CAAD 538/2014-T: Stamp Tax Verba 28.1 TGIS Property Assessment Annulment Decision

ARBITRAL DECISION

Claimant: A, B and C, (hereinafter "Claimants")

Respondent: TAX AND CUSTOMS AUTHORITY (hereinafter "TCA" and "Respondent")

1. Report

A, NIF ..., resident at Rua ..., ... Lisbon, B, NIF ..., resident at ..., ... Funchal – Madeira and C, hereinafter designated as Claimants, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to the annulment of the tax assessment acts relating to item no. 28.1 of the General Table of Stamp Tax (GTST), in the total amount of € 16,193.40 and which are broken down in the collection notices identified below:

• Collection Document No. 2014… of 2013 (DGCI)
• Collection Document No. 2014… of 2013 (DGCI)
• [Collection Document No. 2014… of 2013 (DGCI) – repeated 85 times]

The Claimants base the illegality of the tax act on the following defects:

a) Incorrect interpretation by the TCA of item 28.1 of the General Table of Stamp Tax (GTST), insofar as the determination of Stamp Tax liability is determined by the Taxable Property Value (TPV) of each property and not by the sum of all independently usable areas of a single property entry;

b) Unconstitutional interpretation of item 28.1 of the GTST by violation of No. 2 of Article 103 of the Portuguese Constitution.

Petitioning, finally, for the reimbursement of the Stamp Tax paid relating to the assessments/collection notices that are the subject of the present proceedings, plus interest.

The Tax and Customs Authority, in turn, defended that there is no illegality whatsoever insofar as the independently usable areas referring to the same property entry do not constitute an urban property in the sense of No. 4 of Article 2 of the Municipal Property Tax Code (CIMI), and therefore cannot fail to sum the TPVs of all such independently usable areas or floors, concluding for the dismissal of the request for annulment formulated by the Claimant.

The sole arbitrator was appointed and designated on 15.09.2014.

In accordance with the provisions of Article 11, No. 1, subparagraph c) of the Legal Framework for Tax Arbitration (LFTA), the singular arbitral tribunal was constituted on 30.09.2014.

Both Claimant and Respondent, despite being validly notified, did not appear at the arbitral meeting held on 09.03.2015, at 11h30.

2. Sanitation

The cumulation of claims made in the present request for arbitral pronouncement, and the joinder of claimants, designated as requesters, in which tax assessment acts of the same tax (Stamp Tax) are at issue, based on the same factual basis and applying the same rules of law, is fully justified in light of the principle of procedural economy enshrined in Article 3 of the LFTA.

The singular arbitral tribunal is materially competent, in accordance with the provisions of Articles 2, No. 1, subparagraph a) of the Legal Framework for Tax Arbitration.

The parties have legal personality and capacity and have standing in accordance with Article 4 and No. 2 of Article 10 of the Legal Framework for Tax Arbitration (LFTA), and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The request was submitted in a timely manner, the process does not suffer from any nullity nor have the parties raised any exceptions that prevent the consideration of the merits of the case, so the conditions are met for the issuance of the arbitral decision.

3. Factual Matter

3.1. Proven Facts:

Following analysis of the documentary evidence produced and the position of the parties, the following facts are considered proven and relevant for deciding the case:

1. The three Claimants are co-owners of the urban property entry registered in the urban property register of the parish of ..., under the entry ..., with a share of 33334/100000 each;

2. The identified urban property was, at the end of 2013, in a vertical/full ownership regime, consisting of floors or divisions capable of independent use;

3. Claimant A was notified to pay, until April 2014, the amounts mentioned below and corresponding to the collection documents identified below relating to the urban property entry identified in 1.:

1. Claimant B was notified to pay, until April 2014, the amounts mentioned below and corresponding to the collection documents identified below relating to the urban property entry identified in 1.:

1. Claimant C was notified to pay, until April 2014, the amounts mentioned below and corresponding to the collection documents identified below relating to the urban property entry identified in 1.:

1. The property entry already identified is composed of floors or divisions of independent use, with residential purpose, with the following TPVs:

1st Right € 60,370.00
1st Left € 60,370.00
1st Front € 51,740.00
2nd Right € 60,370.00
2nd Left € 60,370.00
2nd Front € 51,740.00
3rd Right € 60,370.00
3rd Left € 60,370.00
3rd Front € 51,740.00
4th Right € 60,370.00
4th Left € 60,370.00
4th Front € 51,740.00
5th Right € 60,370.00
5th Left € 60,370.00
5th Front € 51,740.00
6th Right € 60,370.00
6th Left € 60,370.00
6th Front € 51,740.00
7th Right € 62,180.00
7th Left € 62,180.00
7th Front € 53,290.00
8th Right € 62,180.00
8th Left € 62,180.00
8th Front € 53,290.00
9th Right € 62,180.00
9th Left € 62,180.00
9th Front € 53,290.00
10th € 25,760.00
11th € 25,760.00

1. The above-identified urban property entry is registered in the respective property record as a property in vertical/full ownership and with floors or divisions capable of independent use, with residential purpose, among others;

2. The taxable property value of the urban property entry only reaches or exceeds the amount of € 1,000,000.00 when the TPVs relating to the floors or divisions capable of independent use and with residential purpose that compose it are summed;

3. No floor or division capable of independent use with residential purpose of the property entry has a taxable property value equal to or greater than € 1,000,000.00;

4. The Claimants paid the entirety of the amounts stated in the collection notices;

5. On 28.07.2014 the Claimants submitted, via electronic platform, the request for constitution of an arbitral tribunal;

6. The Claimants made on 13.03.2015 the payment of the subsequent court fee;

No other facts of relevance to the decision of the case were proven.

3.2. Reasoning of the Proven Factual Matter:

Regarding the proven facts, the conviction of the arbitrator was founded on the documentary evidence attached to the case, as well as on the acceptance by the parties of the factual matter brought before these proceedings.

4. Legal Matter:

4.1. Object and Scope of the Present Proceedings

The request for arbitral pronouncement has as its object the declaration of illegality of the Stamp Tax assessment acts of 2013, in the total amount of € 16,193.40, which are broken down in the collection documents identified above, under the provisions of item 28.1 of the GTST, relating to the year 2013, as well as the consideration of the alleged violation of a principle of the Portuguese Constitution.

Additionally, the Claimants petition for reimbursement of the tax paid for allegedly being wrongly levied and the payment of compensatory interest.

4.2. On the Alleged Illegality of the Stamp Tax Assessments, Item 28.1 of the GTST

In summary, the question is whether the interpretation made by the Tax and Customs Authority of using, as a legal criterion for the purposes of liability to Item 28.1 of the GTST, the sum of the TPVs of all floors or divisions of independent use with residential purpose relating to the same property entry is consistent with the applicable legal framework.

In this regard, it is important to note that the tax act in question occurred during the validity of the wording given by Law No. 55-A/2012, of 29 October, whereby the current wording given to it by Article 194 of Law No. 83-C/2013, of 31 December (State Budget for 2014) is not applicable here, as it only entered into force on 1 January 2014.

And it is without losing sight of the legislative context of this innovation in the field of Stamp Tax taxation that the question relating to the scope of the incidence rule contained in Article 28.1 of the GTST should also be considered.

Let us then examine, first and foremost, the legal framework of the Stamp Tax assessment in question:

Law No. 55-A/2012, of 29 October, added item 28.1 to the General Table of Stamp Tax (GTST), with the following wording:

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

28.1 – For property with residential purpose – 1% (...);"

In turn, Article 67, No. 2 of the Stamp Tax Code, added by the said Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table the CIMI shall apply subsidiarily."

The rule of incidence refers to urban properties, the basic concept of property being based on the provisions of Article 2 of the CIMI, with the determination of TPV following Article 38 et seq. of the same code.

Being that, in accordance with the said legal provision:

"1 - For the purposes of this Code, property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or resting thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforesaid circumstances, endowed with economic autonomy in relation to the land where they are implanted, although situated in a fraction of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature." (our emphasis)

And Article 6 of the CIMI clarifies that:

"1 - Urban properties are divided into:

a) Residential;

2 - Residential, commercial, industrial or service buildings or constructions are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal purpose each of these ends." (our emphasis)

The legislator's concept regarding properties and the subsequent division into urban ones is, for tax purposes, undoubtedly a criterion based on economic value and functional autonomy in terms of purpose.

That is, one is dealing with a concept rooted in substance or material terms and not with a concept of legal-formal delineation, as the Respondent TCA seems to intend.

Now, in the case at issue the Respondent TCA does not even call into question that the floors or divisions with independent use and with residential purpose relating to the property entries do not exhibit these same characteristics (functional autonomy and economic value) highlighted by the legislator, nor could it do so inasmuch as it is the TCA itself that considered correct and had registered this same information in the respective property records of the property entries to which the floors or divisions capable of independent use pertain.

Added to which, precisely because such floors or divisions exhibit such characteristics of autonomy, both in functional and economic value terms, it is understood that the legislator provided for the attribution of taxable property values for each of these floors, areas or divisions capable of independent use.

What contradicts the TCA's thesis according to which, not being expressly provided for in No. 4 of Article 2 of the CIMI, the legislator intended to remove such figure from the concept of property.

Therefore, being indisputable the residential purpose and likewise the functional autonomy and economic value, moreover fiscally translated in the TPV of these same independent areas or divisions, characteristics which are transposed to the respective property records of the property entry under the designation of floors or divisions capable of independent use, we cannot fail to conclude that on a material and substantive level these same floors or divisions are encompassed by the notion of property contained in No. 1 Article 2 of the CIMI and of urban property contained in a) of No. 1 and No. 2 of Article 6, both of the CIMI.

The introduction into the tax legal order of the present Item 28.1 of the GTST had as a relevant and determining factor the incidence on urban properties with residential purpose, of high value, also usually designated as luxury dwellings, more precisely, of value equal to or greater than €1,000,000.00, on which Stamp Tax came to be levied.

The legislator thus intended to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies over any and every urban property with residential purpose, the legislative criterion having applied such stamp tax on urban properties with residential purpose, whose TPV is equal to or greater than €1,000,000.00.

This conclusion can be drawn from the analysis of the discussion of Law Proposal No. 96/XII in the Parliament of the Republic, available for consultation in the Parliamentary Annals of the Republic, Series I, No. 9/XII/2, of 11 October 2012.

The justification of the measure designated as "special tax on urban residential properties of higher value" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value intended for residence, making the new special tax incide on "houses of value equal to or greater than 1 million euros."

In this way, it appears clear that the legislator understood that houses exhibiting certain characteristics assessed quantitatively through the TPV should determine a special contribution to ensure fair distribution of the tax burden.

But no less evident, it translates a line of legislative option that intended to specifically burden urban properties with residential purpose in the high-end segment, premium or also commonly called luxury.

Note that, regardless of more or less subjective conceptions about the concept of luxury dwellings, high-end segment or expressions of equivalent meaning, it is certain that taxable property value has, since the 2003 reform of taxation on patrimony, been measured based on objective elements, such as area, location, comfort level, among others.

Which is to say that and regardless of the ideological considerations that may be made about such political choice, the legislator had a concrete and defined objective: to subject to Stamp Tax taxation urban properties with residential purpose of higher value, which in practice resulted in the fixing of a measurable threshold through the TPV: value equal to or greater than € 1,000,000.00.

Added to which the legislator assured through various coefficients (mitigating and aggravating) the objectivity in calculating this same TPV.

Now, none of the floors or divisions capable of independent use here at issue and on which the assessments subject to the present request for arbitral pronouncement fell, individually reach the value of € 1,000,000.00, being that each of these floors or independent divisions represents in the tax system a property entry per se, reason for which the TCA erred about the assumptions by making subject to item 28.1 of the GTST by failing to consider that each of these same areas or divisions represents in accordance with the Municipal Property Tax Code and consequently in Stamp Tax matters, an urban property, reason for which these areas or divisions relating to the same property entry could not be the object of summing for calculation of the TPV of that property entry.

Which is the same as saying that having in consideration the ratio legis just stated, the floors or divisions capable of independent use do not meet the assumption relating to taxation in the field of the rule of incidence provided for in item 28.1 of the GTST, reason for which, also in light of what has been stated, one cannot fail to conclude for the legal non-conformity of the interpretation of the TCA of subjecting to Item 28.1 of the GTST the floors or divisions capable of independent use, inasmuch as they do not individually reach the minimum quantitative criterion for such subjection.

Thus, with regard to the collection notices issued and notified to the Claimant and the respective underlying assessments, a judgment of censure must be made and, consequently, the annulment of the tax acts subject to the present proceedings must be determined.

4.3. Moot Questions: Unconstitutionality by Violation of the Principle of Fiscal Legality and Fiscal Coherence – No. 2 of Article 103 of the Portuguese Constitution

As the singular arbitral tribunal accepted the understanding of the inapplicability of item 28.1 of the GTST to the case at issue, the consideration of the remaining defects alleged and which may affect the contested assessments is rendered moot by being procedurally futile.

Thus, consideration of the question of the unconstitutionality of the rule introduced in the GTST (item 28/28.1) by Law No. 55-A/2012, of 28 October, by violation of the principle of equality enshrined in Article 13 of the Constitution is rendered moot.

4.4. On the Reimbursement to the Claimant of the Stamp Tax Paid, Plus Payment of Compensatory Interest:

In light of all that has been stated and concluded in point 4.2, a judgment of illegality that fell on the tax acts subject to the present arbitral pronouncement, it is important to consider the request also made by the Claimant for compensatory interest to be paid to them.

In accordance with No. 1 of Article 43 of the General Tax Law, "Compensatory interest is due when it is determined, in administrative review or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due."

Article 2 of that article of the General Tax Law also provides that "Error attributable to the services is also considered to exist in cases where, even though the assessment is made on the basis of the taxpayer's statement, the latter has followed, in its completion, the general guidelines of the tax administration, duly published."

Now, in the present case, the legitimacy of the aforementioned request for payment of compensatory interest in favor of the Claimant is unequivocally evidenced, since the assessments sub judice are shown to be affected by illegality, and therefore compensatory interest is due from the day following the wrongful payment until the date of issuance of the respective credit note, in accordance with the provision of Article 43 of the General Tax Law and Article 61 of the Code of Tax Procedures and Processes.

Therefore, the Claimant is creditor of the TCA for the amount corresponding to the Stamp Tax wrongly paid, in the amount of € 16,193.40 (sixteen thousand one hundred ninety-three euros and forty cents), plus the respective vested and accruing compensatory interest to be calculated until the issuance of the respective credit note.

5. DECISION:

In these terms and with the reasoning set out above, this arbitral tribunal decides:

1. To judge well-founded the request for declaration of illegality of the tax assessment acts in Stamp Tax, to which correspond the collection notices identified from 3 to 5 of the proven facts, relating to the property identified by the urban property entry in 1., by violation of law as to the rule contained in item 28.1 of the GTST, by error as to the legal assumptions and consequent reimbursement by the Respondent to the Claimants of the tax paid relating to the tax acts subject to these proceedings;

2. To judge well-founded the request for payment of compensatory interest by the Respondent to the Claimants from the date of wrongful payment until the date of issuance of the credit note, in accordance with the provision of Article 43 of the General Tax Law and Article 61 of the Code of Tax Procedures and Processes;

Value of the case: € 16,193.40 – Articles 97-A, of the Code of Tax Procedures and Processes, 12, of the Legal Framework for Tax Arbitration (DL 10/2011), 3-2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, calculated based on the aforesaid value of the request, to be borne by the Respondent - Articles 4-1, of the Regulation of Costs in Tax Arbitration Proceedings and 6-2/a) and 22-4, of the Legal Framework for Tax Arbitration.

Let this arbitral decision be notified to the parties and, in due course, file the case.

Lisbon, 23 March 2015.

The sole arbitrator

(Luís Ricardo Farinha Sequeira)

Text prepared by computer, in accordance with Article 138, No. 5 of the Code of Civil Procedure, applicable by reference to Article 29, No. 1, subparagraph e) of the Legal Framework for Tax Arbitration, with blank spaces and reviewed by me.