Stamp Tax Verba 28.1 TGIS on Vertical Property: Independent Units Below €1M Threshold (CAAD 552/2015-T)

ARBITRAL DECISION

1. REPORT

A…, taxpayer with Tax ID No. … and with tax residence at Street …, No. … – …, in Lisbon, comes, under the joint provisions of articles 2, No. 1, paragraph a), 5, No. 2, paragraph b), 6, No. 1, and 10, No. 1, paragraph a), all of Decree-Law No. 10/2011, of January 20, which approved the Legal Framework for Tax Arbitration ("RJAT"), to request the constitution of an Arbitral Tribunal, with the intervention of a sole arbitrator, in which the Tax and Customs Authority (AT) is the Respondent, with a view to declaring the illegality and consequent annulment of the Stamp Tax assessments of the year 2013, issued under Item 28.1 of the TGIS, on the various divisions of independent use and residential purpose of the urban property registered under the article … of the parish and municipality of …, of which it is the owner.

Cumulatively, the Applicant requests the condemnation of the Respondent to the restitution of the sums unduly paid, plus indemnificatory interest at the legal rate, from the date of payment of the undue tax until the date of its effective restitution.

The following are the grounds for the request for annulment of the Stamp Tax assessment acts:

a. The property in question comprises 8 floors and 21 divisions of independent use, 19 of which are for residential purpose, whose taxable property value (VPT), determined in accordance with article 7, No. 2, paragraph b), of the CIMI, ranges between € 58,570.00 and € 66,100.00, in a total value of € 1,173,010.00;

b. Taking into account that the VPT of each division with independent use, albeit for residential purpose, is much lower than the limit of € 1,000,000.00, provided in Item 28.1 of the TGIS, the Applicant understands that the AT cannot subject these units, nor the property as a whole, to Stamp Tax under the said provision;

c. Law No. 55-A/2012, of 29/10, added Item 28 to the TGIS, whose initial wording, applicable to the assessments in question, was worded as follows: "28 – Ownership, usufruct or right of surface of urban properties whose taxable property value contained in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or higher than (euro) 1,000,000 – on the taxable property value used for IMI purposes:

28.1 – For property with residential purpose – 1%;

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial order of the Minister of Finance – 7.5%.";

d. From which it follows that the scope of application covers the "Ownership, usufruct or right of surface" of properties that cumulatively meet the following requirements: 1. That they be urban; 2. That they be intended for residential use; and 3. That they have a VPT of value equal to or higher than € 1,000,000.00;

e. In approving this innovation, the legislator intended to introduce a principle of taxation of wealth manifested through ownership, usufruct or right of surface of urban luxury properties, with residential purpose, as concluded from the analysis of bill No. 96/XII in the Assembly of the Republic, available in the Parliamentary Gazette No. 9/XII/2, of 11/10/2012, according to which, the measure designated as "special tax on residential urban properties of higher value" is based on the principles of social equity and tax justice, by burdening dwellings (house, autonomous fraction or flat with independent use);

f. Thus, the Applicant understands that the existence in each property of independent dwellings, under a regime of horizontal or vertical ownership, may be covered by the incidence of the tax, but only if the VPT of each of the parts or fractions is equal to or higher than € 1,000,000.00;

g. It understands that one cannot fit within the scope of this incidence provision urban properties, as a whole, when constituted by independent units, with separate VPT valuations, as this is not the intention of the legislator;

h. According to the AT, the sum of the VPT relating to the 19 divisions with independent use, with residential purpose, which amount to a global VPT of € 1,173,010.00, gives rise to the incidence of Stamp Tax;

i. According to the Applicant, such understanding is contrary to law, especially since Law No. 55-A/2012, of 19/10, does not clarify the concept of "property with residential purpose"; however, the same law added to the Stamp Tax Code article 67, No. 2, which mandates the subsidiary application of the CIMI to matters not regulated, concerning Item 28 of the TGIS;

j. The concept of urban property is that which results from article 2 of the CIMI; its article 6 indicates the different types of urban properties, among which residential ones (paragraph a), of No. 1), clarifying in No. 2 of the same article, that "residential, commercial, industrial or service properties are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal purpose each of these uses";

k. From this it can be concluded that, from the legislator's perspective, what matters is not the legal-formal rigor of the concrete situation of the property, but rather its normal use, the purpose for which it is intended, and that the situation of the property in vertical or horizontal ownership is not relevant, as no distinction is made between one and another, as has been decided by extensive case law of the Arbitral Tribunal;

l. Thus, there being no single fraction or division with independent use, for residential purpose, with a VPT equal to or higher than € 1,000,000.00 in the property, the AT could never subject the Applicant to tax under Item 28.1 of the TGIS, which the Applicant contests as being illegal, unacceptable and contrary to, among others, the principle of tax legality;

m. The assessments in question violate the principle of equality, provided in article 13 of the Constitution of the Portuguese Republic (CRP) and specifically the principle of tax equality, which is not limited to the rule of universality of taxes, according to which these are owed by all who demonstrate tax capacity, also including the rule of uniformity, according to which all must be bound to the payment of taxes on the basis of the same criterion;

n. According to this rule, what is equal should be taxed equally and what is unequal should be taxed unequally, to the extent of that inequality;

o. If the property were under the regime of horizontal ownership, none of its residential fractions would be subject to tax, since the AT would heed the VPT of each of the autonomous fractions;

p. As for properties not constituted in horizontal ownership, article 12, No. 3 of the CIMI provides that "each floor or part of a property capable of independent use is considered separately in the matriculation registration which equally discriminates the respective taxable property value", and this should be the principle applicable to the taxation of the tax, as a matter of equality;

q. The legislator itself treated in the CIMI the two situations – horizontal and vertical ownership – in an equitable manner, applying the same criteria, so that the AT cannot distinguish where the legislator understood it should not, under penalty of violation of the principle of tax legality, inherent in article 103, No. 2 of the CRP, and also the principles of justice, equality and tax proportionality;

r. The assessments in question incur the defect of violation of article 1 of the CIS, combined with Item 28 of the TGIS, since it was not the intention of the legislator to tax properties in vertical ownership by the sum of the VPT of the fractions or divisions of independent use for residential purpose, when each of them has a VPT below € 1,000,000.00; if the interpretation given by the AT to the applicable provisions is to be maintained, such interpretation is manifestly unconstitutional by violation of, among others, articles 13, 62, 103 and 104 of the CRP.

The Applicant concludes by requesting the declaration of illegality of the assessments in question, as well as the condemnation of the AT to the restitution of the tax paid, plus indemnificatory interest, in accordance with No. 1 of article 43 of the General Tax Law (LGT), attributing to the request the value of € 11,730.10 (eleven thousand, seven hundred and thirty euros and ten cents).

Notified in accordance with and for the purposes provided in article 17 of the RJAT, the AT presented a response, defending itself by way of exception and by impugnation, in the following terms:

By way of exception

1. Of the incompetence of the Arbitral Tribunal

a. The Applicant is the owner of the urban property identified in the request for arbitral pronouncement, constituted under a regime of vertical ownership, composed of a total of 8 floors and 21 divisions capable of independent use, of which 19 are intended for residential purpose;

b. The taxable property value was determined separately, in accordance with article 7, No. 2, paragraph b) of the CIMI, the total taxable property value being the amount of € 1,559,220.00, of which € 244,700.00 refers to a division intended for commerce, € 141,510.00 relates to a division intended for services and € 1,173,010.00 refers to the 19 divisions intended for residential purpose (cf. pp. 62 and 63 of the PA);

c. It was on this value that the AT assessed, in accordance with articles 6, No. 1, paragraph f), sub-paragraph i), the stamp tax of Item 28.1 of the TGIS, as amended by article 4 of Law No. 55-A/2012, of 29/10, at the rate of 1 percent;

d. However, the collection notes which the Applicant refers to in its request for arbitral pronouncement and whose annulment it seeks, concerning the 1st, 2nd and 3rd installments of the stamp tax of the year 2013, do not constitute any tax assessment act; the Applicant does not contest the tax assessment act, but rather the payment of the installments of the assessment act contained in collection notes;

e. Thus, the object of the proceedings is the annulment not of a tax act (or of 2/3 of a tax act, which would not be legally possible), but rather of collection notes for the payment of the installments of a tax, a matter which is not contained, in any way, within the set of provisions that delimits the competence of tax arbitral tribunals, contained in article 2 of the RJAT;

f. That is, the Arbitral Tribunal is incompetent to review the request made, namely that of the legality of a mere collection note;

g. Now, the incompetence of the tribunal constitutes an exception of dilatory knowledge of its own motion in accordance with articles 576 and paragraph a) of article 577 of the CPC applicable by virtue of article 29, No. 1, paragraphs a) and e) of the RJAT, which is hereby requested.

2. Of the non-contestability of the acts

h. The Applicant contests the installments relating to the payment of a unit value of tax, as is evident from the combination of articles 120 and 113, No. 1, both of the IMI Code, in addition to No. 7 of article 23 of the Stamp Tax Code, as amended by Law No. 55-A/2012, of 29/10;

i. The Stamp Tax referred to in Item 28 of the TGIS is assessed annually, and payment in installments is nothing more than a technique for collecting the tax and not a partial payment thereof, which is why the payment of one of the installments of the assessment made under Item 28.1 of the TGIS is not a partial payment of that assessment, but merely a technique for collecting the assessed tax;

j. Thus, it is verified that there is a single assessment and its payment is effected in installments, which does not allow the contestation of just one installment or collection document with that partial value;

k. For all the foregoing, the AT understands that these collection documents are not contestable per se, which is why the exception invoked should be upheld and the AT should be absolved from the request;

By way of impugnation

l. The subjection to stamp tax of Item 28.1 of the TGIS results from the combination of two factors, namely, the residential purpose and the taxable property value of each urban property registered in the matrix being equal to or higher than € 1,000,000.00;

m. The situation of the property in question fits, linearly, which means, literally, within the provision of the Item in question;

n. The now applicant is the owner of a property under a regime of full or vertical ownership. From the notion of property in article 2 of the CIMI, only the autonomous fractions of a property under a regime of horizontal ownership are regarded as properties – No. 4 of the cited article 2 of the CIMI; being the property of which it is owner under a regime of full ownership, it does not have autonomous fractions, to which tax law attributes the qualification of property;

o. Thus, for the purposes of IMI and also of Stamp Tax, by virtue of the wording of the said Item, it is not the owner of autonomous fractions, but rather of a single property;

p. What the applicant seeks is that the AT considers that, for the purposes of assessment of the present tax, there is an analogy between the regime of full ownership and that of horizontal ownership, as there should be no discrimination in the legal-tax treatment of these two property regimes, as it would be illegal;

q. Now, to claim that the interpreter and applicant of tax law apply, by analogy, to the regime of full ownership the regime of horizontal ownership, is what is abusive and illegal;

r. These two property regimes are regimes of civil law, which have been imported into tax law, namely in accordance with the terms referred to in article 2 of the CIMI, and the interpreter of tax law cannot equate them, in accordance with the rule according to which the concepts of other branches of law have the meaning in tax law that is given to them in those branches of law (see article 11, No. 2 of the LGT);

s. In determining the meaning of tax provisions and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed, as per article 11, No. 1 of the LGT, which thus refers to article 10 of the Civil Code, on the application of analogy, which determines that this shall only be applicable in case of gaps in the law;

t. Now, the tax law contains no such gap. The CIMI determines, to which the said Item refers, that in the regime of horizontal ownership the fractions constitute properties; we cannot, therefore, accept that, for the purposes of Item 28.1 of the TGIS, the parts capable of independent use have the same tax regime as the autonomous fractions of the regime of horizontal ownership;

u. The floors or independent divisions, valued in accordance with article 12, No. 3 of the CIMI, are considered separately in the matriculation registration, which equally discriminates the respective VPT on which IMI is assessed; however, the unity of an urban property in vertical ownership, composed of several floors or divisions, is not affected by the fact that all or some of those floors or divisions are capable of independent economic use;

v. The fact that IMI has been calculated as a function of the VPT of each part of property with independent economic use does not equally affect the application of Item 28, No. 1 of the TGIS, as it is evident from the fact that the determining factor for the application of that Item is the total VPT of the property and not separately that of each of its parcels;

w. Any other interpretation would violate, indeed, the letter and spirit of Item 28.1 of the TGIS and the principle of legality of the essential elements of the tax, provided in article 103, No. 2 of the Constitution of the Portuguese Republic (CRP);

x. The legislator may subject properties under horizontal and vertical ownership regimes to a distinct, and therefore discriminatory, legal-tax framework, benefiting the more legally advanced institute of horizontal ownership, without such discrimination being considered arbitrary;

y. All things considered, we must necessarily conclude that the tax acts in question, in terms of substance, did not violate any legal or constitutional provision, and should be maintained in the legal order;

z. With regard to the request for indemnificatory interest, since the arbitral process, as defined in the RJAT, aims at a mere control of the legality of the assessment in question, it cannot determine that there was "error attributable to the services"; moreover, in the case in question, the situation that the law configures as "error attributable to the services" is not verified, which is why the request for indemnificatory interest fails, being unfounded.

The AT concludes that, should the exceptions invoked not be judged to be well-founded, the present arbitral action should be judged unfounded, and the entity Respondent should be absolved from the request.

The AT further requested the dispensation of the meeting provided for in article 18 of the RJAT, considering that the proceedings should continue with written pleadings, within a deadline to be indicated by the Tribunal.

The request for constitution of the Arbitral Tribunal was filed at the CAAD on August 24, 2015, and was accepted by His Excellency the President of the CAAD and automatically notified to the AT on September 14, 2015.

Not wishing the Applicant to use the faculty of designating an arbitrator, the undersigned was appointed arbitrator by His Excellency the President of the Deontological Council of the CAAD, under the provisions of No. 1 of article 6 of the RJAT, a duty which was accepted within the legally prescribed deadline, without opposition from the Parties.

The Singular Arbitral Tribunal was duly constituted on November 11, 2015.

The Parties have legal personality and capacity, are legitimate and are duly represented (articles 4 and 10, No. 2 of the RJAT and article 1 of Ministerial Order No. 112-A/2011, of March 22). The proceedings are free from nullities.

Pursuant to the arbitral order of December 15, 2015, notified to the Parties on the same date, the meeting alluded to in article 18 of the RJAT was dispensed with, determining that the proceedings would continue with the production of successive written pleadings, starting with the notification thereof a deadline of 10 days for pleadings by the Applicant and, with the notification of the presentation of the Applicant's pleadings, a deadline of 10 days for pleadings by the AT. The date of January 27, 2016 was set for the pronouncement of the arbitral decision.

By request of December 16, 2015, supplemented by written pleadings sent to the file on December 28, 2015, the Applicant came to respond to the exceptions invoked by the AT in its response, clarifying that it did not intend to contest any of the installments in which the assessments in question were subdivided, but rather the Stamp Tax assessments of the year 2013, in their entirety, which had already been the subject of a gracious complaint, maintaining, moreover, the arguments set out in the request for arbitral pronouncement.

The AT presented no pleadings.

2. FACTS

2.1. Facts considered proven:

2.1.1. On December 31, 2013, the date of the tax event, the Applicant was the owner of the urban property registered in the matrix under the article … of the parish and municipality of …, then characterized as a property in full ownership, consisting of 8 floors and 21 floors or divisions capable of independent use, 19 of which are intended for residential purpose;

2.1.2. The total VPT of the property was, at that date, € 1,559,220.00, while the sum of the VPT assigned to the floors or divisions capable of independent use and residential purpose was the amount of € 1,173,010.00, this being the value indicated in each of the Stamp Tax collection notes as "Taxable property value of the property – total subject to tax";

2.1.3. The VPT assigned to each floor or division capable of separate lease and residential purpose, as shown in the collection notes issued, ranged between € 58,570.00 and € 66,100.00;

2.1.4. The property identified would subsequently be constituted under the regime of horizontal ownership, by public deed of May 14, 2014;

2.1.5. In the name of the Applicant, on March 17, 2014, Stamp Tax assessments for the year 2013 were issued, for voluntary payment in three annual installments, the first installments of which are contained in the collection notes identified in the table below, based on the VPT of each of the divisions capable of independent use and the rate of 1%:

2.1.6. On August 25, 2014, the Applicant filed a gracious complaint at the Lisbon Tax Office …, in whose petition it stated that "having been notified of the assessment of stamp tax, for the year 2013, in the amount of € 11,730.66 (eleven thousand seven hundred and thirty euros and sixty-six cents) made under the provisions of Item 28 of the General Table of Stamp Tax, introduced by Law No. 55-A/2012, of October 29, and to effect the payment of the installments of April and July 2014, comes, under the provisions of article 49 of the Stamp Tax Code (CIS) and articles 70 and 102 of the Tax Procedure and Process Code (CPPT), to file a complaint of the assessment of that amount (…)";

2.1.7. The said gracious complaint, filed under No. …2014…, would subsequently be denied by order of May 29, 2015, of the Head of the Administrative Justice Division of the Lisbon Finance Bureau, notified to the Applicant, through its Mandatary, by letter No. … of the mentioned AT Service, dated June 1, 2015 (Registered with A/R – RD … PT);

2.1.8. The Stamp Tax assessments for the year 2013, subject of the present request for arbitral pronouncement, in the global amount of € 11,730.10, were paid in full on April 22, 2014, July 21, 2014 and November 26, 2014, the first, second and third installments, respectively.

2.2. Grounds for the facts proven:

The Tribunal's conviction as to the facts proven resulted from the analysis of the documentary evidence attached to the request for arbitral pronouncement and to the PA (copies of the property register of the identified property, evidence of payment of the collection notes issued in the name of the Applicant, as well as the decision on the gracious complaint and notification of its dismissal).

2.3. Facts not proven

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

3. LEGAL MATTERS – GROUNDS

3.1. Of the exceptions invoked by the AT: the incompetence of the arbitral tribunal and the non-contestability of the acts.

The verification of any of the exceptions invoked by the AT would result in the absolution from the instance, preventing the knowledge of the merits of the case, and is therefore subject to priority review, in accordance with No. 1 of article 608 of the Code of Civil Procedure, applicable subsidiarily to tax arbitral proceedings, by virtue of the provisions of article 29, No. 1, paragraph e) of the RJAT.

With regard to the exception of incompetence, No. 1 of article 16 of the CPPT, of subsidiary application, in accordance with article 29, No. 1, paragraph a) of the RJAT, establishes that "The infringement of the rules of competence as to hierarchy and subject matter determines the absolute incompetence of the court"; as for the non-contestability of the contested act, this is classified as a dilatory exception by paragraph i) of No. 4 of article 89 of the CPTA, as amended by Decree-Law No. 214-G/2015, of 02/10.

These are, however, two exceptions closely linked, given the competences attributed to tax arbitral tribunals by article 2 of the RJAT, in particular and for the case of the present proceedings, by paragraph a) of No. 1 of the cited provision, according to which such competence includes the review of requests for "(…) declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account" and the fact that both doctrine and case law agree that an installment of an assessment that must, by legal provision, be paid in installments, does not constitute a tax assessment act, amounting to merely a technique for collecting the tax.

Effectively, both in the case of IMI and in the case of Stamp Tax of Item 28.1 of the TGIS, given the referral established by No. 7 of article 23 of the Stamp Tax Code, there is a single annual assessment, which may be paid in one, two or three installments, in accordance with No. 1, paragraphs a), b) and c), respectively, of article 120 of the IMI Code.

However, as results from the evidence above (point 2.1.6), already in the gracious complaint request the Applicant sought the annulment of the assessment, in its entirety, stating that, "having been notified of the assessment of stamp tax, for the year 2013 (…), comes, under the provisions of article 49 of the Stamp Tax Code (CIS) and articles 70 and 102 of the Tax Procedure and Process Code (CPPT), to file a complaint of the assessment (…)".

Thus, having the Applicant petitioned, both at the administrative level and at the arbitral level, for the declaration of illegality and consequent annulment of the Stamp Tax assessments of the year 2013, in their entirety, and not of any of the installments in which those assessments are subdivided, the exceptions invoked by the AT are not verified, and nothing prevents the knowledge of the merits of the case.

3.2. The question to be decided:

The main question brought before the Tribunal by the Applicant is whether the subjection to Stamp Tax (Item 28 of the TGIS) of an urban property not constituted in horizontal ownership is determined by the VPT corresponding to each one of the divisions of independent use and with residential purpose, as it argues, or whether it is determined by the global VPT of the property, which would correspond to the sum of all VPTs of the floors or divisions of independent use and with residential purpose that make up the property, in accordance with the interpretation given by the AT to the said provision.

3.3. Of the concept of urban property with residential purpose

In its initial wording, applicable to the situation in question, Item 28 of the TGIS, provided that the following situations were subject to stamp tax:

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

28.1 – For property with residential purpose – 1%;

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ministerial order of the Minister of Finance – 7.5%."

Cumulative requirements for the application of this provision are that the property to be taxed is an urban property "with residential purpose," and that its taxable property value, for IMI purposes, is equal to or higher than € 1,000,000.00.

On the other hand, No. 1 of article 11 of the General Tax Law (LGT) establishes that "1 – In determining the meaning of tax provisions and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed."

Thus, the starting point for the interpretation of the provision is the grammatical element, that is, the text of the law, although, in determining the meaning and value of the provision, the interpreter cannot fail to consider the logical element or, in accordance with No. 1 of article 9 of the Civil Code, fail to "reconstitute (…) the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied."

The incidence provision contained in Item 28.1 of the TGIS uses the expression "property with residential purpose," whose concept is not defined in the Code in which it is inserted, nor in any other legislation of a tax nature.

However, taking into account the provisions of the IMI Code, to whose subsidiary application it refers in bulk, in No. 2 of article 67 of the Stamp Tax Code, added by Law No. 55-A/2012, of 29/10, it can be concluded that the type of urban property that best corresponds to the concept of "property with residential purpose" is that of residential properties, as buildings or constructions licensed for residential use or which, in the absence of a license, have residential use as their normal purpose (see article 6, No. 1, paragraph a) and No. 2 of the CIMI).

However, the urban property of which the Applicant is the owner, integrating floors or divisions capable of independent use, some intended for commerce and services and others intended for residential use, cannot, globally, be considered an urban property with residential purpose, since it has a purpose that can be classified in more than one of the classifications established by No. 1 of article 6 of the IMI Code.

Nor does it appear that the floors or divisions intended for residential use that are part of it can be segregated from the whole, so that, together, they integrate the notion of property with residential purpose provided in the incidence provision of Item 28.1 of the TGIS.

3.4. Of the distinction between floors or divisions capable of independent use and autonomous fractions, for tax purposes

Notwithstanding the provision of No. 3 of article 12 of the CIMI establishing that "Each floor or part of a property capable of independent use is considered separately in the matriculation registration, which also discriminates the respective taxable property value," which is also discriminated in the collection document (see No. 1 of article 119 of the CIMI), the AT argues that the VPT relevant for the purposes of the incidence provision of Item 28.1 of the TGIS is the global taxable property value of the property and not the value of each one of the divisions of independent use.

And it does so by arguing that, should the VPT relevant for the application of that incidence provision be that of each division of independent use, one would be applying, by analogy, to properties in vertical ownership the regime of horizontal ownership, in which, in accordance with No. 4 of article 2 of the CIMI, each autonomous fraction constitutes a property.

Effectively, from a formal point of view, the AT is correct in pointing out that a property constituted in horizontal ownership is a distinct legal-tax reality from an urban property in vertical or full ownership.

However, if No. 4 of article 2 of the CIMI establishes the legal fiction that each one of the autonomous fractions of a property constituted in horizontal ownership constitutes a property, it does not necessarily follow from this that a part of independent use of an urban property not constituted in horizontal ownership should be considered a property.

If the legislator used, in the provision of Item 28.1 of the TGIS, the expression "urban property with residential purpose," it does not appear legitimate that the AT should seek to include in it the floors or divisions of independent use of properties not constituted in horizontal ownership which, as the AT itself recognizes, are not properties, and therefore cannot be equated to the autonomous fractions of properties constituted under the regime of horizontal ownership.

3.5. Of the taxable property value of urban properties in full ownership

With respect to the determination of the taxable property value of properties not constituted in horizontal ownership, article 7, No. 2 of the CIMI applies, but only as regards "urban properties with parts classifiable into more than one of the classifications of No. 1 of the preceding article," in which case, in accordance with its paragraph b) "(…) each part is valued by application of the corresponding rules, and the value of the property is the sum of the values of its parts."

And this is the only provision of the CIMI in which reference is made to the "[global] value of the property," although, however, this has no relevance at the level of tax assessment.

Thus, from the combination of the provisions of No. 2 of article 7 and No. 1 of article 6, both of the CIMI, it follows that, if an urban property not constituted in horizontal ownership comprises exclusively parts or divisions intended for residential use, the [global] value of the property does not equal the sum of its parts.

3.6. Of the VPT relevant for the purposes of Item 28.1 of the TGIS

As referred to in the preceding point, the VPT of an urban property not constituted in horizontal ownership, which comprises exclusively parts or divisions with residential purpose, does not equal the sum of the VPTs individually attributed to each one of those parts or divisions, since No. 2 of article 7 of the CIMI applies only to urban properties that have more than one classification, of those provided in the preceding article.

Which is equivalent to saying that each one of these parts is autonomous and that, having not been assigned a VPT equal to or higher than € 1,000,000.00, it shall be excluded from the incidence of Stamp Tax – Item 28.1 of the TGIS.

Having reached this point, it is necessary to question the subjection to Stamp Tax of a part or division of independent use, with residential purpose, of a property not constituted in horizontal ownership, in which parts or divisions of independent use are integrated, classifiable into more than one of the classifications of No. 1 of article 6 of the CIMI, as is the case in question.

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

It is that, here, we are not comparing two legally distinct realities, as would be the parts or divisions of independent use of an urban property not constituted in horizontal ownership, on the one hand, and the autonomous fractions of properties submitted to that regime, which, for IMI purposes, are themselves properties, on the other.

What is being compared here are realities in all respects identical, that is, parts or divisions of independent use and residential purpose, integrated in urban properties not constituted in horizontal ownership.

And the answer to the question must be in the negative, because nothing would justify that the legislator intended to tax divisions of independent use and residential purpose of an urban property not constituted in horizontal ownership, comprised of other parts or divisions of independent use intended for other purposes, and not tax parts or divisions of independent use and residential purpose of another urban property in full ownership, comprised exclusively of floors or divisions of independent use, intended for residential use.

It not appearing that this is the legislative intent, one cannot accept that the AT formulate an incidence provision ex novo, different from that which was created by the legislator, seeking to tax parts of properties, although economically and functionally independent and, as such, separately registered in the matrix, since the law is clear in subjecting to stamp tax of Item 28.1 of the TGIS urban properties (and not parts thereof) with residential purpose, whose VPT, for IMI purposes, is higher than € 1,000,000.00.

Effectively, as the Applicant refers to in its pleadings and has already served as grounds for other arbitral decisions, notably the one delivered in case No. 50/2013-T, "The ratio legis underlying the rule of Item 28 of the TGIS, introduced by Law No. 55-A/2012 of October 29, in obedience to the provisions of article 9 of the Civil Code, according to which the interpretation of the legal provision should not be limited to the letter of the law, but should reconstitute from the texts and other elements of interpretation the legislative intent, taking into account the unity of the legal system, the circumstances in which it was elaborated and the specific conditions of the time in which it is applied.

The legislator in introducing this legislative innovation considered as the determining element of tax capacity urban properties, with residential purpose, of high value, more precisely, of value equal to or higher than € 1,000,000.00, on which it began to impose a special rate of stamp tax, seeking to introduce a principle of taxation on wealth manifested in the ownership, usufruct or right of surface of luxury urban properties with residential purpose. The criterion was the application of the new rate to urban properties with residential purpose, whose VPT is equal to or higher than € 1,000,000.00.

Such logic appears to make sense when applied to "dwelling," whether it be "house," "autonomous fraction" or "part of property with independent use" "autonomous unit," because it presupposes a tax capacity above the average and, to that extent, justifies the need for an additional tax contribution effort, it would make little sense to then disregard the appraisals "unit by unit" when only through the sum of the VPTs thereof, because held by the same individual, the million euros threshold would 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 Parliamentary Gazette, I series, No. 9/XII/2nd, of October 11, 2012."

Thus, we have that, in addition to the grammatical and systematic elements of interpretation of the incidence provision contained in Item 28.1 of the TGIS, also the rational or teleological element, the ratio legis or purpose intended by the legislator in elaborating that provision, points to the taxation inciding on urban properties and not on parts of urban properties, although of independent use and with residential purpose.

For the reasons set out, one cannot fail to consider verified the defect of violation of law, by error in the application of the law, resulting from the erroneous interpretation of the incidence provision contained in Item No. 28.1 of the TGIS.

3.7. Of the request for indemnificatory interest

The tax arbitral process was conceived as an alternative means to the process of judicial impugnation (see the legislative authorization given to the Government by article 124, No. 2 – first part – of Law No. 3-B/2010, of April 28 – State Budget Law for 2010).

Thus, although article 2, No. 1, paragraph a) of the RJAT uses the expression "declaration of illegality" as delimiting the competence of the arbitral tribunals functioning at the CAAD, it should be understood that this competence encompasses the powers that in judicial impugnation proceedings are attributed to tax courts, such as the power to review error attributable to the services.

On the other hand, one of the effects of the arbitral decision on the merits of the claim from which no appeal or impugnation lies, is the binding of the tax administration to "reestablish the situation that would have existed if the tax act which is the subject of the arbitral decision had not been made, adopting the acts and operations necessary for that purpose," which includes "the payment of interest, regardless of its nature, in accordance with the terms provided in the General Tax Law and in the Tax Procedure and Process Code." (see article 24, No. 1, paragraph b) and No. 5 of the RJAT).

Similarly, article 100 of the LGT, applicable to tax arbitral proceedings by virtue of the provisions of paragraph a) of No. 1 of article 29 of the RJAT, establishes that "The tax administration is obliged, in case of total or partial success of complaints or administrative appeals, or judicial proceedings in favor of the taxpayer, to immediate and full reestablishment of the situation that would have existed if the illegality had not been committed, including the payment of indemnificatory interest, in accordance with the terms and conditions provided by law."

And, in accordance with No. 1 of article 43 of the LGT, "Indemnificatory interest is due when it is determined, in a gracious complaint or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due."

Error attributable to the services may consist of error as to the factual assumptions, which occurs whenever there is "a divergence between reality and the factual matter used as a premise in the making of the act,"[1] or error as to the legal assumptions, when "in the making of the act an erroneous interpretation or application has been made of the legal provisions, such as the provisions concerning objective and subjective incidence (…)"[2] and "is demonstrated when a gracious complaint or judicial impugnation of that same assessment is filed and the error is not attributable to the taxpayer."[3]

In the case in question, it is manifest that, the illegality of the Stamp Tax assessment acts having been declared, by demonstration of the erroneous application of the provision concerning objective incidence contained in Item 28.1 of the TGIS, which justifies its annulment, the right of the Applicant to indemnificatory interest on the amounts unduly paid must be recognized, from the date of their respective payment, as provided in No. 5 of article 61 of the CPPT, since such illegality is exclusively attributable to the Tax Administration, which made those tax acts without the necessary legal support.

3.8. Matters whose knowledge is barred

In the decision, the judge must pronounce on all issues that should be reviewed, refraining from pronouncing on issues of which it should not know (closing segment of No. 1 of article 125 of the CPPT), and the issues on which the powers of cognition of the tribunal rest are, in accordance with No. 2 of article 608 of the CPC, "the issues that the parties have submitted to its review, excepting those whose decision is barred by the solution given to others (…)".

In light of the solution given to the issues relating to the determination of the VPT relevant for the application of the incidence provision contained in Item 28.1 of the TGIS and the payment of indemnificatory interest in favor of the Applicant, the knowledge of the remaining issues is barred, namely those concerning the unconstitutionality of the said provision, since it is not susceptible of the interpretation which, in the case, was made by the AT.

4. DECISION

Based on the factual and legal grounds set forth above and, in accordance with article 2 of the RJAT, it is decided, judging the present request for arbitral pronouncement entirely well-founded:

4.1. To declare the illegality of the Stamp Tax assessments impugned, by error as to the legal assumptions, determining their annulment;

4.2. To condemn the AT to the restitution of the amounts unduly paid by the Applicant as Stamp Tax for 2013, plus indemnificatory interest, from the date of undue payment until the date of issuance of the respective credit note;

VALUE OF THE CASE: In accordance with the provisions of article 306, Nos. 1 and 2 of the CPC, article 97-A, No. 1, paragraph a) of the CPPT and article 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 11,730.10 (eleven thousand, seven hundred and thirty euros and ten cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 918.00 (nine hundred and eighteen euros), at the charge of the Tax and Customs Authority.

Lisbon, January 27, 2016.

The Arbitrator,

/Mariana Vargas/

Document prepared by computer, in accordance with No. 5 of article 131 of the CPC, applicable by referral of paragraph e) of No. 1 of article 29 of Decree-Law 10/2011, of January 20.

The drafting of this decision is governed by the orthographic agreement of 1990.

[1] SOUSA, Jorge Lopes de, "Tax Procedure and Process Code – annotated and commented," Volume II, Áreas Editora, 6th Edition, 2011, p. 115.

[2] Ibid.

[3] CAMPOS, Diogo Leite de, RODRIGUES, Benjamim Silva, SOUSA, Jorge Lopes de, "General Tax Law – Annotated and Commented," Encontro da Escrita, 4th Edition, p. 342.