Summary
Full Decision
ARBITRAL DECISION
1. REPORT
1.1 A…, LDA., NIPC…, with registered office at…, …, …, …-… Lisbon came, on 07.09.2016, under the terms set out in Articles 2, n. 1, para. a) and 10, numbers 1, para. a) and 2 of the Legal Framework for Tax Arbitration (established by Decree-Law no. 10/2011, of 20 January, successively amended), Article 102, n. 1, para. d) of the Tax Procedure and Process Code and Article 95, n. 2, para. d), of the General Tax Law, to request the constitution of an arbitral tribunal.
1.2 The respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.
1.3 The Ethics Council of the Centre for Administrative Arbitration (CAAD) designated the undersigned to form the Singular Arbitral Tribunal, notifying the parties accordingly, and the Tribunal was constituted on 25 November 2016.
1.4 The request for arbitral pronouncement has as its object the rejection of the request for ex officio revision of the assessments for Stamp Duty (item no. 28 of the General Table), as well as of the five underlying tax assessment acts in the amount of €2,084.70, €2,084.70, €2,105.60, €2,126.40 and €2,126.40, identified through the assessment documents numbers 2015…, 2015…, 2015…, 2015… and 2015…, relating to the year 2014 and arising from the ownership of the real property situated at…, numbers … and …, in Lisbon, currently recorded under article … in the urban real property register of the parish of …, municipality of Lisbon, assessments which total the amount of €10,527.80, all as set out in greater detail in the Request of the Claimant and the documents attached to it, to which reference is made.
1.5 The Claimant invokes the illegality of the assessment acts, contesting the application of the new item 28.1 of the TGIS to urban real properties not constituted in horizontal property regime, but which include divisions capable of independent use, in which the minimum amount of incidence set by law is reached by the sum of the TPA (Taxable Patrimonial Value) of the separate or autonomous property registrations corresponding to those various divisions with residential designation, but not by any one of them individually considered.
It submits that due to the fact that the real property, despite not being constituted in horizontal property regime, is constituted by parts capable of independent use, the TPA relevant for ascertaining whether the requirement upon which the incidence of said item depends is met is not fulfilled, since of the 7 parts of the real property capable of independent use, only five of them have residential designation and each of them has a separate registration in the corresponding property register and, therefore, an individualized TPA lower than said minimum limit.
The Claimant thus maintains that it is not the owner of a real property with TPA equal to or greater than said minimum amount, but rather the owner of a real property in vertical property regime in which the TPA greater than that value is only achieved by the sum of the TPA of the divisions capable of independent use designated for residential purposes, without any of them, considered individually, reaching that minimum amount of tax relevance.
For that reason, according to the Claimant, the assessments in dispute suffer from the defect of violation of law, which makes them voidable.
It concludes by requesting the annulment of the assessment acts in dispute and the condemnation of the Respondent to return the amounts paid by the Claimant, as well as to pay compensatory interest.
1.6 The TAX AND CUSTOMS AUTHORITY presented its Reply on 05 January 2017, and, on the same day, attached to the proceedings the administrative file.
The Respondent defended itself by challenge, sustaining the maintenance of the assessments, emphasizing, in summary, that total or vertical property corresponds to a single real property, and this is the reality to be considered for determining the verification of the minimum value contained in the rule of incidence.
For the Respondent, the TPA relevant for purposes of tax incidence is, therefore, the TPA of the urban real property and not the TPA of each one of the parts that compose it, even though these are capable of independent use and designated for residential purposes. In support of this thesis, it also emphasizes that the unity of the real property is not affected, and its distinct parts cannot be legally equated to autonomous fractions of a real property constituted in horizontal property regime.
1.7 On 06.01.2017, the Tribunal issued an order indicating its intention to dispense with the meeting of the arbitral tribunal provided for in Article 18 of the RJAT as well as with the arguments, and the parties, being notified, did not oppose.
2. PRELIMINARY MATTERS
The Tribunal was regularly constituted and is competent.
The parties have legal personality and capacity, show themselves to be entitled, and are regularly represented.
The proceedings do not suffer from any defects that would invalidate it.
3. FACTUAL MATTERS
With relevance for the decision on the merits, the Tribunal considers the following facts to be proven:
1) The Claimant is the owner of the real property situated at Largo…, numbers … and … in Lisbon, currently recorded under article … in the urban real property register of the parish of …, municipality of Lisbon;
2) That article corresponds to the former article U-… of the urban register of the (extinct) parish of …;
3) From the real property register it appears that the real property in question has 8 stories and 7 floors or divisions with independent use. And the "total patrimonial value" of €1,425,370.00;
4) The real property identified above is thus divided into 7 floors or divisions with independent use, identified separately in the property registration, with the respective TPA also discriminated for each one of them;
5) Of the 7 floors or divisions capable of independent use, only five, the 1st, 2nd, 3rd, 4th and 5th floors, have residential designation, the remaining ones, ground floor, being designated for services and, upper floor, for parking;
6) The taxable value of each one of those five divisions with residential designation, determined under the Municipal Property Tax Code (CIMI), varies, with the lowest being €208,470.00 and the highest being €212,640.00, 44,740.00€ and 197,520.00€, all of which, therefore individually considered, are lower than €1,000,000.00;
7) The assessments in question result from the application of the stamp duty provided for in item no. 28.1 of the General Table of Stamp Duty (TGIS) attached to the Stamp Duty Code (CIS) as amended by Article 4 of Law no. 55-A/2012, of 29 October, at the rate of 1% of the taxable patrimonial value to the five divisions of the real property capable of independent use, precisely, to those that have residential designation, with reference to the year 2014, with a "taxable patrimonial value of the real property - total subject to tax: €1,052,780.00" being considered;
8) This resulted in tax assessments in the global amount of €10,527.80, which the Claimant paid;
9) The Claimant presented a request for revision of the assessments now disputed under Article 78 of the LGT which was received on 22 February 2016 and, having obtained no response, a presumption of tacit rejection was formed in the fourth month following, i.e. on 22 June 2016.
Facts Not Proven
No other facts with relevance for the assessment of the merits of the case were alleged by the parties that were not proven.
Reasoning on Factual Matters
The conviction regarding the facts deemed proven was based on the allegations of the Claimant and the Respondent not contradicted by the opposing party, supported by the documentary evidence attached by the Claimant, the authenticity and correspondence to reality of which were also not questioned.
4. LEGAL MATTERS - ISSUES TO BE DECIDED
The issue to be decided is the following:
With reference to real properties not constituted under horizontal property regime, composed of various floors and divisions with independent use, some of which with residential designation, is the TPA relevant as the criterion of tax incidence the one corresponding to the sum of the taxable patrimonial value attributed to the different parts or floors (global TPA) or, rather, the TPA attributed to each one of the parts or residential floors?
It must be decided:
The issue to be decided corresponds to the application, in situations of so-called vertical property, of the new stamp duty taxation on urban real properties with residential designation and TPA equal to or greater than one million euros. This new taxation was introduced in 2012 to reinforce budgetary control measures from the revenue side, within a framework of financial necessity.
On this question of the determination of the TPA (minimum) relevant for the application of item 28.1 of the TGS in cases of vertical property, many other CAAD decisions have already pronounced themselves, in processes numbers 50/2013-T, 132/2013, 181/2013-T, 183/2013-T, 272/2013-T, 280/2013-T, 26/2014-T, 30/2014-T, 88/2014-T, 177/2014-T, 206/2014-T and 349/2015-T.
In all of them the question was, just as in these proceedings, whether the TPA relevant for the rule of incidence (28.1 of the TGIS) is the TPA corresponding to each one of the divisions capable of independent use separately considered in the register or whether, on the contrary, the TPA relevant should correspond to the sum of all of those divisions capable of independent use, but forming part of the same real property and which are designated for residential purposes.
And the answer, in those decisions, was always for the first option, with which we agree and have already sustained in several other previous decisions.
It is important to keep in mind that each floor or part of a real property capable of independent use is considered separately in the property registration of the total real property, which also discriminates the taxable patrimonial value of those (n. 2 of Article 12 of the CIMI), and the property tax is assessed individually in relation to each floor or part of a real property capable of independent use (Article 119, n. 1 of the CIMI), as also occurred in the case at hand.
And, if this is so for property tax, it should also be so for Stamp Duty, especially since, as the Respondent rightly points out, the CIS refers to the CIMI.
As warned by the decision taken in process 206/2014-T: "Since the CIS refers to the CIMI, it must be concluded that the registration in the property register of real properties in vertical property regime, composed of different parts, floors or divisions with independent use, follows the same registration rules as horizontal property". Since property tax and Stamp Duty "are assessed individually in relation to each one of the parts", also "the legal criterion for defining the incidence of the new tax must be the same". Consequently, there will be incidence of item 28.1 of the TGIS (only) if any one of those parts, floors or divisions with independent use presents a TPA of at least the amount provided for in the rule of incidence.
As well explained by the decision delivered by the Arbitral Tribunal in process 349/2015-T, "Thus, the real property will be the independent area, considered separately and autonomously in the register, being subject to Stamp Duty if two requirements are met: being designated for residential purposes and having a TPA equal to or greater than one million euros, the criterion for assessing high-value residential real properties. Otherwise, there would be created a reality not foreseen by the legislator: that of a, so to speak, "residential real property", possibly inserted within a larger real property, possibly with several purposes, in which the TPA of that one, spurious to the property registrations, would consist in the fiction of a TPA given by the addition of the autonomous TPA of each division (independent and with residential purpose) considered in the property registration. That is, where the legislator considered two realities, the interpreter would now have, without support in the legislative text, to fictionally create a third reality, hybrid, midway between the urban real property and its independent divisions to which the legislator of property tax, and of Stamp Duty by reference to the CIMI, understood to give tax relevance.
Also in the decision delivered in process 272/2013-T (CAAD) it is stated that "considering that the registration in the property register of real properties in vertical property regime, composed of different parts, floors or divisions with independent use, in accordance with the CIMI, follows the same registration rules as real properties constituted in horizontal property regime, and the respective property tax, as well as the new Stamp Duty, are assessed individually in relation to each one of the parts, it offers no doubt whatever that the legal criterion for defining the incidence of the new tax must be the same". Indeed, it is said, the position of the TA "finds no legal support and is contrary to the criterion applicable in the sphere of CIMI and, by reference, in the sphere of Stamp Duty", which is why "the adoption of the criterion defended by the TA violates the principles of legality and tax equality, as well as the prevalence of material truth over legal-formal reality".
And in the same sense it is stated in the arbitral decision in process 30/2014-T to be found in the doctrine of the TA a "nonconformity with the literal element of the final part of the rule of incidence (item 28 of the TGIS) which states that the tax is levied on "the taxable patrimonial value used for purposes of property tax" and therefore should not be levied on the sum of taxable patrimonial values of real properties, parts of real properties or floors, having no legal support the operation of adding taxable patrimonial values of floors or parts of real properties capable of independent use, of residential designation, severed from the TPA of the remainder with different purposes, so as to reach the taxation threshold eligible of €1,000,000.00 or more".
As also stated in that arbitral decision, what happens with regard to urban real properties with residential designation, in vertical property regime, with floors or divisions capable of independent use, is that the TA proceeds, in the operations of assessment of Stamp Duty, to the adaptation of the rules of the CIMI (adding the taxable patrimonial values of the same real property, without considering those corresponding to parts of the real property with non-residential purpose, thus giving rise to a new and hybrid TPA). Indeed, that "adaptation" corresponds to "summing the TPA of each floor or independent division designated for residential purposes (severed from the TPA of the floors or divisions intended for other purposes), creating a new legal reality, without legal support, which is a global TPA of urban real properties in vertical property regime, with residential designation", which is contrary to "the literal element of the rule of incidence".
Thus, "in urban real properties with residential designation, in vertical property regime, with floors or divisions capable of independent use", should be considered the taxable patrimonial value "that results exclusively from no. 3 of Article 12 of the CIMI. Both for property tax and for this Stamp Duty".
To be concrete, as was concluded in the decision delivered in process 26/2014-T of the CAAD, "for purposes of application of item 28 of the TGIS to real properties in vertical property regime, the same rules of the CIMI apply as to real properties in horizontal property regime, and in the same sense the TPA for purposes of application of the item is the individual TPA of each independent residential fraction, and in the present case none of the fractions exceeds the criterion of incidence of €1,000,000.00", the same occurring in the case of these proceedings.
Based on the same position, the arbitral decision delivered in process 349/2015-T concludes that "as clearly results from the cited decisions, that the literal interpretation of the new item of the TGIS cannot but be different from that sustained by the TA, indeed, the opposite, given the clear and indisputable reference made with regard to the new item of the TGIS to the rules of the CIMI, the interpreter of the norm not being able to "create" a new concept of real property so as to obtain a hybrid TPA, not recognized in the register and without any support in the text of the law."
And it did so invoking also the criterion of the economic substance of tax facts: "the expression "each urban real property" used in no. 7 of Article 23, for reasons of identity, encompasses not only urban real properties in horizontal property regime, but also the floors, divisions or parts of urban real properties in vertical property regime, as long as designated for residential purposes, always proceeding, in any of the cases, from a single taxable base for all legal purposes: the taxable patrimonial value used for purposes of property tax (…). The economic reality of the possession of independent parts, e.g. capable of independent use or rental, just as autonomous fractions in the case of horizontal property, and therefore capable of permitting the use or the obtaining of income in a similar manner and thus externalizing, therefore, equal contributory capacity (as it would externalize the sum of the TPA of various autonomous fractions of the same real property in horizontal property regime or of several real properties which together exceeded the value of one million euros, without this having been considered by the legislator as an externalization of relevant contributory capacity for purposes of Stamp Duty)."
In addition, as referred to in the Judgment delivered in process 26/2014-T of the CAAD, no censure of the legislator regarding vertical property is discernible. Indeed, "it might be said, not without reasonableness, that the legislator, for purposes of taxation in property tax, chose to confer autonomy, independence, to each one of the parts or to each one of the floors of a single real property, insofar as some and others show themselves to be of independent use, to the point of providing for the individualized registration in the register of each one of those independent parts and of imposing on taxation in property tax a collection that is also autonomous. Notwithstanding the legal existence of a single real property, it is the legislator himself who not only recommends but imposes the autonomous consideration of each one of the independent parts, for purposes of taxation of property".
Indeed, as was decided in processes 26/2014-T and 272/2014-T and 349/2015-T, "the legislator is indifferent to one or the other form of structuring the property of urban real properties in the CIMI, it would not be understood why he would now intend to favor one at the expense of the other, namely by considering one form of structuring more advanced than the other". "The current legal regime does not impose the obligation of constitution of horizontal property", which is why "the discrimination practiced by the TA constitutes an arbitrary and illegal discrimination", since "the TA cannot distinguish where the legislator himself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in Article 103, n. 2 of the CRP, and also the principles of justice, equality and tax proportionality."
And the truth is that nothing induces the interpreter to the conclusion that the concrete legislator of the new item of the TGIS, contrary to the legislator of property tax, which moreover remains unchanged, intended to discriminate vertical property over horizontal property. As well remembered in the Judgment delivered in the already cited process 26/2014-T of the CAAD, also referred to in the already cited decision of process 349/2015-T, "at the time of the presentation and discussion, in Parliament, of draft law no. 96/XII (2nd), the Secretary of State for Fiscal Affairs explicitly stated: "The Government proposes the creation of a special rate on high-value residential urban real properties. This is the first time in Portugal that special taxation on high-value residential properties is created. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to residential properties of a value equal to or greater than 1 million euros" (cf. DAR I Series no. 9/XII-2, of 11 October, page 32). Well, as is emphasized in that Judgment, "the Secretary of State for Fiscal Affairs presents this draft law referring without hesitation to the expression "residential properties"… of a value equal to or greater than 1 million euros", which is why "it results with crystal clarity that item 28.1 of the TGIS cannot be interpreted in the sense that it encompasses each one of the floors, divisions or parts capable of independent use when only from their sum results a TPA higher than that provided for by the same item".
Being, therefore, clear, as is stated in the aforementioned decision 272/2014-T, that for the legislator only that value of one million euros, as long as designated "for a residential unit (house, autonomous fraction or floor with independent use) expresses a contributory capacity above the average and, as such, susceptible of determining a special contribution to ensure the fair distribution of the tax burden".
And if this is so, we will then have to consider the concept of "house" as a physical reality that enables a residential purpose, a unit capable of independent use, including its rental, since it is in that economic reality that we will find the externalization of the contributory capacity associated with "luxury residential properties" that the legislator considered relevant. Moreover, if this were not so, the legislator would proceed to a discrimination that would not be justified, since as we have already seen there is no censure in the system of vertical property when compared to horizontal property. Moreover, that distinction would collide with a necessary equity between identical externalizations of the same contributory capacity.
Well, the contributory capacities externalized by the ownership of a real property composed of a set of autonomous fractions in horizontal property regime or by a set of divisions of independent use in vertical property regime, cannot but be considered identical, if not indeed, possibly, smaller in the case of the second hypothesis. That is, a real property certainly does not have a greater market value for being organized as vertical property. It is worth the same (permitting equal benefit through its use or equal income through its rental, as mentioned above), or it may even have a smaller value, since the alternatives for transferability may be smaller. And we know that TPA is intended to be an approximation, precisely, to the market value of real properties and will therefore be the measure and limit of the contributory capacity relevant for the new item of the TGIS. (cf. the decision we have been citing, delivered in process 349/2015-T).
Thus, the interpretation advocated by the TA, finding no hermeneutical justification, as has been seen so far, would further lead to a manifest inequality between owners of real properties in horizontal property regime and in vertical property regime (and as we have already seen that no penalizing intention regarding the latter is discernible, even if one were to admit that this would be constitutionally permissible).
In that same sense, as well stated in the decision of process 272/2014-T of the CAAD, the "existence of a real property in vertical or horizontal property regime cannot be, by itself, an indicator of contributory capacity. On the contrary, it follows from the law that both should receive the same tax treatment in obedience to the principles of justice, tax equality and material truth".
To conclude, "material truth is what is imposed as the determining criterion of contributory capacity and not the mere legal-formal reality of the real property, since the constitution of horizontal property implies a mere legal alteration of the real property not even imposing a new assessment", and this fact "does not appear consistent with the decision of the TA to tax the residential parts of a real property in vertical property regime, based on the global TPA of the real property and not on what is effectively attributed to each part." Thus, "the TA cannot distinguish where the legislator himself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality … and also the principles of justice, equality and tax proportionality" (cf. the decision delivered in process 26/2014-T of the CAAD).
Also the Supreme Administrative Court decided unanimously, in process 01344/15, on 24.05.2016 that "– Regarding real properties in vertical property regime, for purposes of the incidence of Stamp Duty (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 designation and TPA shown in the register equal to or greater than €1,000,000. II – Where it is a real property constituted in vertical property regime, the incidence of Stamp Duty should be determined, not by the TPA resulting from the sum of the TPA of all divisions or floors capable of independent use (individualized in the property article), but by the TPA attributed to each one of those floors or divisions designated for residential purposes."
In the case at hand we found reinforcement of this idea in the very conduct of the tax administration, which did not assess tax with regard to the floors or divisions capable of independent use that do not have residential designation.
Note that the Respondent in the case sub judice, in a manner inconsistent with the thesis of unity that it is sustaining here, individualized for purposes of application of item 28.1 of the TGIS, of the seven divisions, only the five with residential designation.
The fact of having summed, for purposes of finding a value greater than €1,000,000.00, the TPA attributed to each one of those five, applying the rate to each one of the TPA's of the divisions or floors with residential designation capable of independent use and issuing, for each one of them, separate collection notes is, from our point of view, perfectly arbitrary and not only has no support whatsoever in the letter or the ratio of the rule of incidence as it is not even defensible from a logical point of view.
In conclusion, as exposed above, the tax acts in dispute suffer from the defect of violation of law, due to error in the legal and factual assumptions, since no part of the real property possesses a TPA of a value equal to or greater than the threshold resulting from the rule applied, which makes said tax acts voidable.
5. DECISION
In these terms and with the reasoning set out above, it is decided:
To fully uphold the claim of the Claimant and, consequently, to annul the assessment acts in dispute, on the ground of violation of law.
To condemn the Respondent to return to the Claimant the amounts paid by it by virtue of the annulled assessment acts, together with compensatory interest calculated in accordance with Article 43 of the General Tax Law from the dates of the payments of such amounts until their effective and complete return.
* * *
The value of the proceedings is fixed at €10,527.80 (ten thousand five hundred and twenty-seven euros and eighty cents), in accordance with the provisions of Articles 3, n. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, n. 1, para. a) of the CPPT and 306 of the CPC.
The amount of costs is fixed at €918.00 (nine hundred and eighteen euros) under Article 22, n. 4 of the RJAT and Table I attached to the RCPAT, charged to the Respondent, in accordance with the provisions of Articles 12, n. 2 of the RJAT and 4, n. 4 of the RCPAT and 527 of the CPC.
Notify.
Lisbon, 31 January 2017
The Arbitrator,
(Eva Dias Costa)
Text prepared by computer, in accordance with Article 131, n. 5 of the Civil Procedure Code, applicable by reference of Article 29, n. 1, para. e) of the RJAT.
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