Stamp Tax Verba 28 on Undivided Property: CAAD Arbitration on €1M Threshold per Unit

ARBITRAL DECISION

I. REPORT

A..., in the capacity of head of the succession of J..., with Tax Identification Number..., residing at Av..., No...., ..., in Algés, submitted a request for the constitution of a singular Arbitral Tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority (hereinafter TA) is the Respondent, with the objective of obtaining a declaration of illegality of the Stamp Tax assessment act relating to the year 2014 identified in the case, in the total amount of €7,450.48.

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 23.09.2015 and automatically notified to the TA.

In accordance with the provisions of paragraph (c) of section 1 of article 11 of the LRAT, the singular Arbitral Tribunal was constituted on 20.11.2015.

The TA responded, defending the extinction of the arbitral proceedings due to the verification of the exception of non-challengeability of the object of the request or, if this were not the case, the dismissal of the request.

The meeting referred to in article 18 of the LRAT was waived and it was decided that the proceedings would continue with pleadings.

The Arbitral Tribunal was duly constituted.

The parties have legal personality and capacity, are legitimate (articles 4 and 10, section 2, of the same statute and article 1 of Order No. 112-A/2011, of 22 March) and are duly represented.

The proceedings do not suffer from nullities, and the exception of non-challengeability of the object of the request raised shall be considered as a matter of priority.

II. STATEMENT OF FACTS

Based on the elements contained in the proceedings attached to the case file, the following facts are considered proven:

A. The Applicant is the head of the succession that includes the property situated at Av..., No...., registered in the land registry of the parish of ... under article U-...;

B. In the year 2014, the said property was not held in vertical property regime;

C. None of the parts or floors with residential use of the said property have a tax-valued property value exceeding €1,000,000;

D. On the tax-valued property of these floors and fractions, the TA assessed Stamp Tax (ST), with reference to the year 2014, based on item 28.1 of the General Table of Stamp Tax (GTST) at the rate of 1%;

E. The Applicant submitted a request for assessment of the property on 19 December 2014;

F. As a result of the assessment of the property, the TA issued corrective ST assessments, contained in the following "Statements of Account Adjustment":

· Document No. 2015..., in the amount of 169.84 Euros;
· Document No. 2015..., in the amount of 175.87 Euros;
· Document No. 2015..., in the amount of 173.17 Euros;
· Document No. 2015..., in the amount of 155.70 Euros;
· Document No. 2015..., in the amount of 169.84 Euros;
· Document No. 2015..., in the amount of 174.16 Euros;
· Document No. 2015..., in the amount of 177.14 Euros;
· Document No. 2015..., in the amount of 177.57 Euros;
· Document No. 2015..., in the amount of 177.57 Euros;
· Document No. 2015..., in the amount of 160.19 Euros;
· Document No. 2015..., in the amount of 171.52 Euros;
· Document No. 2015..., in the amount of 172.76 Euros;

G. The Applicant made payment of the said assessments on 28/07/2015;

H. The total amount of ST assessed to the Applicant for the year 2014 was €7,450.48.

With relevance to the decision, there are no facts that should be considered as not proven.

Taking into account the positions assumed by the parties, in light of article 74 of the General Tax Law (GTL) and the documentary evidence attached to the case file, the facts listed above are considered proven, with relevance to the decision.

III. LEGAL ANALYSIS

The main question that arises in the present case comes down to determining what is the tax-valued property value relevant for the purposes of applying items 28 and 28.1 of the GTST in relation to urban residential properties constituted in the regime of vertical property, which include floors or divisions susceptible of independent use.

To this effect, the Applicant alleges in its request for arbitral decision the following:

1. The assessments in question are based on the understanding that there shall be subjection to ST whenever the sum of the tax-valued property values of the floors, individually considered, is superior to €1,000,000;

2. It considers, however, that Law No. 55-A/2012, of 29 October says nothing as to the concept of "property with residential use.";

3. However, article 67, section 2 of the Stamp Tax Code, added by the said Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table, the Municipal Property Tax Code is applied subsidiarily.";

4. The incidence norm thus refers to urban properties, whose concept is that which results from the provisions of article 2 of the Municipal Property Tax Code, with the determination of the tax-valued property value following the terms of articles 38 et seq. of the same code;

5. From this it is concluded that, in the legislator's view, what matters is not the legal-formal accuracy of the specific situation of the property, but rather its normal use, the purpose to which the property is intended;

6. Indeed, for the legislator, the situation of the property (in vertical property or in horizontal property regime) is not relevant, as no reference or distinction is made between one and the other;

7. Thus, there would only be grounds for the incidence of the new ST if any of the parts, floors or divisions with independent use presented a tax-valued property value superior to €1,000,000;

8. The TA could not thus consider as the reference value for the incidence of the tax the total value of the property, when the legislator itself established a different rule in the Municipal Property Tax Code, and this is the code applicable to matters not regulated with respect to item 28 of the GTST;

9. Given that none of the fractions has a tax-valued property value equal to or exceeding €1,000,000, the legal assumption of incidence of ST provided for in Item 28 of the GTST is not met;

10. It follows from the above that the legislator understood that this value, when attributed to a residential unit (house, autonomous fraction or floor with independent use) reflects an above-average contributive capacity and, as such, susceptible of determining a special contribution to ensure the fair distribution of the tax burden;

11. In this way, it is illegal and unconstitutional to consider as the reference value that corresponding to the sum of the tax-valued property values attributed to each part or division and would thus be so, from the outset, because that would be a clear violation of the principle of equality and proportionality in tax matters;

12. The tax legislator cannot treat equal situations differently: if the property were held in horizontal property regime, none of its residential fractions would be subject to the incidence of the new tax;

13. Therefore, the material truth is what imposes itself as the determining criterion of contributive capacity and not the mere legal-formal reality of the property.

For its part the TA alleges, in summary, the following:

1. By way of exception: the act of assessment of item 28 of ST is single, and the fact that it may be paid in various installments does not imply that various assessments have occurred, for which reason being the nature of the installments of an assessment of this tax one of division of the global assessment, effected annually, no one of the installments per se can be challenged autonomously, as the object of the judicial challenge or of the tax arbitral proceedings is the tax assessment act.

2. By way of Challenge: item No. 28 of the GTST provides that stamp tax falls on the ownership, usufruct or right of surface of urban properties, whose tax-valued property value contained in the register is equal to or exceeding €1,000,000.00;

3. The tax-valued property value relevant for the purposes of the incidence of the tax is, thus, the total tax-valued property value of the urban property and not the tax-valued property value of each of the parts that compose it, even when susceptible of independent use;

4. Article 80, section 2 of the Municipal Property Tax Code states that, except as provided in articles 84 and 92, to each property there corresponds a single article registered in the register;

5. The principle that to each property there corresponds only one registry article is only excepted, thus in relation to mixed properties in which, according to the said article 84, each of the distinct parts is registered in the register in the part that corresponds to it and in relation to properties constituted in horizontal property regime in which, despite, under article 2, section 4 of the Municipal Property Tax Code, each autonomous fraction being deemed to constitute a property, to each building in the regime of horizontal property there corresponds a single registry entry;

6. The unity of the urban property in vertical property regime composed of several floors or divisions is not, however, affected by the fact that all or part of these floors or divisions are susceptible of independent use;

7. Another interpretation would violate, indeed, the letter and spirit of item 28.1 of the GTST and the principle of legality of the essential elements of the tax provided in article 103, section 2 of the Constitution of the Portuguese Republic;

8. Thus, taxation under ST shall have to obey the criterion of appropriateness, applying itself indistinctly to all holders of real estate with residential use of value exceeding €1,000,000, falling on the wealth evidenced in the value of the real estate:

9. The assessment acts in question embody a correct interpretation and application of the law to the facts, not suffering from any illegality, and accordingly, the claim made should be judged as dismissed and the Respondent entity should be absolved of the request.

Let us see what should be understood.

a) On the Exception of Non-challengeability of the Act

In the answer presented, the TA defends itself by exception that, should it be verified, leads to the extinction of the proceedings.

The appreciation of the exception of non-challengeability of the act raised depends on the question of whether the Applicant challenges the ST assessment act or whether, instead, it merely challenges each of the ST installments per se.

It has been understood that in cases in which the tax should be paid in installments, the assessment is notified to the taxpayer together with the notification for payment of each of the installments, being only challengeable in its entirety and not installment by installment (See Cf. arbitral decision rendered in the context of case No. 27/2015-T, available at www.caad.org.pt).

In this regard, the illustrious Professor José Casalta Nabais elucidates, in Tax Law, 3rd Edition, Almedina, 2005, the following:

"The assessment in the broad sense, that is, as the set of all operations intended to ascertain the amount of the tax, comprises: 1) The subjective assessment intended to determine or identify the taxpayer or tax obligor of the tax legal relationship, 2) The objective assessment through which the taxable or collectible matter of the tax is determined and, as well, the rate to be applied is determined, in the case of a plurality of rates, 3) The assessment in the strict sense reflected in the determination of the collection through the application of the rate to the taxable or collectible matter, and 4) the (possible) deductions from the collection.".

For each tax fact there shall be, in principle, a single assessment, through which the collection to be paid shall be determined.

In these terms, section 7 of article 23 of the Stamp Tax Code provides that "where the tax is due for the situations provided for in item No. 28 of the General Table, the tax is assessed annually (…)" applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code".

In the same sense, section 5 of article 44 of the Stamp Tax Code further provides that "should there be an assessment of the tax referred to in item No. 28 of the General Table, the tax is paid within the time periods, terms and conditions defined in article 120 of the Municipal Property Tax Code".

That is, under section 2 of article 113 of the Municipal Property Tax Code, "the assessment (…) is effected in the months of February and March of the following year", the tax to be paid in three installments, in the months of April, July and November, in view of its amount – see paragraph (c), section 1 of article 120 of the Municipal Property Tax Code.

From the combination of the legal provisions cited above it follows that ST is assessed annually, payment in installments being nothing more than a collection technique for the tax and not a partial payment thereof, as referred to in the arbitral decision rendered in the context of case No. 408/2014-T, available at http://www.caad.org.pt.

In this way, each ST assessment act is only one harmful act, susceptible of being challenged.

Considering that the ST assessment act, underlying the statements of account adjustment, is materialized in the ST collection documents, relating to the year 2014 is the act challenged by the Applicant, it is concluded that the exception raised by the TA regarding the non-challengeability of the act is dismissed.

b) On the Interpretation of Items 28 and 28.1 of the GTST

In view of the foregoing, regarding the position of the Parties and the arguments presented, to determine whether or not the ST assessment act sub judice is illegal, it will be necessary to verify what interpretation should be made of items 28 and 28.1 of the GTST, namely to know whether the tax-valued property value on which the ST rate should fall should be its sum or should consider the individual tax-valued property value of each floor or division susceptible of independent use, similar to what happens with properties in the regime of horizontal property?

It follows from article 11 of the General Tax Law (GTL) that the interpretation of tax law should be made taking into account the general principles of interpretation.

The general principles of interpretation are established in article 9 of the Civil Code (CC), as follows:

"1. The interpretation should not be confined 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 in which the law was enacted and the specific conditions of the time in which it is applied.

1. However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

2. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and was able to express its intent in adequate terms."

Taking into account the rules of interpretation of the Law, it is important to know that Law No. 55-A/2012, of 29 October, came to add to the GTST items 28 and 28.1, creating the rate of ST on urban properties of high tax-valued property value.

The creation of this new tax fact occurred in the context of economic crisis and serious public finance crisis, with the purpose of increasing the State's tax revenues, through the taxation of those who reveal greater indicators of wealth.

The special rate of ST on properties with value exceeding €1,000,000.00, also known as the "luxury tax", aimed to ensure the distribution of sacrifices among all and not just among those who live from the income of their work.

In these circumstances, items 28 and 28.1 set the incidence of ST in the following terms:

"Ownership, usufruct or right of surface of urban properties whose tax-valued property value contained in the register, under the terms of the Municipal Property Tax Code, is equal to or exceeding €1,000,000 – on the tax-valued property value used for the purpose of Municipal Property Tax:

28.1. – Per residential property or per land for construction whose building, authorized or foreseen, is for residential purposes, under the terms of the provisions of the Municipal Property Tax Code…… 1%."

It results, therefore, from the letter of the law that the rate provided for in item 28.1 is applicable to the right of ownership over properties with residential use, whose tax-valued property value used for the purpose of Municipal Property Tax is equal to or exceeding €1,000,000.00.

In accordance with article 1, section 6 of the Stamp Tax Code, "For the purposes of this Code, the concept of property is the one defined in the Municipal Property Tax Code."

For its part, the Municipal Property Tax Code determines in its article 2, the following:

Concept of Property

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

2 - Buildings or constructions, even if movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.

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

4 - For the purposes of this tax, each autonomous fraction, in the regime of horizontal property, is deemed to constitute a property."

Taking into account the concept of property established in the Law, it is clear that properties constituted in the regime of vertical property constitute properties, for the purposes of item 28 of the GTST.

Insofar as the properties in question (hereinafter Properties) constitute a property, under the terms provided in article 2 of the Municipal Property Tax Code, the latter is literally covered by items 28 and 28.1.

In truth, the law does not distinguish, at any moment, between property in horizontal property regime and property in vertical property regime, with section 4 of article 2 merely establishing that in the regime of horizontal property each autonomous fraction is deemed to be a property.

From what is stated in section 4 of article 2, it does not result, contrary to what is defended by the Respondent in the answer presented, that only the autonomous fractions of property in the regime of horizontal property are deemed to be properties.

Nevertheless, the special rate of ST fixed in the item in question only applies if the Properties constitute residential properties, whose tax-valued property value contained in the register, under the terms of the Municipal Property Tax Code, is equal to or exceeding €1,000,000.

Since the Stamp Tax Code does not establish what is meant by "residential", by force of the provisions of section 2 of article 67 of the said Code, the rules provided in the Municipal Property Tax Code are also applicable here, namely those established in articles 6 and article 41 of that Code.

From the analysis of the said rules, it also clearly results that each of the Properties in question is covered by item 28.1, as urban properties with residential use.

It remains, therefore, to ascertain whether the tax-valued property value contained in the register of the Properties, under the terms of the Municipal Property Tax Code, is equal to or exceeding €1,000,000.

Now, as follows from the letter of the Law, the tax-valued property value of each of the Properties shall be that which is used for the purpose of Municipal Property Tax.

In this regard, it is determined in section 1 of article 7 of the Municipal Property Tax Code, applicable ex vi of section 7 of article 23 of the Stamp Tax Code, that "The tax-valued property value of properties is determined under the terms of this Code.".

For its part in sections 2 and 3 of article 7 of the Municipal Property Tax Code, rules are established for the determination of the tax-valued property value of properties with two or more classifications.

Since the rate provided for in items 28 and 28.1 of the GTST only applies to properties of residential use, the rules established in sections 2 and 3 of article 7 of the Municipal Property Tax Code are not applicable to the determination of the tax-valued property value relevant in the scope of the said item.

In truth, the tax-valued property value of properties of residential use, provided for in items 28 and 28.1, must be determined taking into account section 3 of article 12 of the Municipal Property Tax Code, according to which:

"Each floor or part of property susceptible of independent use is considered separately in the registry entry, which also discriminates the respective tax-valued property value."

Thus, taking into account that the legislator does not attribute any relevance to the fact that the property is constituted in the regime of vertical property, what is relevant is the material truth underlying its existence as an urban property and its use.

In fact, there is found in the Municipal Property Tax Code no norm that permits concluding to the effect that the tax-valued property value of property in the regime of vertical property should be obtained by the sum of the tax-valued property values that were attributed separately to the parts that constitute it (See, among others, the arbitral decisions rendered in Cases 50/2013-T, 131/2013-T, 177/2014-T, 396/2014-T).

Taking into account that the norms of incidence are subject to the principle of tax legality (Cf. Article 103 of the Constitution of the Portuguese Republic and article 8 of the GTL), it seems to not exist a legal basis for the assessment of ST based on the sum of the tax-valued property values of each of the parts of the Properties.

Since the norms of incidence of taxes must be interpreted in their exact terms, without recourse to analogy, making prevail certainty and security in their application (See Judgment of the Central Administrative Court South, rendered in the context of proceedings 7648/14, of 10.07.2014), the TA cannot perform an assessment operation based on a norm of incidence, which does not expressly provide for the basis of incidence of the tax in the terms assessed.

For this reason, it was also recently decided by the Supreme Administrative Court, in Judgment No. 047/15, of 9.09.2015., that "II – Where a property is constituted in the regime of vertical property, the incidence of ST should be determined, not by the tax-valued property value resulting from the sum of the tax-valued property values of all divisions or floors susceptible of independent use (individualized in the registry article), but by the tax-valued property value attributed to each of those floors or divisions intended for residential purposes."

It is thus understood that there does not exist a legal basis that permits the TA to add the tax-valued property values of the floors or parts of property susceptible of independent use, in order to reach the eligible taxation threshold of €1,000,000.00, provided for in item 28 of the GTST.

In view of the foregoing, since none of the floors, susceptible of independent use of the Properties, have a tax-valued property value exceeding €1,000,000.00, there is no grounds for the incidence of the rate provided for in item 28.1 of the GTST.

Consequently, the annulment of the ST assessment act sub judice is necessary, and recognition of the Applicant's right to indemnificatory interest in relation to the ST installments already paid, since the illegality of the assessment act is attributable to error on the part of the Respondent, under the terms provided in article 43 of the GTL.

IV. DECISION

In these terms, this Arbitral Tribunal decides:

A) To fully uphold the request for annulment of the ST assessment act relating to the urban properties registered in the register of the urban property matrix of the parish of ... under No. ... relating to the year 2014;

B) To dismiss the exception of non-challengeability of the assessment act raised by the Tax and Customs Authority;

C) To order the Tax and Customs Administration to refund to the Applicant the amount of tax paid, increased by indemnificatory interest.

V. VALUE OF THE CASE

In accordance with article 306, section 2 of the Civil Procedure Code, 97-A, section 1 (a) of the Tax Procedure Code and article 3, section 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the request is adjusted to €7,450.48.

VI. COSTS

Under article 12, section 2 and article 22, section 4, both of the LRAT, and article 4, section 4 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €612.00, under the terms of Table I of the mentioned Regulation, to be borne by the Respondent.

Let it be notified.

Lisbon, 5 February 2016

The Arbitrator

Magda Feliciano

(The text of this decision was prepared by computer, in accordance with article 131, section 5, of the Civil Procedure Code, applicable by reference of article 29, section 1, paragraph (e) of Decree-Law No. 10/2011, of 20 January (LRAT) with its drafting governed by the orthography prior to the Orthographic Agreement of 1990.)