Stamp Tax on Vertical Property Under Verba 28 TGIS: CAAD Arbitration 581/2015-T

ARBITRAL DECISION

REPORT

A - PARTIES

A… - …, S.A., with domicile located at Largo …, … … - … LISBON, holding the tax identification number for a legal entity …, hereinafter designated as Claimant or taxpayer.

THE TAX AND CUSTOMS AUTHORITY (which succeeded the General Directorate of Taxes by means of Decree-Law No. 118/2011, of 15 December) hereinafter designated as Respondent or AT.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly constituted on 20-11-2015 to appreciate and decide the object of the present proceedings, and automatically notified the Tax and Customs Authority on 20-11-2015, as recorded in the respective minutes.

The Claimant did not proceed with the appointment of an arbitrator, whereby, under the provisions of no. 1 of article 6 and subparagraph b) of no. 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated arbitrator Paulo Ferreira Alves, the appointment having been accepted in accordance with legal provisions.

On 05-11-2015 the parties were duly notified of this designation and did not manifest intent to refuse the arbitrator's appointment, in accordance with article 11 no. 1, subparagraphs a) and b), of the RJAT and Articles 6 and 7 of the Deontological Code.

In accordance with the provisions of subparagraph c) of no. 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the single arbitral tribunal is duly constituted on 20-11-2015.

Both parties agree with the waiver of the meeting provided for in article 18 of the RJAT.

The arbitral tribunal is duly constituted. It is materially competent, in accordance with articles 2, no. 1, subparagraph a), and 30, no. 1, of Decree-Law No. 10/2011, of 20 January.

The parties possess legal personality and capacity, are legitimate and are legally represented (articles 4 and 10, no. 2, of the same statute and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from defects that would render them invalid.

B - CLAIM

1. The Claimant herein seeks a declaration of illegality of the tax assessment acts relating to Stamp Tax: No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, which imposed a total tax of € 12,589.50 (twelve thousand five hundred and eighty-nine euros and fifty cents).

C - GROUNDS OF CLAIM

1. To support its request for an arbitral decision, the Claimant alleged, in order to obtain a declaration of illegality of the tax assessment acts relating to Stamp Tax, already described in item 1 of this Award, in summary, the following:

2. It is the owner of urban real property located on Av. …, No. …, in Lisbon, the property being composed of eleven independent units, individually identified for tax purposes, of which ten are designated for residential use and one is designated for services.

3. The property values of the residential units of that property are, respectively, € 126,880.00 (1st Right), € 122,120.00 (1st Left), € 128,310.00 (2nd Right), € 123,350.00 (2nd Left), € 128,310.00 (3rd Right), € 123,550.00 (3rd Left), € 128,310.00 (4th Right), € 123,350.00 (4th Left), € 129,590.00 (5th Right) and € 124,780.00 (5th Left), and the property value of the unit designated for services is € 212,310.00.

4. These values total a property value of € 1,960,430.00.

5. The Claimant submitted a gracious complaint concerning the assessments on 08 April 2015.

6. As the Tax Authority did not rule on the said complaint, the Claimant alleges that its implicit dismissal is presumed, which occurred on 07 August 2015.

7. The Claimant argues that the Tax Administration assessed the stamp tax here challenged because the floors of the property with residential designation total the value of € 1,258,950.00, that is, the sum of the values of the floors designated for residential use exceeds € 1,000,000.00.

8. The Claimant submits that such understanding of the law is abusive and that the letter and spirit of the law did not intend to encompass this type of situations, whereby all assessments are illegal.

9. It maintains that the requirements for presentation of this challenge are met and that the challenger is timely in presenting it.

10. In the case of a property such as the one before the tribunal, which includes floors or divisions with independent use, the subjection to stamp tax is not determined by the sum of the TBVs of all such floors or divisions, but by the TBV of each one.

11. Moreover, pursuant to the CIMI, each floor or part of property susceptible to independent use is considered separately in the registration entry.

12. And it is precisely to the TBV recorded in the property register that the text of the law directs attention to determine the incidence of stamp tax on item no. 28 of the TGIS.

13. The TBV recorded in the property register that determines subjection to stamp tax on item no. 28.1 of the TGIS of each floor or part of property susceptible to independent use is, therefore, the TBV of that floor or part, and not the sum of that TBV and the TBVs of the other floors and parts existing in the property.

14. As the TBVs of the floors recorded in the property register, in accordance with the CIMI, are all below € 1,000,000, stamp tax on item no. 28.1 of the TGIS does not apply to them, here being challenged.

15. The Claimant alleges that it cannot be understood, as the Tax Administration intends, that the subjection to stamp tax of each floor or part of property susceptible to independent use and registered separately in the property register would be determined, not by its respective TBV, but by the sum of the TBVs of each of the floors or parts of the same property susceptible to independent use and with residential designation.

16. It defends this because such formulation of the incidence rule does not have a minimum of correspondence in the letter of item no. 28.1 of the TGIS.

17. But also because it has no correspondence with the meaning of item no. 28.1 of the TGIS, maintaining that this intends to subject to tax not the properties themselves, but the dwellings existing in them, with value exceeding € 1,000,000.

18. If the subjection of each dwelling to tax under item no. 28 of the TGIS were to be determined by that of the other independent dwellings existing in the same property, the taxable event would cease to be the value of the dwelling but the concentration of various dwellings in a given property.

19. The Claimant defends that the concentration of independent dwellings in the same property cannot constitute a cause of incidence of stamp tax on item 28 of the TGIS on each one, just as it does not constitute a cause of that incidence on a residential property the concentration of various residential properties under the ownership of the same person.

20. As it cannot constitute a cause of that incidence, perhaps, the lack of constitution under a horizontal property regime of a property constituted by independent dwellings.

21. The Claimant maintains that the legal form of ownership of the property cannot be determinant of that incidence.

22. In determining subjection to stamp tax, item no. 28 of the TGIS ostensibly disregards the plurality of properties or units or divisions under the ownership of the same taxpayers, but only knows each of them in isolation.

23. The Claimant concludes by maintaining the illegality and voidability of the assessment acts relating to Stamp Tax due to violation of the incidence rule of item 28.1 of the TGIS.

D - THE RESPONDENT'S ANSWER

1. The Respondent, duly notified for this purpose, timely filed its answer in which, in brief summary, it alleged the following:

2. The Claimant's property situation literally falls within the provision of item 28.1 of the TGIS.

3. The Claimant is, therefore, the owner of a property under a total or vertical ownership regime, whereby there are no autonomous units to which tax law can assign the qualification of property.

4. This follows from the notion of property in article 2 of the CIMI, according to which only autonomous units of property under a horizontal ownership regime are considered as properties.

5. Thus, the Claimant herein, for purposes of IMI and stamp tax, by force of the wording of the said item, is not the owner of 13 autonomous units, but rather of a single property.

6. The Respondent alleges that horizontal property is a specific legal regime of property provided for in articles 1414 and following of the Civil Code, which provides for and regulates the manner of constitution as well as other rules regarding the rights and obligations of condominium owners, recognizing a more evolved regime of property.

7. It further maintains that attempting to have the interpreter and applier of tax law apply, by analogy to the total property regime, the horizontal property regime would be, at minimum, abusive and illegal. These two property regimes are civil law regimes, which were imported into tax law, specifically in the terms referred to by article 2 of the CIMI.

8. The interpreter of tax law is prohibited from equating the two property regimes, in accordance with the rule whereby the concepts of other branches of law have the meaning in tax law that is given to them in those branches of law, or as referred to in article 11, no. 2 of the LGT.

9. On the other hand, given that in determining the meaning of tax rules and in qualifying the facts to which they apply the general rules and principles of interpretation and application of laws are observed, as provided in article 11, no. 1 of the LGT, which refers to the Civil Code which, in article 10 on the application of analogy, determines that this will only be applicable in case of gaps in the law.

10. Defending that tax law contains no such gap.

11. It cannot be accepted that parts susceptible to independent use be considered, for purposes of item 28.1 of the General Table attached to the CIS, as having the same tax regime as autonomous units under the horizontal property regime, under penalty of open violation of the principle of legality.

12. Where the property is subject to the total property regime but is physically constituted by parts susceptible to independent use, tax law attributed relevance to such materiality, individually evaluating, in accordance with article 12, no. 3, of the CIMI, each floor or part of property susceptible to independent use - considered separately in the property registration but integrated in the same register - and proceeding with the assessment of IMI taking into account the taxable property value of each part.

13. In that case, the property registration must make reference to each of the parts and also to the taxable property value corresponding to each one, determined separately in accordance with articles 37 and following of the CIMI; the unit of urban property in vertical ownership composed of various floors or divisions is not, however, affected by the fact that all or part of such floors or divisions are susceptible to independent economic use.

14. Such property ceases to be one only, not having its distinct parts legally equated to autonomous units under a horizontal property regime.

15. The fact that IMI was determined based on the taxable property value of each part of property with independent economic use equally does not affect the application of item 28, no. 1, of the General Table.

16. This follows from the fact that the determinant factor for the application of that item of the General Table is the total taxable property value of the property and not separately that of each of its parcels.

17. The Respondent further states that the property registration of each part susceptible to independent use is not autonomous, by register, but is contained in a description in the register of the property in its entirety - see the property booklet of this property which represents the owner's document containing the property registration elements.

18. What is intended to be concluded is that these procedural norms of evaluation, property registration, and assessment of parts susceptible to independent use do not permit affirming that there is an equating of property under total ownership regime to vertical property regime.

19. Wherefore, the taxable property value relevant for purposes of subjection to stamp tax is thus the total taxable property value of the urban property and not the taxable property value of each one of the parts that compose it, even when susceptible to independent use.

20. And this interpretation of the incidence rule for stamp tax results from the conjunction of the other incidence rule for IMI which is article 1, according to which IMI applies to the taxable property value of urban properties, having regard to the notion of property in article 2 and of urban property contained in article 4 and further to the types of urban properties described in article 6.

21. In conclusion, the impugned tax acts, in substance, did not violate any legal or constitutional provision and should be maintained in the legal order.

E - FACTUAL GROUNDS

1. Before proceeding to the appreciation of these questions, it is necessary to present the factual matter relevant to their respective understanding and decision, which was done on the basis of documentary evidence and taking into account the facts alleged.

2. As to the relevant factual matters, this tribunal considers the following facts as established:

3. The Claimant is the owner of urban real property corresponding to property under total ownership (not horizontal).

4. The said property consists of 8 floors, corresponding to 11 units, of independent use, of which ten divisions with independent use and residential designation and one designated for services, located on Av. …, No. …, recorded in the property register under article …, of the parish of Avenidas Novas.

5. The taxable property value of the real property is € 1,960,430.00, and the value of the units with independent use and residential designation of the real property is € 1,258,950.00.

6. The assessment notes concerning the respective property refer to the following floors and divisions, the taxable property value of the said divisions with independent use, which compose the urban property, being determined separately in accordance with the provisions of article 7, no. 2, subparagraph b), of the Code of Municipal Property Tax (CIMI), resulting in the issuance of the following tax acts, here being challenged:

i. Tax Act No. 2015 …, with a tax collection to be assessed of 1,268.80€, and with a TBV of 126,880.00 €, relating to 1st Right;

ii. Tax Act No. 2015 …, with a tax collection to be assessed of 1,221.00€, and with a TBV of 122,120.00 €, relating to 1st Left;

iii. Tax Act No. 2015 …, with a tax collection to be assessed of 1,283.10€, and with a TBV of 128,310.00 €, relating to 2nd Right;

iv. Tax Act No. 2015 …, with a tax collection to be assessed of 1,233.50 €, and with a TBV of 123,350.00 €, relating to 2nd Left;

v. Tax Act No. 2015 …, with a tax collection to be assessed of 1,283.10€, and with a TBV of 128,310.00 €, relating to 3rd Right;

vi. Tax Act No. 2015 …, with a tax collection to be assessed of 1,233.50 €, and with a TBV of 123,550.00 €, relating to 3rd Left;

vii. Tax Act No. 2015 …, with a tax collection to be assessed of 1,283.10€, and with a TBV of 128,310.00 €, relating to 4th Right;

viii. Tax Act No. 2015 …, with a tax collection to be assessed of 1,233.50 €, and with a TBV of 123,350.00€, relating to 4th Left;

ix. Tax Act No. 2015 …, with a tax collection to be assessed of 1,295.90 €, and with a TBV of 129,590.00 €, relating to 5th Right;

x. Tax Act No. 2015 …, with a tax collection to be assessed of 1,247.80€, and with a TBV of 124,780.00 €, relating to 5th Left.

1. The taxable property value of the units with independent use and residential designation of the real property as of the date of the assessments is € 1,258,950.00, it being the case that none of the parts or floors with residential designation and with independent use has a taxable property value exceeding €1,000,000.00.

2. The AT assessed stamp tax as provided for in item no. 28 and 28.1 of the General Table of Stamp Tax (TGIS), in the wording introduced by article 4 of Law No. 55-A/2012, of 29/10, at the rate of 0.5% and 1%, considering as "TBV – total subject to tax," from the stamp tax assessments resulting a tax collection in the total amount of 12,589.50 €.

3. The Respondent was notified for payment of stamp tax, calculated on the total value of the ten (10) units with residential designation and assessed individually on each unit.

4. The Claimant proceeded with payment of the tax in the amount of € 12,589.50 (twelve thousand five hundred and eighty-nine euros and fifty cents), corresponding to the collection and its three installments.

5. The Claimant submitted a gracious complaint on 08 April 2015.

6. The Tax Authority did not rule on the said complaint, it being presumed that its implicit dismissal occurred, 90 days having elapsed, consequently on 07 August 2015.

F - UNPROVEN FACTS

1. Of the facts with relevance for deciding the case, contained in the challenge, all objects of concrete analysis, those not included in the factual matters described above were not proven.

G - QUESTIONS TO BE DECIDED

1. Given the positions assumed by the parties in the arguments presented, the central questions to be resolved and which it is necessary to appreciate and decide are as follows:

a. As alleged by the Claimant:

(i) As alleged by the Claimant, the declaration of illegality of the tax assessment acts relating to Stamp Tax for the year 2013, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, which imposed a total tax of € 12,589.50 (twelve thousand five hundred and eighty-nine euros and fifty cents).

H - MATTERS OF LAW

1. Given the positions assumed by the parties in the pleadings filed, the central question to be decided by this arbitral tribunal consists in appreciating the legality of stamp tax assessment acts, which applied to the residential units of the claimant in the urban property described above, due to violation of law, through erroneous interpretation and application of item 28.1 of the TGIS in the amendments introduced by article 4 of Law No. 55-A/2012, of 29 October.

2. In the case sub Judice, it is necessary to determine whether the units subject to tax fall within the criteria for the incidence of stamp tax, in accordance with item no. 28 of the TGIS, in the amendments introduced by article 4 of Law No. 55-A/2012, of 29 October.

3. It is necessary to verify, first, whether the units have residential designation, and second whether the TBV of the units recorded in the property register is equal to or in excess of €1,000,000.00, for which it is necessary to appreciate the fundamental question of what TBV of a property under vertical ownership (that is, not horizontal) should be considered for purposes of the said item. Whether the TBV corresponding to each one of the parts of the property with residential designation individually, or whether instead it is determined by the total TBV of the property, which would correspond to the sum of all TBVs of the residential units which compose it.

4. The factual matter is fixed and proven, which is why we now proceed to determine the law applicable to the contested facts, giving priority, in compliance with the provisions of subparagraph a) of no. 2 of article 124 of the CPPT, to defects whose establishment determines more stable and effective protection of the Claimant's interests, as to the defect of law due to error concerning the assumptions of the right to assess, concerning the question of the classification of urban properties under a total or vertical ownership regime, within the scope of incidence of article 28 no. 1 of the TGIS, introduced by the Regime of Law No. 55-A/2012, of 29 October.

5. The change in the regime concerning subjection to stamp tax of properties with residential designation by the addition of item 28 of the General Table of Stamp Tax, effected by article 4 of Law 55-A/2012, of 29/10 and amended by Law no. 83-C/2013, of 31 December, began to classify the following taxable facts, through the following wording:

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

28.1 – For residential property or for land for construction whose authorized or anticipated building is for residential purposes, in accordance with the provisions of the Code of IMI - 1%;

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

1. The transitional provisions contained in article 6 of Law No. 55-A/2012 establish the rules relating to the assessment of the tax provided for in that item:

"1 – In 2012, the following rules should be observed with reference to the assessment of stamp tax provided for in item no. 28 of the respective General Table:

a) The taxable event occurs on 31 October 2012;

b) The taxpayer for the tax is the one mentioned in no. 4 of article 2 of the Code of Stamp Tax as of the date referred to in the previous subparagraph;

c) The taxable property value to be used in the assessment of the tax corresponds to that which results from the rules provided for in the Code of Municipal Property Tax with reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

e) The tax should be paid, in a single installment, by taxpayers by 20 December 2012;

f) The applicable rates are the following:

i) Properties with residential designation evaluated in accordance with the Code of IMI: 0.5%;

ii) Properties with residential designation not yet evaluated in accordance with the Code of IMI: 0.8%;

iii) Urban properties when the taxpayers who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by ordinance of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of stamp tax provided for in item no. 28 of the respective General Table must apply to the same taxable property value used for purposes of assessment of municipal property tax to be carried out in that year.

3 – Failure to deliver, in whole or in part, within the indicated period, of the amounts assessed as stamp tax constitutes a tax offense, punished in accordance with the law."

1. On the interpretation of this statute, the decision 53/2013-T has already ruled:

"The concept used in item 28.1 and in the subitems i) and ii) of subparagraph f) of no. 1 of article 6 of Law 55-A/2012, a concept that is not used in any other tax legislation in these precise terms, is that of "property with residential designation." In particular, in the CIMI, which in various norms of the CIS introduced by that Law is indicated as supplementary applicable legislation with respect to the tax provided for in said item no. 28, such a defined concept is not used."

1. As to the concept of "properties," it is necessary for this purpose to resort to the concepts of properties used in the CIMI, in which the types of properties are enumerated in its articles 2 to 6, which is transcribed:

Article 2

Concept of Property

1 – For purposes of this Code, property is any parcel of territory, including waters, plantations, buildings and constructions of any nature incorporated or situated thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances mentioned above, endowed with economic autonomy in relation to the land where they are located, although situated in a parcel of territory that constitutes an integral part of a different asset or does not have patrimonial nature.

2 – Buildings or constructions, although movable by nature, are considered as having a character of permanence when devoted to non-transitory purposes.

3 – The character of permanence is presumed when buildings or constructions are situated in the same location for a period exceeding one year.

4 – For purposes of this tax, each autonomous unit, under a horizontal property regime, is considered as constituting a property.

Article 3

Rural Properties

1 – Rural properties are lands situated outside an urban settlement that should not be classified as land for construction, in accordance with no. 3 of article 6, provided that:

They are devoted or, in the absence of concrete allocation, have as their normal destination an use generating agricultural income, such as are considered for purposes of personal income tax (IRS);

Not having the allocation indicated in the previous subparagraph, they are not constructed or have only buildings or constructions of accessory character, without economic autonomy and of reduced value.

2 – Rural properties are also lands situated within an urban settlement, provided that, by force of legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact having this allocation.

3 – Rural properties are also:

Buildings and constructions directly devoted to the production of agricultural income, when situated on the lands referred to in the previous numbers;

Waters and plantations in the situations referred to in no. 1 of article 2.

4 – For purposes of this Code, urban settlements are considered, in addition to those located within legally fixed perimeters, nuclei with a minimum of 10 units served by public roads, their perimeter being delimited by points distanced 50 m from the axis of roads, in the transverse direction, and 20 m from the last building, in the direction of roads.

Article 4

Urban Properties

Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article.

Article 5

Mixed Properties

1. Whenever a property has rural and urban parts it is classified, in its entirety, in accordance with the main part.

2. If neither of the parts can be classified as main, the property is considered as mixed.

Article 6

Types of Urban Properties

1 - Urban properties are divided into:

Residential;

Commercial, industrial or for services;

Land for construction;

Others.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, that have such purposes as their normal destination.

3 – Land for construction is considered to be land situated inside or outside an urban settlement for which a license or authorization has been granted, prior notice admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been so declared in the acquisition title, excepting lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land use plans, are devoted to spaces, public infrastructure or public equipment. (Amended by Law No. 64-A/08, of 31-12)

4 – The provision of subparagraph d) of no. 1 encompasses lands situated within an urban settlement that are neither land for construction nor are covered by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of a license, that have as their normal destination purposes other than those referred to in no. 2 and also those of the exception of no. 3.

1. On the interpretation of tax norms, for the case sub Judice, article 11 of the General Tax Law tells us, which establishes the essential rules of interpretation of tax laws, which does so in the following terms:

Article 11

Interpretation

In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

Whenever, in tax norms, terms peculiar to other branches of law are used, they must be interpreted in the same sense that they have in those branches, unless otherwise directly follows from the law.

If doubt persists concerning the meaning of the incidence norms to be applied, the economic substance of the taxable facts should be considered.

Gaps resulting from tax norms covered by the legislative reserve of the National Assembly cannot be filled by analogical interpretation.

1. To this provision it is equally necessary to resort to the general principles of interpretation of laws, to which no. 1 of article 11 of the LGT refers, established in article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of Law

1 - Interpretation should not limit itself to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances under which the law was enacted, and the specific conditions of the time in which it is applied.

2 - The interpreter cannot, however, consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, although imperfectly expressed.

3 - In determining the meaning and scope of the law, the interpreter will presume that the legislature adopted the most appropriate solutions and knew how to express its intent in adequate terms.

1. Given the legal grounds already expounded, and taking into account the articles transcribed and enumerated, the following hypotheses of interpretation of the concept of "property with residential designation" emerge, as relating to properties designated for residential purposes, and as relating to the concept of "property with residential designation" as a concept distinct from "residential properties."

2. It follows from articles 2 to 6 of the CIMI transcribed above that the legislature does not use, in the classification of properties, the concept of "property with residential designation," nor is this concept found, with this terminology, in any other statute.

3. The lack of exact terminological correspondence of the concept of "property with residential designation" with any other used in other statutes can give rise to various interpretative hypotheses.

4. The text of the law, being the starting point for the interpretation of the expression "properties with residential designation," it is on the basis of this that the "legislative intent" must be reconstructed, as required by no. 1 of article 9 of the Civil Code, applicable by force of the provision of article 11, no. 1, of the LGT, already transcribed.

5. On the interpretation of the concept of "property with residential designation," it is important to cite decision 53/2013-T, which has already ruled on this matter. That decision likewise supports two interpretative hypotheses for the concept of "property with residential designation," respectively in the same sense as the present decision, as relating to properties designated for residential purposes, and as relating to the concept of "property with residential designation" as a concept distinct from "residential properties."

6. Decision 53/2013-T writes, on the concept of "property with residential designation" as relating to residential properties:

"The concept closest to the literal wording of this expression used is manifestly that of 'residential properties,' defined in no. 2 of article 6 of the CIMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of a license, that have as their normal destination residential purposes.

If it is understood that the expression 'property with residential designation' coincides with that of 'residential properties,' it is manifest that the assessments will suffer from error concerning the factual and legal assumptions, since all properties for which Stamp Tax was assessed under the said item no. 28.1 are lands for construction, without any building or construction, required to fulfill that concept of 'residential properties.'

For this reason, if the interpretation is adopted that 'property with residential designation' means 'residential property,' the assessments whose declaration of illegality is sought will be illegal, because there is in any of the lands no building or construction.

However, the non-coincidence of the terms of the expression used in item no. 28.1 of the TGIS with that which is extracted from no. 2 of article 6 of the CIMI points toward the understanding that it was not intended to use the same concept."

1. On the interpretation of the second hypothesis: Concept of "property with residential designation" as a concept distinct from "residential properties," decision 53/2013-T is again cited, in which it writes:

"The word 'designation,' in this context of the use of a property, has the meaning of 'the action of designating something for a determined use.' ( [3] )

'When, as is normally the case, norms (legislative formulas) have more than one meaning, then the positive function of the text translates into giving stronger support to or more strongly suggesting one of the possible meanings. For among the possible meanings, some will correspond to the more natural and direct significance of the expressions used, while others will only fit within the verbal framework of the norm in a forced, contrived manner. Now, in the absence of other elements that induce selection of the less immediate meaning of the text, the interpreter should opt in principle for that meaning which best and most immediately corresponds to the natural significance of the verbal expressions used, and especially to its technical-legal meaning, in the supposition (not always accurate) that the legislature knew how to express its intent correctly.' ( [4] )

The relevance of the text of the law is especially emphasized in the matter of interpretation of incidence norms of Stamp Tax, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on patrimony, on acts, etc.), which leaves no appreciable margin for application of the primary interpretative criterion, which is the unity of the legal system, which requires its overall coherence.

The recognized lack of coherence of Stamp Tax is particularly exuberant in the case of this item no. 28.1, hastily included as a margin of the General State Budget, by a fiscal legislature without a perceivable global fiscal orientation, which is successively implementing norms of fiscal aggravation as a measure of the setbacks in budget execution, the impositions of international institutional creditors (represented by the 'troika') and the review of the Constitutional Court.

In truth, although in the 'Explanatory Memorandum' of the Bill No. 96/XII/2nd ( [5] ), on which Law No. 55-A/2012 was based, reference is made to the praiseworthy concern of the Government to 'strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to fulfill the adjustment program' and to its commitment 'to ensure that the distribution of these sacrifices will be made by all and not just by those who live off the income of their work,' it is manifest, on one hand, that those reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing at the beginning of the year when the General State Budget came into force, and on the other hand, that the scope of item no. 28.1, by taxing additionally properties with residential designation and not also properties that do not have it, lets it be seen that the concerns for social equity and the proclaimed intention of distribution of sacrifices by all, affect much more some than really all.

In this context, with no interpretative elements that permit detection of legislative coherence in the solution adopted in said item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in the face of no. 3 of article 9 of the Civil Code), the tenor of the legal text must be the primacial element of interpretation, in accordance with the presumption, imposed by the same no. 3 of article 9, that the legislature knew how to express its intent in adequate terms.

Faced with those meanings of the words 'designation' and 'to designate,' which are 'to give destination' or 'to apply,' the formula used in that item no. 28.1 of the TGIS manifestly encompasses properties that are already applied to residential purposes, whereby it is important to ascertain whether it will also encompass properties that, although not yet applied to residential purposes, are destined to these and those whose destination is unknown. (…)

For this reason, it will be necessary to clarify when it can be understood that a property is designated for residential purposes, in particular whether it is when that destination is fixed in an act of licensing or similar, or only when the effective assignment of that destination is materialized.

From the start, the comparison of item no. 28.1 of the TGIS with no. 2 of article 6 of the CIMI, which defines the concept of residential properties, manifestly points in the direction that an actual designation is necessary.

In truth, a building or construction licensed for residential purposes or, even without a license, but having residential use as its normal destination, is, in light of no. 2 of that article 6, a residential property.

For this reason, on the assumption that the legislature of Law No. 55-A/2012 knew how to express its intent in adequate terms (as required by article 9, no. 3, of the Civil Code which presumes this), if it intended to refer to those properties already licensed for residential use or that have residence as their normal destination, it would certainly have used the concept of 'residential properties,' which would express perfectly and clearly its intent, in light of the definition given by that no. 2 of article 6 of the CIMI.

Consequently, it should be presumed that the use of a different expression aims at a distinct reality, whereby, in good hermeneutics, 'property with residential designation,' cannot be a property merely licensed for residential use or destined to that purpose (that is, it will not suffice that it be a 'residential property'), having to be a property that already has actual designation to that purpose.

That this is the sense of the expression 'designation,' in the same context of classification of properties that the CIMI makes, is confirmed by article 3, in which, regarding rural properties, reference is made to those 'that are designated for or, in the absence of concrete designation, have as their normal destination use generating agricultural income,' which evidences that designation is concrete, actual. In truth, as is seen from the final part of this text, a property can have as its destination a determined use and be or not designated to it, which evidences that designation is, at the level of connection of a property to determined use, something more intense than mere destination and which can or cannot occur, downstream of this and not upstream. ( [6] )

The correctness of this interpretation in the sense that only properties that are actually designated for residential use are within the scope of incidence of item no. 28.1 of the TGIS is also confirmed by the perceivable ratio legis of the restriction of the field of application of the norm to properties with residential designation, in the context of the 'circumstances under which the law was enacted and the specific conditions of the time in which it is applied,' which article 9, no. 1, of the Civil Code also raises as interpretative elements. ( [7] )

From the start, the limitation of taxation in Stamp Tax to 'properties with residential designation' lets it be perceived that it was not intended to encompass within the scope of incidence of the tax properties designated for services, industry or commerce, that is, properties devoted to economic activity, which is understood in a context in which, as is notorious, the economy finds itself in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching maximum historical levels, with an avalanche of business closures deriving from economic unsustainability. (emphasis ours)

Keeping this situation in mind and being well known and public that the reanimation of economic activity and the increase of exports are the gateways out of the crisis, it is understood that legislative measures were not taken that would hinder economic activity, in particular the aggravation of the tax burden that hinders it and affects competitiveness in international terms.

For this reason, it can be concluded that the available interpretative elements, including the 'circumstances under which the law was enacted and the specific conditions of the time in which it is applied,' clearly point in the direction that it was not intended to encompass within the scope of incidence of item no. 28.1 the situations of properties that are not yet designated for residential use, namely land for construction held by companies. ( [8] )"

1. Given the foregoing, it is verified that the 39 units designated for residential use are encompassed by the incidence norm of item 28.1, as they are urban properties and properties with residential designation, the concept of which results from article 2 of the CIMI.

2. It is necessary, however, now to decide, for purposes of application of item no. 28 of the TGIS, which TBV should be considered in properties under a vertical regime (that is, not horizontal), whether individually determined by the TBV corresponding to each of the parts of the property with residential designation, or whether determined by the total TBV of the property, which would correspond to the sum of all TBVs of the residential units which compose it.

3. On this matter, the Arbitral Tribunal of CAAD has already decided through decision no. 50/2013-T and 132/2013-T.

4. For purposes of the case sub judice, it is important to refer, concerning decision 50/2013-T, which tells us, on the treatment to be given for purposes of item 28.1 of the TGIS to properties under vertical ownership and cumulatively which TBV (individual or total) to consider:

"From this we can conclude that, in the legislature's view, what matters is not the juridical-formal precision of the concrete situation of the property but rather its normal use, the purpose to which the property is destined. We conclude further that for the legislature the situation of the property in vertical or horizontal ownership did not matter, since no reference or distinction is made between one and the other. What matters is the material truth underlying its existence as urban property and its use."

1. It is also important to refer from the respective decision:

"Using the criterion that the law itself introduced in article 67, no. 2 of the Code of Stamp Tax, 'to matters not regulated in the present code concerning item 28 of the General Table applies subsidiarily.' (…)

Now, being so, considering that the registration in the property register of real property under vertical ownership, constituted by different parts, floors or divisions with independent use, in accordance with the CIMI, follows the same registration rules of real property constituted under horizontal ownership, and that their respective IMI, as well as the new IS, are assessed individually in relation to each of the parts, there is no doubt that the legal criterion for defining the incidence of the new tax must be the same. (…)

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

Thus, there would be place for incidence of the new stamp tax only if some of the parts, floors or divisions with independent use presented a TBV greater than €1,000,000.00.

The AT cannot thus consider as the reference value for the incidence of the new tax the total value of the property, when the legislature itself established a different rule under the IMI, and this is the code applicable to matters not regulated as concerns item 28 of the TGIS.

The criterion sought by the AT, of considering the value of the sum of the TBVs attributed to the parts, floors or divisions with independent use, with the argument that the property is not constituted under a horizontal ownership regime, finds no legal support and is contrary to the criterion applicable under the IMI and, by referral, under IS.

To which must be added the fact that the law itself expressly establishes, in the final part of item 28 of the TGIS, that the IS to apply to urban properties of value equal to or greater than €1,000,000.00 – "on the taxable property value used for purposes of IMI."

Thus, the adoption of the criterion defended by the AT violates the principles of legality and tax equality, as well as the principle of the prevalence of material truth over juridical-formal reality.

The fiscal legislature in article 12, no. 3 of the CIMI says that 'each floor or part of property susceptible to independent use is considered separately in the property registration which also discriminates the respective taxable property value,' does not make any distinction concerning the regime of properties that are under horizontal or vertical ownership; if the property were under a horizontal ownership regime, none of its residential units would suffer incidence of the new tax, whereby the AT cannot treat equal situations differently.

1. In the same sense the decision of the arbitral tribunal of CAAD, no. 132/2013-T decided:

"Furthermore, it should be noted that admitting differentiation of treatment could produce results incomprehensible from a legal standpoint and violating the objectives that the legislature said it had for adding item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the respondent: a citizen who is the owner of a property constituted under total ownership destined for residential use, the total value of the autonomous units being equal to or greater than €1,000,000.00 and the TBV of each one less than €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the exact same characteristics as the former but which has been constituted under horizontal ownership, the total value of the autonomous units likewise being equal to or greater than €1,000,000.00 and the TBV of each one less than €1,000,000.00, will not be subject to taxation under the terms of the mentioned item no. 28...

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

If this line of reasoning makes sense – justifying, therefore, the non-aggregation of the TBVs of units of properties under horizontal ownership – there is no plausible reason why the same should not be applied to the autonomous units of properties under total ownership.

Observing now the case under analysis, it is found that the TBVs of the floors (autonomous units) of the property with residential designation vary between €104,140.00 and €113,780.00, whereby each of them is less than €1,000,000.00. From this it is concluded, as a result of what has been referred to, that stamp tax to which item no. 28 of the TGIS refers cannot apply to them, and the property assessment acts impugned by the claimant are therefore illegal."

1. Given the foregoing, and applying what the decisions transcribed above tell us, to the present case, it follows that for purposes of application of item 28 of the TGIS to properties under vertical ownership, the same rules of the CIMI that apply to properties under horizontal ownership apply, and in the same sense the TBV for purposes of application of item is the individual TBV of each independent residential unit, it being the case that in the present case none of the units exceeds the incidence criterion of €1,000,000.00.

2. Material truth is what imposes itself as the determinant criterion of tax capacity and not mere juridical-formal reality of the property, since constitution of horizontal ownership implies a mere juridical alteration of the property not even imposing a new evaluation which, now, such observation does not appear coherent with the decision of the AT to tax the residential parts of a property under vertical ownership, based on the total TBV of the property and not on what is actually attributed to each part.

3. The current legal regime does not impose an obligation of constitution of horizontal ownership, whereby the action of the AT translates into arbitrary and illegal discrimination. The AT cannot distinguish where the legislature itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in article 103 of the CRP, and further the principles of justice, equality and tax proportionality.

4. As none of the units designated for residential use has a taxable property value equal to or greater than €1,000,000.00, as results from the documents attached to the proceedings, it is concluded that the legal assumption for incidence of IS provided for in Item 28 of the TGIS is not met.

5. In this manner, the present tribunal concludes that the assessments sub Judice suffer from a defect of violation of said item no. 28.1, due to error concerning the legal assumptions, which justifies the declaration of its illegality and annulment (article 135 of the CPA).

I - DECISION

Wherefore, having regard to all the foregoing, the present Arbitral Tribunal decides:

It is found in favor of the claim for declaration of illegality of the tax assessment acts relating to Stamp Tax, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, No. 2015 …, which fixed a total tax collection of € 12,589.50 (twelve thousand five hundred and eighty-nine euros and fifty cents), due to a defect of violation of law concerning the provision contained in item 28 no. 1, due to error concerning the legal assumptions, which justifies the declaration of its illegality and annulment.

The Respondent is condemned to refund to the Claimant such amount improperly assessed and paid.

The value of the proceedings is fixed at € 12,589.50 of the assessed amount, considering the economic value of the proceedings as measured by the value of the assessed tax acts impugned, and in accordance, costs are fixed, in the respective amount of 918.00€ (nine hundred and eighteen euros), to be borne by the Respondent in accordance with article 12, no. 2 of the Tax Arbitration Regime, article 4 of the RCPAT and Table I attached hereto. – no. 10 of article 35, and no. 1, 4 and 5 of article 43 of the LGT, articles 5, no. 1, subparagraph a) of the RCPT, 97-A, no. 1, subparagraph a) of the CPPT and 559 of the CPC).

Notify hereof.

Lisbon, 14 January 2016

The Arbitrator

Dr. Paulo Ferreira Alves