1 of CIMI, "The tax is assessed annually, in relation to each municipality, by the central services of the Directorate-General of Taxes[2], based on the taxable property values of the properties and in relation to the passive subjects listed in the land registers on 31 December of the year to which it relates", and the assessment is effected in the months of February and March of the following year, cf. no. 2 of the same legal provision, and the tax should be paid in one, two or three installments, respectively in the months of April, April and November or April, July and November, depending on whether its amount is equal to or less than €250, more than €250 but equal to or less than €500 or more than €500, cf. paragraphs a), b) and c) of no. 1 of article 120 of CIMI.

Article 119, no. 1 of CIMI further states that "The services of the Directorate-General of Taxes send to each passive subject, before the end of the month prior to that of payment, the respective collection document, with itemization of the properties, their parts capable of independent use, respective taxable property value (…)".

From the fact that the IS, provided for in item 28 of the TGIS, is paid in installments, it does not follow that several assessments have been made.

In fact, the tax assessment is only one and only it will constitute a harmful act, susceptible of being the object of a single challenge, so that when the law provides for its payment in various installments, staggered in time, the annulment of the tax act will have consequences relating to all of them, terminating the obligation to pay or imposing the obligation to return the amounts of tax already paid by the passive subject.

What the law does not provide for, neither in arbitral proceedings nor in judicial challenge proceedings, is the claim to annul payment of isolated installments of tax, since such effect will only follow from the annulment of the tax assessment act which, as we have seen, consists in the quantification of the total amount to be paid and which is only and solely a single tax act.

Thus, from the above it follows that the Stamp Tax collection notices, object of the present request for arbitral determination, are not autonomously challengeable, since they do not constitute acts of assessment of taxes (and, therefore, should be considered non-challengeable in light of the applicable legislation), but only one of the installments into which the payment of such taxes may be made.

In this sense, see, inter alia, the arbitral decisions handed down in proceedings nos. 120/2012-T, 408/2014-T, 726/2014-T; 736/2014-T, 90/2015-T and 668/2015-T.

The following excerpt is transcribed from this latter arbitral decision:

"(…) In fact, what must be the object of challenge is the tax assessment act and not the collection to which it gives rise, for, following closely the arbitral decisions cited by the Respondent, 'the installments of a tax assessment are not autonomously challengeable, as they constitute portions of a global payment, originating from the same obligation'. And these installments are not autonomously subject to review, as the Respondent rightly notes. Their relevance will be determined, for the purposes of the period for presenting the challenge to the act, which, pursuant to article 102, no. 1, paragraph a) of CPPT, applicable ex vi the provision in article 10, no. 1, paragraph a) of RJAT, only runs from the end of the payment period of the tax contained in the last installment collected.

Given the above, and considering what is stated, the question – this Arbitral Tribunal understands – will not be so much about defining whether the act challenged in the present proceedings is an installment of the assessed tax or the assessment act itself. For this Arbitral Tribunal, and in light of the justification stated above, the challenge should always focus on the tax assessment, as a whole (…)".

Also, the jurisprudence of the administrative and tax courts has been deciding in the same sense, as shown, inter alia, by the judgment of the Central Administrative Court South of 27-10-2016, handed down in Process no. 09711/16, from which the following part is transcribed:

"(…) In the concrete case, it should first be said that the payment installments (two or three, depending on the total amount of Stamp Tax annually assessed) of a Stamp Tax Assessment, effected under article 28, of the T.G.I.S., are not autonomously subject to review as they originate from a single annual obligation (cf. article 23, no. 7, of the C.I.Seal), and the division of an annual assessment into installments is merely a revenue collection technique (cf. article 120, no. 1, of the C.I.M.I., 'ex vi' of article 67, no. 2, of the C.I.Seal; A. Braz Teixeira, Principles of Tax Law, I volume, 3rd edition, Almedina, 1995, p. 243 et seq.).

Despite what has just been mentioned, the fact is that, in the initial petition which gave rise to the arbitral process, the company in question sets as its object the second installments of Stamp Tax assessments, relating to the year 2014 and in the total amount of €10,337.92, affecting the real estate listed in the urban land register of the parish of ..., municipality of ..., under the numbers … and …(cf. p.i. attached at fls.2 to 7 of the arbitral process appended on CD). Position which it reaffirms in the reply to the exception raised by the Tax Authority and attached at fls.113 to 115 of the arbitral process appended on CD".

However, in the case sub judice, there is no doubt that the Applicant's claim consists in the declaration of illegality and annulment of the tax assessment acts of stamp tax for the year 2015 (item 28.1 of the TGIS), referred to in the collection notices which it attaches to the initial petition and not of each of the installments of stamp tax individually considered.

In fact, this is what clearly results from the introduction of the request for arbitral determination, when it states: "(…) notified of the twenty acts of assessment of stamp tax of 2015, in the total value of €28,589.50, all issued on 5 April 2016 (cf. doc. no. 1 and which hereby gives as fully reproduced for all purposes), comes, pursuant to (…) to derive CHALLENGE".

Also in articles 1, 12, and 37 of the petition, the Applicant's claim is evident, embodied in its operative part, when it states: "(…) the present action should be judged entirely proven and meritorious, and through this declared illegal and annulled the twenty seal assessments here challenged, with all legal consequences".

Finally, it should be noted that the value of the case, determined pursuant to paragraph a), no. 1, article 97-A of CPPT, corresponds to all twenty assessments made, in the amount of €28,589.50, and not to the value of the first or any other installment relating to each of the challenged assessments.

In these terms, the invoked exception of non-challengeability of the object of the request for arbitral determination is judged to be without merit.

On the illegality of the challenged assessments -

Law no. 55-A/2012, of 29 October, amended article 1 of the Stamp Tax Code, and added to the General Table of Stamp Tax, Item 28, creating a new taxable reality, embodied in the ownership, usufruct or surface right of urban properties whose taxable property value contained in the land register, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or exceeding €1,000,000.00.

As the Supreme Administrative Court has repeatedly stated[3], "The concept of 'urban property with residential allocation' was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Code of IMI, to which no. 2 of article 67 of the Stamp Tax Code (also introduced by that Law) subsidiarily refers. And it is a concept which, probably due to its imprecision – a fact all the more serious given that it is in function of it that the objective scope of the new taxation is defined –, had a short life, as it was abandoned upon the entry into force of the Law of the State Budget for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to that item no. 28 of the General Table, and which now defines its objective scope of incidence through the use of concepts that are legally defined in article 6 of the Code of IMI.

From the letter of the law nothing unequivocal follows, indeed, for it itself, by using a concept which it did not define and which was also not defined in the statute to which it referred subsidiarily, lent itself, unnecessarily, to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its "spirit", ascertainable in the statement of reasons of the bill of law which is at the origin of Law no. 55-A/2012 (Bill no. 96/XII – 2nd, Diary of the Assembly of the Republic, series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more follows than the concern to raise new tax revenues from sources of wealth "more spared" in the past to the voracity of the Tax Authority than labor income, in particular capital income, securities gains and property, reasons which bring no relevant contribution to clarifying the concept of "urban properties with residential allocation", as they take it as given, without any concern to clarify it. Such clarification appears to have emerged – as informed in the Arbitral Decision pronounced on 12 December 2013, in process no. 144/2013-T, available in the CAAD database –, upon presentation and discussion in the Assembly of the Republic of that bill, in the words of the State Secretary for Tax Affairs, who is reported to have stated explicitly, as collected from the Diary of the Assembly of the Republic (DAR I Series no. 9/XII – 2, of 11 October, p. 32) that: 'The Government proposes the creation of a special tax on high-value urban residential properties. This is the first time in Portugal that a special tax is created on high-value properties intended for housing. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will affect houses valued at equal to or more than 1 million euros" (emphasis ours), from which it is clear that the reality intended to be taxed is, after all, and despite the terminological imprecision of the law, "urban residential properties", in current language "houses", and not other realities".

As was stated in the decision rendered in Process no. 724/2014-T of the Administrative Arbitration Center (CAAD)[4], which we endorse, "Consulting the CIMI it can be verified that its article 6 only indicates the different species of urban properties, among which it mentions residential ones (…)

From this we can conclude that, in the legislator's view, the legal-formal rigor of the concrete property situation does not matter but rather its normal use, the purpose for which the property is intended.

We further conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between them. What matters is the material truth underlying its existence as an urban property and its use.

(…) Using the criterion which the law itself introduced in article 67, no. 2 of the Stamp Tax Code, 'to matters not regulated in this code relating to item 28 of the General Table the Code of IMI is subsidiarily applied'.

That is, taking into account that the registration in the land register of properties in vertical ownership, for the purposes of the IMI Code, follows the same rules of registration of properties constituted in horizontal ownership, and the respective IMI as well as the new IS is assessed individually in relation to each of the parts, it does not appear to this tribunal that there exists any doubt that the legal criterion for defining the incidence of the new tax must be the same.

In this context, if the law requires, with respect to IMI, the issuance of individualized assessment notices for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it will require, in the same terms, with respect to the rule of incidence of Item no. 28 of the TGIS.

Therefore, the IS, within the scope of Item no. 28 of the TGIS, could only affect a certain fraction if it, possibly, had a VPT exceeding €1,000,000.00.

And, moreover, that was even the understanding adopted by the ATA.

In fact, this (ATA) also issued individualized assessment notices, relating to each one of the fractions capable of autonomous use, demonstrating that, in its opinion, the said fractions, despite not being legally constituted in horizontal ownership, would be, for all purposes, independent from each other.

However, the ATA overlooked that it could not, by virtue of the framework previously stated, proceed to sum the individual VPTs of the fractions previously mentioned, aiming at a value that would already fall within the scope of incidence of Item no. 28 of the TGIS.

This when the legislator itself established a different rule within the scope of the Code of IMI which, as previously referred, is the Code applicable to matters not regulated in the Stamp Tax Code, with regard to Item no. 28 of the TGIS.

In summary, the criterion established by the ATA, of considering the value of the sum of the individual VPTs attributed to the parts, floors or divisions with independent use, taking advantage of the fact that the property is not constituted under the regime of horizontal ownership, does not find, in the eyes of this tribunal, legal support, being, in particular, contrary to the criterion applicable in the IMI sphere and, by referral (pursuant to what is mentioned above), in the IS sphere.

In this context, this tribunal considers that the criterion defended by the ATA violates the principles of legality and tax equality, and, likewise, the prevalence of material truth over legal-formal reality.

In parallel, note that article 12, no. 3 of the IMI Code makes no distinction as to the regime of properties that are in horizontal or vertical ownership.

As such, and since if the property were under the regime of horizontal ownership, none of its residential fractions would be subject to the incidence of the new tax, the ATA cannot treat materially equal situations differently.

In this regard, see what was said on this subject in the Arbitral Decision rendered in Process no. 132/2013-T, of 16 December, whose understanding this tribunal endorses.

"Indeed, it makes no sense to distinguish in the law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Furthermore, to distinguish, in this context, between properties constituted in horizontal ownership and in full ownership would be an 'innovation' without associated legal support, especially since, as has been stated here, nothing suggests, neither in item no. 28, nor in the provision of the CIMI, a justification for that particular differentiation.

Note, by way of example, what article 12, no. 3, of the CIMI states: each floor or part of property capable of independent use is considered separately in the land register entry, which also discriminates the respective taxable property value.

The uniform criterion which is required is, thus, the one which determines that the incidence of the rule in question only takes place when any of the parts, floors or divisions with independent use of property in horizontal or full ownership with residential allocation, possesses a VPT exceeding €1,000,000.00.

Setting as the reference value for the incidence of the new tax the global VPT of the property in question, as the now-respondent intended, finds no basis in the applicable legislation, which is the CIMI, given the referral made by the cited article 67, no. 2 of the Stamp Tax Code.

(…) Furthermore, admitting the differentiation of treatment could produce results incomprehensible from the legal point of view and detrimental to the objectives which the legislator said it had for adding item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now-respondent: a citizen who is the owner of a property constituted in full ownership intended for residential use, with the global value of autonomous units equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics of the previous one but which has been constituted in horizontal ownership, also with the global value of autonomous fractions equal to or exceeding €1,000,000.00 and the VPT of each one less than €1,000,000.00, will not be subject to taxation under the terms of the mentioned item no. 28.

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for taxation purposes, the respective VPTs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each of its 20 fractions possesses a VPT less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the global VPT exceeded that value; whereas another citizen with identical 20 fractions distributed among 5, 10 or 20 properties would not be subject to any taxation under the terms of the mentioned item no. 28.

If this line of reasoning makes sense – thus justifying, therefore, the non-aggregation of VPTs of fractions of properties in horizontal ownership – no plausible reason is seen for why the same should not be applied to the autonomous units of properties in full ownership.

Observing now the case under analysis, it is ascertained that the VPTs of the floors (autonomous units) of the property with residential allocation vary between (…), so that any one of them is less than €1,000,000.00.

From this it is concluded, as a result of what was stated, that upon the same the IS referred to in item no. 28 of the TGIS cannot be levied, being, therefore, illegal the acts of assessment challenged by the applicant".

A final point worth highlighting (notwithstanding the previous framework being sufficient to recognize the illegality of the assessment acts practiced by the ATA), is based on the understanding recommended both by the legislator and by the government itself, upon the addition of Item no. 28 to the TGIS.

In this regard, let us focus now on the arbitral decision rendered in process no. 48/2013-T, of 9 October, which analyzes, extensively, the objectives underlying the addition of the said item.

"Law no. 55-A/2012, of 29/10, has no preamble, hence from the same it is not possible to extract the legislator's intention.

This law of the Assembly of the Republic originated from bill no. 96/XII (2nd), which, in its statement of reasons speaks of the introduction of tax measures inserted in a broader set of measures to combat the budget deficit.

In the statement of reasons of the said bill, it is stated that, 'these measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices to comply with the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just by those who live on their labor income. In accordance with this goal, this decree expands the taxation of capital and property, equitably covering a broad set of sectors of Portuguese society'.

In that statement of reasons it is also stated that, in addition to the increase in taxation of capital income and securities gains, a tax is created under stamp tax affecting high-value urban residential properties whose taxable property value is equal to or exceeding one million euros.

That is, in such statement of reasons, it is also not clarified what is understood by urban properties with residential allocation.

In his intervention in the Assembly of the Republic, in the presentation and discussion of the said bill, the State Secretary for Tax Affairs stated the following:
'The Government has elected as the priority principle of its tax policy social equity.

This is even more important in times of rigor as a way to ensure fair distribution of the tax effort.

In the demanding period that the country is going through, during which it is obliged to comply with the program of economic and financial assistance, it becomes even more pressing to assert the principle of equity. It cannot always be the same – employees and retirees – bearing the tax burden.

For the tax system to be fairer it is decisive to promote the expansion of the tax base requiring increased effort from taxpayers with higher incomes and protecting in this way Portuguese families with lower incomes.

For the tax system to promote more equality it is fundamental that the effort of budget consolidation be shared by all types of income, covering with special emphasis capital income and high-value properties. This matter, it is recalled, was extensively addressed in the Constitutional Court judgment.

Finally, for the tax system to be more equitable, it is crucial that all be called to contribute according to their tax capacity, giving the tax administration enhanced powers to monitor and inspect situations of fraud and tax evasion.

In this sense the Government presents today a set of measures that effectively strengthen a fair and equitable distribution of the adjustment effort among a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on high-value urban properties exceeding 1 million euros; the increase in taxation on capital income and securities gains and the strengthening of rules to combat fraud and tax evasion.

First, the Government proposes the creation of a special tax on high-value urban residential properties. This is the first time in Portugal that a special tax is created on high-value properties intended for housing. This tax will be 0.5% to 0.8% in 2012, and 1%, in 2013, and will affect houses valued at equal to or more than 1 million euros. With the creation of this additional tax the tax effort required from these owners will be significantly increased in 2012 and 2013'".

Following this, it is necessary to bring together the conclusions which allow, without room for doubt, to decide on the subject under discussion (that is, whether, for the purposes of applying Item no. 28 of the TGIS, in cases where a property with several autonomous fractions, capable of independent use, is not constituted in horizontal ownership, the relevant VPT is determined by the sum of the individual VPTs, or, alternatively, is individually considered).

In this sense, it should first be noted that the present issue is, from the outset by force of article 67, no. 2 of the Stamp Tax Code, subject to the rules of the Code of IMI, "to matters not regulated in this code relating to item 28 of the General Table the CIMI is subsidiarily applied".

As such, and as has been mentioned so many times, in the understanding of this tribunal, the mechanism for determining the relevant VPT for the purposes of the said item, is that which is established in the Code of IMI.

Now, article 12, no. 3 of the Code of IMI establishes that "each floor or part of property capable of independent use is considered separately in the land register entry, which also discriminates the respective taxable property value".

With the legislator downplaying, in the terms previously mentioned, any prior constitution of horizontal or vertical ownership.

In fact, for this (legislator), what matters is the material truth underlying its existence as an urban property and its use.

It should be noted that the ATA itself appears to agree with the stated criterion, which is why the assessments it issues are very clear in their essential elements, from which it follows that the incidence value is that corresponding to the VPT of each of the floors and the assessments are individualized.

Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it has clearly established the criterion, which must be single and unequivocal, for the definition of the rule of incidence of the new tax.

Thus, the IS would only be subject to incidence (within the scope of Item no. 28 of the TGIS) if any of the parts, floors or divisions with independent use presented a VPT exceeding €1,000,000.00.

The ATA cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in the IMI sphere (and, as previously mentioned, this is the code applicable to matters not regulated regarding Item no. 28 of the TGIS).

In conclusion, the current legal regime does not impose the obligation to constitute horizontal ownership, so the ATA's conduct results in arbitrary and illegal discrimination.

In fact, the ATA cannot distinguish where the legislator itself chose not to, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in article 103 of the Constitution of the Portuguese Republic, and also the principles of tax justice, equality and proportionality.

In the case in question, the property (or properties) in question was (were), at the date relevant to the facts, constituted in full ownership and had […] fractions with independent use, as results from the documents […].

Given that none of these fractions has a taxable property value equal to or exceeding €1,000,000.00, as results from the documents attached to the proceedings, it is concluded that the legal presupposition of incidence is not met".

In the same sense we now transcribe part of the decision rendered in Process no. 512/2014-T, of 20-01-2015, of the Administrative Arbitration Center (CAAD)[5], with which we also agree:

"In the face of the positions in confrontation, one will begin by noting that the AT is right to refer that a property constituted in horizontal ownership is a distinct legal-tax reality from an urban property in 'full ownership' or 'vertical ownership'.

To this the rules of interpretation oblige, which have the text as a starting point, with the function of eliminating any meaning that has no support in the letter of the law[6].

From the outset, because no. 4 of article 2 of CIMI, establishes a legal fiction that each of the autonomous fractions of a property constituted in horizontal ownership embodies a property, while a part of independent use, of an urban property not constituted in horizontal ownership, continues to be only that – a part of a property and not a property, as, indeed, the AT recognizes in its arguments, by stating that 'horizontal ownership and vertical ownership are differentiated legal institutes'.

This alone would be enough to conclude that, given the legislator fixed distinct tax qualifications for legally differentiated realities (properties and parts of properties), it will not be legitimate for the applicator of the norm, in the name of the 'necessary adaptations' to which article 23, no. 7 of the Stamp Tax Code (CIS) refers, to create a new rule of incidence of that tax, determining the taxation of parts of properties, as this is a matter submitted to the principle of tax legality, inherent in article 103, no. 2, of the Constitution of the Portuguese Republic (CRP), according to which the essential elements of taxes – the incidence, the rate, tax benefits and taxpayer guarantees – are established by law of the Assembly of the Republic, except by legislative authorization to the Government (article 165, no. 1, paragraph i) and no. 2, of the CRP).

Now, item 28 of the TGIS, added by article 4 of Law no. 55-A/2012 of 29 October, came to determine, in its original wording, applicable to the case in question, the objective incidence of stamp tax on urban properties with residential allocation (and not, as the AT understands, on parts of properties), whose taxable property value, for IMI purposes, is equal to or exceeding €1,000,000.00, by establishing that stamp tax is levied on:

'28 — Ownership, usufruct or surface right of urban properties whose taxable property value contained in the land register, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or exceeding €1,000,000 — on the taxable property value used for IMI purposes:

28.1 — Per property with residential allocation — 1%;

28.2 — Per property, when the passive subjects that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the order approved by the Finance Minister — 7.5%.'

Also here the literal element of the norm must be the starting point for its interpretation and, "in the absence of other elements that induce the choice of the less immediate meaning of the text, the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely to its legal-technical meaning, in the assumption (not always exact) that the legislator knew how to express his thought correctly[7]".

In support of the thesis that the relevant VPT for the incidence of Stamp Tax of item 28.1 of the TGIS, is the global VPT of the property not constituted in horizontal ownership, the AT argues that all and each of its divisions of independent use were 'assessed in accordance with article 12, no. 3, of the C.I.M.I', a rule which, according to the Respondent, corresponds to the 'body of article 232, rule 1, of the Code of Landed Property Contribution and Tax on Agricultural Industry (…), which provided that each dwelling or part of property be taken automatically (sic) for the purposes of determining the collectible income on which the assessment should be levied", in which case "the collectible income had necessarily to correspond to the sum of the rent or rental value of each of the components of the property with economic autonomy".

However, the transposition of the interpretation given within the scope of the Code of Landed Property Contribution and Tax on Agricultural Industry (CCPISIA), approved by Decree-Law no. 45,104, of 1 July 1963 and, for the most part, repealed by Decree-Law no. 442-C/88, of 30 November, to the Code of IMI, in which there is no rule identical to that of article 232 of the Code first cited, does not appear viable for various reasons, in particular, because the old Landed Property Contribution was configured as a tax on income, actual or presumed, as follows from its preamble, which states that "As regards urban properties, the principle of taxing actual income whenever possible was immediately applicable, a principle which (…) in the case had necessarily to be restricted to leased properties. (…) As regards non-leased properties, (…) only the maintenance of taxation based on estimated income was possible (…)", while Municipal Property Tax is a tax on assets.

In fact, § 1 of article 232 of the CCPISIA, provided that "Each new dwelling or part of property capable of separate rental will be taken autonomously for the purpose of determining the collectible income on which the assessment should be levied," (emphasis ours), but such autonomy was only relevant for the purposes of entry in the tax rolls and respective individual assessment, and no longer for the purposes of land registration, which was single for each property not constituted in horizontal ownership, differently from what currently determines article 12, no. 3, of the CIMI.

The purpose of the autonomy to which § 1 of article 232 of the CCPISIA alluded to was, as is still that of autonomous land registration for each floor or division capable of independent use, the monitoring of the income generated thereby, in case of rental; however, that income is now taxed under Personal Income Tax (category F).

As regards the determination of the value of properties not constituted in horizontal ownership, article 7, no. 2, of CIMI applies, but only to 'urban properties with parts that can be classified in more than one of the classifications of no. 1 of the previous article', in which case, according to its paragraph b) '(…) each part is assessed by applying the corresponding rules, and the value of the property is the sum of the values of its parts'.

Under no. 1 of article 6 of CIMI, urban properties are divided into a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others.

From the combination of the provisions of no. 2 of article 7 and no. 1 of article 6, both of CIMI, it follows that, if an urban property not constituted in horizontal ownership, exclusively integrates parts or divisions with residential allocation (which is not the case in the proceedings, as the Applicant argues, although the value taken into account in the assessments made by the AT was the sum of the VPTs of the divisions intended for residential use), the value of the property does not equal the sum of its parts.

Which is the same as saying that each of the parts is autonomous and that, independently of the VPT that has been attributed to it, is excluded from the incidence of the stamp tax provided for in item 28 of the TGIS.

Having reached this point, it will be necessary to question the subjection to stamp tax of item 28 of the TGIS, of a part or division of independent use, with residential allocation, of a property not constituted in horizontal ownership, in which parts or divisions of independent use, classified under another of the classifications of no. 1 of article 6 of CIMI, for example, divisions intended for commerce, industry or services, are integrated, as is the case in question, in which, of the 21 floors/divisions of independent use, only 16 are intended for residential use.

Now, the answer must be negative, notwithstanding the provision of paragraph b) of no. 2 of article 7 of CIMI, according to which the value of the property is the sum of the values of its parts or divisions of independent use, classified in more than one of the classifications of no. 1 of article 6 of the same Code.

This is because here, note well, one is not comparing two legally distinct realities, such as parts or divisions of independent use of an urban property not constituted in horizontal ownership with the autonomous fractions of properties submitted to that regime, which, for IMI purposes, are themselves properties.

Here, what is in confrontation are realities in all respects identical, that is, parts or divisions of independent use and residential allocation, integrated in urban properties not constituted in horizontal ownership.

And the answer to the question must be negative, as nothing would justify that the legislator intended to tax parts or divisions of independent use and residential allocation of an urban property not constituted in horizontal ownership, integrated by other parts or divisions of independent use intended for other purposes and did not tax parts or divisions of independent use and residential allocation of an urban property not constituted in horizontal ownership, integrated exclusively by parts or divisions of independent use, intended for residential use. If the legislator intended to treat unequally realities in all respects identical, one would then have to conclude a blatant violation of the principle of equality.

This not appearing to be the legislative intention, one cannot accept that the AT formulates a rule of incidence ex novo, different from that which was created by the legislator, intending to tax parts of properties, even if economically and functionally independent and, as such, separately registered in the land register, which also discriminates the respective taxable property value (cf. no. 3 of article 12 of CIMI), since the law is clear in subjecting to stamp tax of item 28.1 of the TGIS, urban properties with residential allocation, whose VPT, for IMI purposes, is exceeding €1,000,000.00.

Different would be the case of a part or division of independent use and residential allocation, inserted in an urban property not constituted in horizontal ownership, but with a VPT, for IMI purposes, equal to or exceeding €1,000,000.00, taking into account the ratio legis of the rule of incidence.

In fact, as the Applicant refers in its arguments and has already served as grounds for other arbitral decisions, notably that rendered in process no. 50/2013-T, 'The ratio legis underlying the rule of item 28 of the TGIS, introduced by Law no. 55-A/2012 of 29 October, in obedience to the provision of article 9 of the Civil Code, according to which the interpretation of a legal norm should not confine itself to the letter of the law, but reconstruct from the texts and other elements of interpretation the legislative thought, taking into account the unity of the legal system, the circumstances in which it was drawn up and the specific conditions of the time in which it is applied.

The legislator, by introducing this legislative innovation, considered as a determining element of tax capacity urban properties, with residential allocation, of high value, more precisely, of value equal to or exceeding €1,000,000.00, on which a special stamp tax rate now applies, intending to introduce a principle of taxation on wealth embodied in the ownership, usufruct or surface right of high-value urban properties with residential allocation. The criterion was that of applying the new rate to urban properties with residential allocation, whose VPT is equal to or exceeding €1,000,000.00.

Such logic seems to make sense when applied to 'residential use', whether it be 'house', 'autonomous fraction' or 'part of property with independent use' or 'autonomous unit', because an above-average tax capacity is presumed and, to that extent, it justifies the need for an additional tax effort, it would make little sense to then disregard the determinations 'unit by unit' when only through the sum of the VPTs thereof, because held by the same individual, would the million euros be exceeded.

This is concluded from the analysis of the discussion of Bill no. 96/XII in the Assembly of the Republic, available for consultation in the Diary of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.'.

We have, therefore, that, beyond the grammatical element of the interpretation of the rule of incidence contained in item 28.1 of the TGIS, also its rational or teleological element, the ratio legis or purpose aimed at by the legislator in elaborating that rule, points in the direction that taxation should affect urban properties of high VPT and not parts of urban properties, even if of independent use, with VPT of value lower than legally determined".

On this subject there is vast arbitral jurisprudence which is believed to be uniform[8].

Called for the first time to pronounce on an identical question, the Supreme Administrative Court decided in the same sense, cf. judgment of 09-09-2015, rendered in Process no. 047/15, thus summarized:

"I - With respect to properties in vertical ownership, for the purposes of incidence of Stamp Tax (Item 28.1 of the TGIS, as amended by Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential allocation and VPT contained in the land register equal to or exceeding €1,000,000.

II - In the case of a property constituted in vertical ownership, the incidence of IS should be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors capable of independent use (individualized in the land register entry), but by the VPT attributed to each of those floors or divisions intended for residential use".

In the same sense extensive and consistent jurisprudence of the Supreme Administrative Court can be seen[9].

Given the foregoing, considering that none of the floors or divisions capable of independent use here in question and on which the assessments which are the object of the present request for arbitral determination fell, individually reach the value of €1,000,000.00, the alleged defect of violation of law due to error on the legal presuppositions is considered to be verified, which determines the declaration of illegality and consequent annulment of the assessments made.

Thus, knowledge of the questions relating to violation of the principles of legality and tax equality as well as the prevalence of material truth over legal-formal reality is prejudiced, since item 28.1 of the TGIS does not support the interpretation which was given of it in the case by the Respondent, when issuing the assessments which are the object of the request for arbitral determination.

6. Decision

In view of the above, it is decided:

a) That the dilatory exception invoked (non-challengeability of the object of the request for arbitral determination) is without merit; and

b) That the request for declaration of illegality of the Stamp Tax assessments for the year 2015, relating to item 28.1 of the TGIS, effected on 5 April 2016, in the amount of €28,589.50, due to error in the legal presuppositions is entirely well-founded and the challenged assessments are annulled, with the due legal consequences.

7. Value of the Case

In accordance with the provisions of articles 306, no. 2, of the CPC, 97-A, no. 1, paragraph a) of CPPT and 3, no. 2 of the Regulations of Costs in Tax Arbitration Proceedings (RCPAT), the case is assigned the value of €28,589.50.

8. Costs

Pursuant to article 22, no. 4 of RJAT, the amount of costs is set at €1,530.00, pursuant to Table I, annexed to RCPAT, to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 28 December 2016.

The Arbitrator,

(Rui Ferreira Rodrigues)

Text prepared by computer, in accordance with the provision in article 131, no. 5, of the CPC, applicable by referral of article 29, no. 1, paragraph e), of RJAT.

[1] José Casalta Nabais, in "Tax Law", Almedina, 2000, p. 253

[2] Provision to be corrected, as this directorate-general was extinguished by article 27, no. 3, paragraph a) of Decree-Law no. 117/2011, of 15 December, with the Tax and Customs Authority being created, pursuant to paragraph a), no. 2 of the same article.

[3] Judgment of the STA of 09-04-2014 - Proc. 01870/13 (available at http://www.dgsi.pt/)

[4] Available at https://caad.org.pt/tributario/decisoes/

[5] Available at https://caad.org.pt/tributario/decisoes/

[6] MACHADO, J. Baptista, "Introduction to Law and Legitimizing Discourse", Almedina, Coimbra, 1995, pp. 182 to 185.

[7] Ibidem, p. 16

[8] CAAD Proceedings, notably and among others, with the numbers 356/2016, of 04-11-2016; 355/2016, of 08-11-2016; 339/2016, of 03-11-2016; 327/2016, of 12-10-2016; 301/2016, of 15-11-2016; 298/2016, of 10-09-2016; 279/2016, of 15-11-2016; 257/2016, of 31-10-2016; 246/2016, of 02-11-2016; 214/2016, of 01-10-2016; 213/2016, of 07-11-2016; 211/2016, of 05-09-2016; 207/2016, of 06-10-2016; 203/2016, of 03-10-2016; 134/2016, of 20-10-2016; 115/2016, of 10-10-2016; 105/2016, of 01-07-2016; 104/2016, of 07-07-2016; 101/2016, of 21-09-2016; 86/2016, of 31-10-2016; 79/2016, of 25-10-2016; 20/2016, of 01-06-2016; 12/2016, of 27-06-2016; 10/2016, of 11-05-2016; 778/2015, of 31-10-2016; 366/2015, of 08-02-2016; 311/2015, of 30-10-2015; 236/2015, of 15-10-2015; 110/2015, of 27-08-2015; 104/2015, of 23-10-2015; 102/2015, of 23-06-2015; 713/2014, of 05-06-2015; 705/2014, of 30-03-2015; 638/2014, of 15-04-2015; 512/2014, of 30-01-2015; 385/2014, of 15-05-2015; 291/2013, of 14-07-2014; 183/2013, of 19-03-2014; 181/2013, of 10-02-2014; 132/2013, of 19-04-2016; and 50/2013, of 29-10-2013.

[9] Among others, the Judgments of the STA of 30-11-2016 (Proc. 01097/16); 29-09-2016 (Proc. 0560/16); 29-06-2016 (Proc. 498/16); 29-06-2016 (Proc. 0408/15); 24-05-2016 (Proc. 01352/15); 24-05-2016 (Proc. 01344/15); 04-05-2016 (Proc. 0172/16); 04-05-2016 (Proc. 0166/16); 04-05-2016 (Proc. 01504/15); 27-04-2016 (P.01534/15); 02-03-2016 (Proc. 01354/16) and 09-09-2015 (Proc. 047/15).