Stamp Tax on Vertical Property Under Verba 28.1 TGIS: CAAD Arbitration 590/2014-T

ARBITRATION DECISION

Claimant: A, S.A., with registered office at Av. … Lisbon, TIN …

Respondent: Tax and Customs Authority

ARBITRATION DECISION

I. Report

1. A, S.A., with registered office at Av. … Lisbon, TIN …, has requested the Constitution of an Arbitration Court in accordance with no. 2 of article 5 of the Legal Framework for Tax Arbitration, in which it will participate as a counterparty to the TAX SERVICE OF LISBON – 10, of the TAX AND CUSTOMS AUTHORITY (AT), in accordance with Regulation 112 A/2011 of 22 March, with a view to the declaration of illegality of the following Stamp Duty Assessments for the year 2013:

2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …; 2014 …;

In accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph 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 of the Centre for Administrative Arbitration appointed Ana Teixeira de Sousa as arbitrator, and the parties, after being duly notified, did not manifest any opposition to this appointment.

1. Accordingly, in conformity with the provisions of paragraph 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 arbitration tribunal was constituted on 01.10.2014.

2. The senior director of the Tax and Customs Authority service (hereinafter referred to as the "Respondent") was notified to present a response, if so desired, within 30 days and to request production of additional evidence. A response was presented on 06.11.2014, signed by legal advisors Dra. … and … on behalf of and representing the Respondent.

3. Following the AT's Response, the tribunal, by order of 18.02.2015, decided that the meeting referred to in article 18 of the RJAT (Legal Framework for Tax Arbitration) as well as the statements of claims be dispensed with, the legal period for the issuance of the decision being extended until 31 July.

The Request for Arbitral Pronouncement

1. The Claimant begins by requesting, under no. of article 3 of the RJAT, the cumulation of requests for declaration of illegality regarding all assessments that are the subject of the request for arbitral pronouncement.

2. In summary, the grounds presented by the Claimant are as follows.

3. The Claimant is the owner, legitimate proprietor and beneficial owner of the urban property registered in the property matrix of the parish of …, municipality of Lisbon under article … and described in the Land Registry Office of Loures under no. … (of the extinct parish of …).

4. As evidenced by the content of the respective matrix, whose property record card is attached and is hereby reproduced for all legal purposes, the property registered in the matrix under article … of the parish of …, municipality of Lisbon, is an "urban property under full ownership regime with floors or divisions capable of independent use".

5. The said urban property consists of 57 (fifty-seven) floors or divisions capable of independent use.

6. Of those 57 floors or divisions capable of independent use, 21 floors or divisions have a tertiary use – commerce or services – and only 36 have residential use.

7. None of the floors capable of independent use has a taxable property value equal to or greater than €1,000,000.00 (one million euros).

8. Therefore, the Claimant considers that the insufficient reasoning of the assessment act constitutes in itself an autonomous ground for the declaration of illegality.

9. The assessments are also illegal due to erroneous classification of the facts and incorrect application of the law.

10. Each of the assessments that are the subject of this Request concerns Stamp Duty, and was carried out under Item no. 28.1 of the respective General Table, as contained in Law no. 55 A/2012.

11. Under the Municipal Property Tax Code (CIMI), in urban properties under full ownership regime, the property matrices indicate, separately, the taxable property value of each of the units capable of independent use that comprise them.

12. In these properties there is no single reference to the use of the property, with such reference being made only separately with respect to each of the floors or divisions capable of independent use.

13. In these properties the Municipal Property Tax is also assessed separately for each of these units capable of independent use.

14. This interpretation is, moreover, the only one compatible with the announced – and widely publicized – legislative purpose of the creation of Item no. 28 of the General Table of Stamp Duty by Law 55 A/2012, according to which the taxation of luxury dwellings and the property of real estate owned by companies based in tax havens was intended.

15. It is precisely this legislative purpose that justifies that only urban properties "with residential use and taxable property value exceeding €1,000,000" are taxed by Item 28.1 of the General Table of Stamp Duty.

16. The legislator's intention would be perverted if, under Item 28.1, it were permitted to tax small dwellings of average or low quality, of types T1 to T3, each with a property value of just over €100,000, as if they were luxury dwellings, merely because the property in which they are included is not constituted under horizontal property ownership regime and it contains more than ten dwellings of this type.

17. The property in which the floors that are the subject of the assessments whose declaration of illegality is sought are located is not entirely devoted to residential use but only about 60% and none of the floors has a taxable property value exceeding €316.00.

18. That the interpretation being defended is the only one compatible with the good rules of legal interpretation also becomes evident from the very fact that the AT proceeds to assess the Tax separately for each of the floors.

19. Because residential use only exists for each of the floors separately and not for the property as a whole.

20. As it is not legally viable to consider the Total Property Value of the property, because it results from the sum of independent units devoted to residential use and tertiary use, the only Taxable Property Value that is relevant is the taxable property value of each of the floors capable of independent use.

21. The option to frame the specific situation of this case under Item 28.1 of the General Table of Stamp Duty would also result in a flagrant and serious violation of the constitutionally enshrined principles of equality and proportionality in tax matters.

22. Two floors with the same composition and the same taxable property value would be taxed differently, merely because one is located in a property under horizontal property ownership regime and another is located in a property under full ownership regime with floors capable of independent use.

23. Being certain that in both cases the urban property is one only, with the same matrix article, divided in one case into "autonomous fractions" and in the other into "floors capable of independent use".

24. In the specific case, the violation of the principle of proportionality in tax matters is even more flagrant because, since the owner is a company dedicated to the construction and leasing of medium-range and small-sized properties of controlled value, it will be subject in this fiscal year to additional taxation, independent of profits, in an amount corresponding to more than 20% of its actual total annual revenue, a situation that approaches confiscation.

25. The Claimant concludes by requesting the tribunal that in case of success, in accordance with the provisions of articles 43 and 100 of the General Tax Code (LGT), and article 24, no. 5, of the RJAT, be returned and reimbursed to the Claimant:

a. Each of the assessments shall be declared illegal, and consequently be annulled, because its reasoning is incomprehensible and insufficient;

b. And if still not upheld, and without conceding,

c. Each of the Assessments shall be declared illegal, and consequently be annulled, since Item no. 28.1 of the Stamp Duty Table:

i. Does not cover urban properties that do not have exclusively residential use – as is the case herein;

ii. In urban properties under full ownership regime with floors capable of independent use, the application of item no. 28.1 of the General Table of Stamp Duty can only be made with respect to each of the floors devoted to residential use, separately, and provided that each of them has a taxable property value equal to or greater than €1,000,000, which is not the case for any of the floors that are the subject of the assessments being challenged.

d. And finally, if still not upheld, and also without conceding,

i. Each of the assessments shall be declared illegal and, consequently, be annulled, for violation of the constitutional principles of equality and proportionality in tax matters, principles that are directly applicable by the Courts.

Response of the Tax and Customs Authority

1. The Tax and Customs Authority (or Respondent) presented a response maintaining the assessments challenged on the basis, briefly summarized, of the following arguments:

2. Contrary to what is argued by the Claimant, it follows unequivocally from the letter of the law that the legislator intended to tax with item 28.1 of the General Table of Stamp Duty the properties as a single legal-tax reality.

3. In the view of the Respondent, what is at issue here is exclusively a set of assessments relating to a single property, and which result from the direct and immediate application of the legal norm, which translates into objective elements, without any subjective or discretionary assessment.

4. However, the thesis defended by the Claimant lacks legal support, because although the assessment of Stamp Duty in the situations provided for in item no. 28.1 of the General Table of Stamp Duty is carried out in accordance with the rules of the Municipal Property Tax Code (CIMI), the truth is that the legislator reserves the aspects that require appropriate adaptations, namely those in which, as is the case with properties in full ownership, even though with floors or divisions capable of independent use (although the Municipal Property Tax is assessed with respect to each part capable of independent use) for purposes of Stamp Duty the property as a whole is relevant, since the divisions capable of independent use are not deemed to be property, but only the autonomous fractions under the horizontal property ownership regime, as per no. 4 of article 2 of the CIMI.

5. For the Respondent, what expressly results from the letter of the law is that the legislator intended to tax with item 28.1 under discussion the properties as a single legal-tax reality.

6. Indeed, the subjection to the tax of item 28.1 of the General Table attached to the Stamp Duty Code results from the conjunction of two facts: residential use and the value of the urban property registered in the matrix being equal to or greater than €1,000,000.00.

7. In accordance with the rules of the Municipal Property Tax Code (CIMI), where the property is under full ownership regime, having no autonomous fractions, to which the tax law attributes the qualification of property, because from the concept of property in article 2 of the CIMI, only autonomous fractions of property under horizontal property ownership regime are deemed to be properties – no. 4 of the cited article 2 of the CIMI.

8. From the foregoing, the defect of violation of law due to error as to the legal prerequisites should be judged without merit, and the assessments challenged should be maintained in the legal order as they constitute a correct application of the law to the facts.

9. Neither is the argument of violation of the principle of tax equality acceptable because this principle prohibits arbitrary or unjustified discrimination, but not discrimination that may be justified by the more evolved character of the institutions or by the coherence of the tax system.

10. The taxation of Stamp Duty is subject to the criterion of adequacy, aiming at the taxation of wealth embodied in the property of high-value real estate, arising in a context of economic crisis that cannot be ignored.

11. The Tax and Customs Authority emphasizes that the matricial inscription of each part capable of independent use is not autonomous as a separate matrix, but is recorded as an entry in the matrix of the property as a whole.

12. What is intended to be concluded is that these norms, procedures of assessment, the norms on matricial inscription, and also the norms on the assessment of parts capable of independent use, do not permit the assertion that there should be an equation of property under full ownership to the vertical property regime, because this would be illegal and unconstitutional.

13. These civil-legal regimes are different, and the tax law respects them!

14. Indeed, the Respondent considers that the constitution in horizontal property ownership determines the division/split of full ownership and the independence or autonomy of each of the fractions that comprise it, for all legal purposes, in accordance with no. 2 of article 4 of the CIMI and articles 1414 et seq. of the Civil Code, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality.

15. The taxable event of the Stamp Duty of item 28.1, as it consists in the ownership of urban properties whose taxable property value as recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00, the property value relevant for purposes of the tax incidence is thus the total taxable property value of the urban property and not the property value of each of the parts that comprise it, even when capable of independent use.

16. And this interpretation of the tax incidence norm results from the conjunction with another norm of incidence to Municipal Property Tax which is article 1, according to which the Municipal Property Tax is levied on the taxable property value of urban properties, taking into account the concept of property in article 2 and of urban property contained in article 4, and also the types of urban properties described in article 6.

17. Therefore, the Respondent concludes that the assessments are correct and should be maintained and the request for pronouncement should be judged without merit, with the Respondent being absolved of the claim.

Object of the Claim

1. The question that the Claimant intends to have decided is:

· Legality of the assessment of Stamp Duty provided in item 28.1 of the General Table of Stamp Duty (added by article 4 of Law no. 55-A/2012, of 29 October) with respect to the global taxable property value of a building, corresponding to the sum of the taxable property values of various floors or divisions capable of independent use.

Preliminary Determination

1. The arbitration tribunal is materially competent, in accordance with the provisions of articles 2, no. 1, paragraph a) of the Legal Framework for Tax Arbitration.

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

3. The case does not suffer from any nullity nor have the parties raised any exceptions that prevent the examination of the merits of the case, and therefore the conditions for the issuance of the arbitration decision are met.

II. GROUNDS

1. The present action concerns the assessment of stamp duty, a tax act embodied in the assessment of Stamp Duty (IS) for the year 2013, item 28.1 of the General Table of Stamp Duty, dated 17/03/2013, relating to the urban property registered in the property matrix of the parish of …, municipality of Lisbon under article … and described in the Land Registry Office of Loures under no. … (of the extinct parish of …) in the amount of €26,989.99 (twenty-six thousand nine hundred eighty-nine euros and ninety-nine cents) – (cf. article 6, no. 1, paragraph f), subparagraph i), of Law no. 55-A/2012, of 29 October), in accordance with copies of those assessments (documents attached to the case), with the following defects imputed to the respective tax act: lack of reasoning, illegality and violation of constitutional principles of equality, tax capacity and progressivity.

Proven Facts

Based on the documents submitted by the Claimant (request for arbitral pronouncement, Documents no. 1 to 37 attached with that Request; Response from the AT), and facts alleged and not contested by the Respondent, the following facts are established:

1. The claimant is the owner, legitimate proprietor and beneficial owner of the urban property registered in the property matrix of the parish of …, municipality of Lisbon under article … and described in the Land Registry Office of Loures under no. … (of the extinct parish of …).

2. As evidenced by the content of the respective matrix, whose property record card is attached (document no. 37) and is hereby reproduced for all legal purposes, the property registered in the matrix under article … of the parish of …, municipality of Lisbon, is an "urban property under full ownership regime with floors or divisions capable of independent use".

3. The said urban property consists of 15 floors and 57 (fifty-seven) floors or divisions capable of independent use.

4. Of those 57 floors or divisions capable of independent use, 21 floors or divisions have a tertiary use – commerce or services – and only 36 have residential use.

5. None of the floors capable of independent use has a taxable property value equal to or greater than €1,000,000.00 (one million euros).

6. The Tax Authority assessed by way of stamp duty, item 28.1 of the General Table of Stamp Duty, part of the said property, namely the floors with residential use, having proceeded to sum the property values of these fractions that it considered devoted to residential use to conclude that the value of one million euros provided for in the cited item of the General Table of Stamp Duty was exceeded.

7. The AT proceeded to assess, under item 28.1 of the General Table of Stamp Duty, at the rate of 1%, Stamp Duty for 2013 in the amount of €26,989.99, calculated by the AT as follows (Documents 1 to 36):

1. The assessments referred to the year 2013, indicated as reason item 28.1 of the General Table of Stamp Duty, applied the rate of 1% to the taxable property value of the property subject to Municipal Property Tax, but taking into account the global taxable property value of the property in which each of the properties assessed was located.

Unproven Facts

The unproven facts are considered irrelevant for the examination of the merits of the case.

Applicable Law

Cumulation of Claims

1. Article 3, no. 1 of the RJAT: "Cumulation of claims, joinder of claimants and judicial review" establishes the following in this matter:

"1 – The cumulation of claims even if relating to different acts and the joinder of claimants are admissible when the success of the claims depends essentially on the examination of the same factual circumstances and on the interpretation and application of the same principles or rules of law."

1. Within the scope of the Code of Tax Procedure and Process, it is possible to cumulate claims, provided that there is a triple identity of (i) the taxes, (ii) the grounds invoked, factual and legal, and (iii) the competent court.

2. However, under the RJAT, the cumulation is subject to somewhat different criteria, as it is possible to cumulate claims relating to different acts or taxes, provided that the same factual circumstances and the interpretation and application of the same principles of law are at issue (Rogério Fernandes Ferreira, "Tax Arbitration: the new deadlines, cumulation of claims and joinder of claimants" in CAAD, Newsletter no. 1 of 2013).

3. The assessments that are the subject of the request for arbitral pronouncement fulfill the requirements for cumulation of claims established in article 3 of the RJAT insofar as:

a. They are made in the legal sphere of the same taxpayer and made by the same tax service;

b. They are made on the basis of the same legal provisions, more precisely item 28.1 of the General Table of Stamp Duty as worded by Law no. 55-A/2012, of 29 October;

c. They have the same grounds which relate to the fact that they concern a set of floors capable of independent use, with residential use, of the same property under full ownership regime, which also includes other units not devoted to residential use;

d. The factual and legal grounds of the request for arbitral pronouncement are common to all assessments.

1. The requirements legally provided for in the RJAT for cumulation of claims are thus met.

Defects Attributed to the Stamp Duty Assessment Acts under Item 28.1 of the General Table of Stamp Duty

1. The Claimant points out the defect of lack of reasoning as well as that such assessment was made in violation of law, to the extent that, according to what it alleges, in addition to suffering from a defect in the prerequisites, the interpretation given by the AT to the cited item 28, violates the constitutional principles of equality, progressivity and tax capacity.

2. For expositional convenience, the principal legal provisions essential for subsequently examining the tax act in light of the defects invoked by the Claimant are transcribed.

3. Law no. 55-A/2012, of 29 October [amends the Individual Income Tax Code, the Corporate Income Tax Code, the Stamp Duty Code and the General Tax Code]:

Article 3

Amendment to the Stamp Duty Code

Articles 1, 2, 3, 4, 5, 7, 22, 23, 44, 46, 49 and 67 of the Stamp Duty Code, approved by Law no. 150/99, of 11 September, are hereby amended as follows:

(…)

Article 2

[...]

1 - ...

2 - ...

3 - ...

4 – In the situations provided for in item no. 28 of the General Table, the taxpayers referred to in article 8 of the Municipal Property Tax Code are the subject of the tax.

Article 23

[...]

1 - ...

2 - ...

3 - ...

4 - ...

5 - ...

6 - ...

7 – In the case of tax owed for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, with respect to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code.

Article 67

[...]

1 – (Previous text of the article.)

2 – To the matters not regulated in the present Code relating to item no. 28 of the General Table, the provisions of the Municipal Property Tax Code are applied subsidiarily."

Article 4

Addition to the General Table of Stamp Duty

Item no. 28 is added to the General Table of Stamp Duty, attached to the Stamp Duty Code, approved by Law no. 150/99, of 11 September, with the following text:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value as recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the taxable property value used for purposes of Municipal Property Tax:

28.1 – For property with residential use – 1%;

28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a regime that is clearly more favorable.

Lack of Reasoning

1. In accordance with no. 3 of article 11 of Decree-Law no. 191/99, of 5 June, a DUC – Unified Collection Document is issued, which expresses the financial relationship established between the State and the debtor.

2. This document must contain:

a. Identification of the organism or processing service;

b. Period to which it relates;

c. Number assigned to the document;

d. Identification of the debtor entity, including the tax identification number;

e. Nature of the revenue;

f. Amount of the revenue;

g. Payment deadline.

1. Now, as can be verified from the documents (annexes 1 to 36), all of these are contained in the collection notes notified to the Claimant:

h. Identification of the organism or processing service – Tax and Customs Authority;

i. Period to which it relates – Year 2013;

j. Number assigned to the document;

k. Identification of the debtor entity, including the tax identification number – …;

l. Nature of the revenue – Stamp Duty;

m. Amount of the revenue;

n. Payment deadline – April/2014.

1. The document also contains: the tax assessment (identification of the property and its taxable property value, rate applied and amount determined, means of defense and deadlines for responding).

2. In accordance with the provisions of article 77 of the General Tax Code (LGT), the procedural decision must be reasoned by means of a brief statement of the factual and legal reasons that motivated it, and the reasoning may consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that form part of the tax audit report.

3. In accordance with no. 2 of such article, the reasoning of tax acts may be made in summary form, and must always contain the applicable legal provisions, the qualification and quantification of the taxable facts and the operations for determining the taxable base and the tax.

4. In accordance with article 125/1 of the Code of Administrative Procedure (CPA), the reasoning must be express, through a brief statement of the factual and legal grounds of the decision, and may consist of mere declaration of agreement with the grounds of previous opinions, information or proposals, which will in this case constitute an integral part of the respective act, the adoption of grounds which, due to obscurity, contradiction or insufficiency, do not clearly explain the motivation of the act being equivalent to the lack of reasoning.

5. That is, the reasoning is sufficient when it enables the addressees of the act to reconstruct the cognitive and evaluative itinerary followed by the authority that performed the act, so that it can be clearly known for what reasons it decided as it did and not differently. [Decision of the Administrative Supreme Court, of 2009.04.15, handed down in appeal no. 065/09, available at www.dgsi.pt].

6. Now, as it is established that the reasoning of the act in question is that contained in the notification document itself, which corresponds to documents 1 to 36.

7. The reasoning contains all the elements listed above in points 70 and 71.

8. From the review of procedural documents made above, it is necessary to conclude that there is no doubt that the Claimant had the opportunity to know the factual and legal reasons that underlie the prerequisites on which the assessment of the Stamp Duty being challenged was based and also to know the cognitive and evaluative itinerary of whoever made such decision.

9. There is therefore no obscurity, contradiction or insufficiency in the statement of the factual and legal grounds of the act being challenged, which does not suffer from lack of reasoning.

10. Thus, it is verified that the cited elements are sufficient for the taxpayer to know the reason for the assessment claimed in its scope and nature, and therefore it is concluded that the legal requirements of reasoning provided for in article 77 of the General Tax Code (LGT) and article 37 of the Code of Tax Procedure and Process (CPPT) have been complied with.

The Scope of Incidence of Item 28 of the General Table of Stamp Duty

1. The positions of the Parties reveal that the essential question in the present case is whether in the case of properties in full ownership, with floors or divisions capable of independent use but not constituted under horizontal property ownership regime, the taxable property value to be considered for purposes of the incidence of Stamp Duty provided for in item 28.1 of the General Table of Stamp Duty should correspond to the taxable property value of each floor or division with residential use and independent use or to the sum of the taxable property values corresponding to the floors or divisions capable of independent use with residential use. That is, whether the taxable property value relevant as a criterion for the incidence of the tax is the one corresponding to the sum of the values attributed to the different parts or floors (global taxable property value) or, rather, the taxable property value attributed to each of the residential parts or floors.

2. This question has already been examined in various cases within the scope of Tax Arbitration [1], with no arguments having been identified so far that would break the unanimity that has been achieved in the decisions handed down.

3. The Court will follow the guidance provided in these decisions, as follows.

4. Beginning by referring to the relevant legal provisions in the tribunal's decision-making.

5. Item 28 of the General Table of Stamp Duty, attached to the Stamp Duty Code, was added by article 4 of Law no. 55-A/2012, of 29 October, with the following content:

"28 – Ownership, usufruct or right of superficies of urban properties whose taxable property value as recorded in the matrix, in accordance with the Municipal Property Tax Code, is equal to or greater than €1,000,000.00 – on the taxable property value used for purposes of Municipal Property Tax:

28.1 – For property with residential use – 1%;

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

1. According to what results from the amendments to the Stamp Duty Code, introduced by article 3 of Law no. 55-A/2012, of 29 October, the Stamp Duty provided for in item 28 of the General Table of Stamp Duty is levied on a legal situation (no. 1 of article 1 and no. 4 of article 2 of the Stamp Duty Code), in which the respective taxpayers are those referred to in article 8 of the Municipal Property Tax Code (no. 4 of article 2 of the Stamp Duty Code), to whom the burden of the tax falls (paragraph u) of no. 3 of article 3 of the Stamp Duty Code).

2. The provisions of the Stamp Duty Code, as amended by Law no. 55-A/2012, both in article 4, no. 6 ("In the situations provided for in item 28 of the General Table, the tax is due whenever the properties are located in Portuguese territory"), and in article 23, no. 7 ("In the case of tax owed for the situations provided for in item 28 of the General Table, the tax is assessed annually, with respect to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the Municipal Property Tax Code"), read in conjunction with article 1 of the Municipal Property Tax Code, consider the property in itself as the taxable event (the situation that triggers taxation) provided that it reaches the value provided for in item 28 of the General Table of Stamp Duty, regardless of the number of taxpayers, holders (as owners, usufructuaries or superficiaries) of the goods in question [2].

3. As for the rates, paragraph f) of no. 1 of article 6 of Law no. 55-A/2012, provides for the application in 2012 of a rate lower than the rate of 1%, provided for in item 28.1 of the General Table of Stamp Duty for properties with residential use, also distinguishing between cases of properties assessed in accordance with the Municipal Property Tax Code (rate of 0.5%) and properties with residential use not yet assessed in accordance with the Municipal Property Tax Code (rate of 0.8%).

4. From 2013 onwards the normally applicable rate is 1%.

The Concept of Property Used in Item 28 of the General Table of Stamp Duty

1. The concept of "properties with residential use" used in item 28.1 is not expressly defined in any provision of the Stamp Duty Code nor in the Municipal Property Tax Code, the statute to which article 67, no. 2 of the Stamp Duty Code refers.

2. In the case before us, whether one considers the Claimant's property in vertical property ownership or each of the respective autonomous divisions, it is (not contested) property classified as urban and residential (in part) in accordance with the criteria established in articles 2, 4 and 6 of the Municipal Property Tax Code, applicable by referral from article 67 of the Stamp Duty Code.

3. Thus, the only question at issue is the exact meaning of the application of the "property value considered for purposes of Municipal Property Tax", contained in the tax incidence norm of Stamp Duty in item 28: in the case of properties in full ownership but with floors or divisions capable of independent use, does the taxable property value relevant correspond to the sum of the taxable property values of the various divisions/floors, as the AT contends, or is it necessary to take into account the taxable property value of each of the respective floors or autonomous divisions, as the Claimant argues?

4. This provision is integrated in a text that defines as the subject matter of the incidence of Stamp Duty "Ownership, usufruct or right of superficies of urban properties whose taxable property value as recorded in the matrix, in accordance with the Municipal Property Tax Code, is equal to or greater than €1,000,000.00 – on the taxable property value used for purposes of Municipal Property Tax" (emphasis ours).

5. As has been repeatedly invoked and admitted, the Municipal Property Tax Code enshrines, both with respect to matricial inscription and discrimination of the respective taxable property value, and with respect to tax assessment, the autonomization of parts of urban property capable of independent use and the segregation/individualization of the taxable property value relating to each floor or part of property capable of independent use.

6. Thus, each property corresponds to a single article in the matrix (no. 2 of article 80 of the Municipal Property Tax Code), but, according to no. 3 of article 12 of the same Code, referring to the concept of property matrix (registration of the property, its characterization, location, taxable property value and ownership), "each floor or part of property capable of independent use is considered separately in the matricial inscription, which discriminates the respective taxable property value", with reference not being made to the sum of the property values attributed to the autonomous parts of the same property, but to the value attributed to each of them individually considered.

7. As for Municipal Property Tax assessment – application of the rate to the taxable base – article 119, no. 1 provides that "the competent collection document" contains the "discrimination of properties, their parts capable of independent use, respective taxable property value and the collection amount (…)".

8. That is, the rule is the autonomization, the characterization as "property" of each part of a building, provided it is functionally and economically independent, capable of independent use [3], in accordance with the concept of property defined at the outset in no. 1 of article 2 of the Municipal Property Tax Code: property is any fraction (of land, encompassing water, plantations, buildings and constructions of any nature incorporated therein or built upon it, with a permanent character) provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the preceding circumstances, endowed with economic autonomy (our emphasis and underlining). [4]

9. Thus, when no. 4 of article 2 provides that "For purposes of this tax, each autonomous fraction in the horizontal property ownership regime is deemed to constitute a property", it does not establish properly speaking an exceptional or special regime for properties in horizontal property ownership.

10. Each building in horizontal property ownership (article 92) has only one sole matricial inscription (no. 1), describing the building generically and mentioning the fact that it is under horizontal property ownership regime (no. 2), and the matricial autonomy is concretized in the attribution to each of the autonomous fractions, described in detail and individualized, of a capital letter, in alphabetical order (no. 3). This appears to be the specificity of buildings in horizontal property ownership; in other cases, of properties in vertical or full ownership, the divisions or floors with autonomy but without the status of horizontal property ownership, the matrix also enshrines autonomy but evidencing the units with indication of the floor/story type.

11. On the other hand, the argument that "the taxation of Stamp Duty is subject to the criterion of adequacy, aiming at the taxation of wealth embodied in the property of high-value real estate, arising in a context of economic crisis that cannot be entirely ignored" is not acceptable, because the different treatment of properties in horizontal and vertical property ownership regimes is not justified as "a discrimination imposed by the need to impose coherence to the tax system" (what coherence?) nor can it escape the qualification of arbitrary when treating differently realities that are largely identical, and, if they are different, with even a risk of treating more severely situations generally related to lower tax capacity than those that would receive more favorable treatment.

12. Neither is the Respondent's argument convincing that in the case of properties in full ownership, even though with floors or divisions capable of independent use, despite Municipal Property Tax being assessed with respect to each part capable of independent use, the taxable property value on which the incidence of Stamp Duty of item no. 28.1 of the General Table of Stamp Duty depends had to be, as it was, the total taxable property value of the properties, and not that of each of its floors or independent parts, because item no. 28.1 of the General Table of Stamp Duty is applied in accordance with the rules of the Municipal Property Tax Code but "with the exception of aspects that require appropriate adaptations." (underlining ours).

13. There is therefore no indication in the law approved for, in the matter of the incidence of Stamp Duty provided for in item 28.1 of the General Table of Stamp Duty, giving to fractions of properties in "vertical ownership", endowed with autonomy, different treatment from that granted to properties in horizontal property ownership, when in any of such situations the Municipal Property Tax is applied to the taxable property value evidenced in the matrix for each of the autonomous units.

14. The interpretation above sustained, resulting from the analysis of the letter of the law and its insertion in the set of other applicable tax norms, is the most consonant with the spirit of the legislative amendments introduced by Law no. 55-A/2012, of 29 October.

15. As has already been evidenced in other arbitration decisions, "the legislator in introducing this legislative innovation considered as the determinative element of tax capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or greater than €1,000,000.00, on which a special stamp duty tax rate came to be levied, intending to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies of urban properties of luxury with residential use. Therefore, the criterion was the application of the new rate to urban properties with residential use, whose taxable property value is equal to or greater than €1,000,000.00". (...) "The justification of the measure designated as 'special tax on the highest-value residential urban properties' is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense way the holders of properties of high value intended for housing, with the new special rate being levied on 'homes with value equal to or greater than 1 million euros. Clearly the legislator understood that this value, when imputed to a dwelling (house, autonomous fraction or floor with independent use), manifests a tax capacity above the average and, as such, susceptible of determining a special contribution to ensure fair distribution of the fiscal burden." [5]

16. Now, it appears to completely lack adherence to reality the support of the thesis that the holding of fractions devoid of horizontal property ownership status denotes greater tax capacity than if they were provided with such a nature.

17. On the contrary, in most cases, as evidenced by Arbitration Decision no. 50/2013, "many of the properties existing in vertical ownership are old, with undeniable social utility, as in many cases they house residents with modest and more accessible rents, factors that must necessarily be taken into account."

18. Thus, it is considered correct the interpretation that item 28 of the General Table of Stamp Duty does not cover each of the floors, divisions or parts capable of independent use when only from the sum of such results a taxable property value exceeding what the same item provides.

19. As decided in other arbitration cases, this tribunal understands that with respect to the date of establishment of the tax obligation, tax connection, determination of the taxable base, assessment and payment of the Stamp Duty in question, the corresponding rules of the Municipal Property Tax Code apply, by express referral of articles 5, no. 1, paragraph u), 4, no. 6, 23, no. 7, 44, no. 5, 46, no. 5 and 49, no. 3, of the Stamp Duty Code.

20. To subject to the new Stamp Duty autonomous parts without the legal status of horizontal property ownership, that is, while full ownership is maintained and not to subject any of the residential fractions if the property were under horizontal property ownership regime would constitute violation of the constitutional principle of equality, treating equal situations differently.

21. In the present case, it being verified that none of the "fractions" of any of the buildings in question presents, per se, "value equal to or greater than 1 million euros", there is no place for the incidence of item 28 provided in the General Table of Stamp Duty.

Conclusion

Accordingly, the present arbitration tribunal concludes that the assessments of Stamp Duty, based on item 28.1 of the General Table of Stamp Duty, with respect to each of the floors or parts capable of independent use, with residential use, owned by the Claimant, which are the subject of the present case, are affected by illegality, because the said provisions cannot be interpreted in the sense of their application to floors or parts capable of independent use of a property in vertical ownership, when only from the sum of each of these floors or parts is it possible to obtain a taxable property value equal to or greater than €1,000,000.00 (one million euros), with the taxable property value of each of the said floors or parts not exceeding this legal threshold.

And, as results from the facts established, none of the floors intended for housing of the property in vertical ownership which is the subject of this case has taxable property value equal to or greater than €1,000,000.00, it is concluded that the legal prerequisite for the incidence of Stamp Duty provided for in Item 28 of the General Table of Stamp Duty is not met.

The evaluation is rendered unnecessary and is therefore not needed regarding the Claimant's argument relating to the violation of the constitutional principles of equality or proportionality.

Decision

Pursuant to the grounds and reasoning set forth above, the arbitration tribunal decides to judge the request for arbitral pronouncement as well-founded with the consequent annulment of the assessments being challenged, with all legal consequences.

Value of the Case

In accordance with the provisions of no. 2 of article 315 of the Code of Civil Procedure, paragraph a) of no. 1 of article 97-A of the Code of Tax Procedure and Process and also no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Cases, the case value is fixed at €26,989.99 (twenty-six thousand nine hundred eighty-nine euros and ninety-nine cents).

Costs

For the purposes of the provisions of no. 2 of article 12 and no. 4 of article 22 of the Legal Framework for Tax Arbitration and no. 4 of article 4 of the Regulation of Costs in Tax Arbitration Cases, the amount of costs is fixed at €1,530.00, in accordance with Table I attached to the said Regulation, to be borne entirely by the Respondent.

Notify.

Lisbon, 31 July 2015

The Arbitrator

(Ana Teixeira de Sousa)

[Text prepared on computer, in accordance with article 131, number 5 of the Code of Civil Procedure (CPC), applicable by referral from article 29, no. 1, paragraph e) of the Legal Framework for Tax Arbitration. The preparation of the present decision follows the former orthography.]

[1] Regarding the application of item 28 of the General Table of Stamp Duty in the case of properties in vertical ownership, decisions are already published on the CAAD website, namely, in Cases 50/2013-T; 132/2013-T; 181/2013-T; 183/2013-T; 185/2013-T; 248/2013-T; 240/2013-T; 280/2013-T, available at www.caad.org.pt.

[2] The provisions of Law no. 55-A/2012, of 29 October, regarding the new item 28 of the General Table of Stamp Duty entered into force on the day following the publication of the law, that is, 30 October 2012. Article 6 of Law no. 55-A/2012 provides transitional provisions by virtue of which, in that first year of effectiveness, that is, 2012: the taxable event occurs on 31 October (when, in accordance with article 8 of the Municipal Property Tax Code, applicable by referral from no. 4 of article 2 of the Stamp Duty Code, it would be on 31 December); the taxpayer of the tax is the holder of the property (no. 4 of article 2 of the Stamp Duty Code) also on that day 31 October; the taxable property value to be used in the assessment of the tax corresponds to what results from the rules provided in the Municipal Property Tax Code by reference to the year 2011; the assessment of the tax by the AT is made by the end of November 2012; the tax shall be paid in a single installment by the taxpayers, by 20 December of that year 2012.

[3] On this point, see the grounds contained in decision no. 248/2013-T: "The autonomization in the matrix of the parts that are functionally and economically independent of a property in full ownership relates to reasons of fiscal and extrafiscal nature. On the fiscal plane, that autonomization relates to the determination of taxable property value itself, which constitutes the taxable base of Municipal Property Tax, given that the formula for determining that value, provided for in article 38 of the same Code, includes indices that vary according to the use attributed to each of these parts. On the extrafiscal plane, that autonomization continues to find justification in the relevance attributed to the taxable property value of properties and their autonomous parts in the legislation on urban leasing." There is also mentioned no. 1 of article 15-O of Decree-Law no. 287/2003, of 12 November, added by Law no. 60-A/2011, of 30 November (providing that the safeguard clause relating to the increase in taxation in Municipal Property Tax resulting from the general assessment of urban properties is applicable per property or part of urban property that is the subject of the said assessment) as confirming the individualization, for tax purposes, of the autonomous parts of urban properties.

[4] As observed in Case 132/2013: "The norms (...) listed enshrine the principle of autonomization of the independent parts of an urban property, even when it is not constituted in horizontal property ownership. That is, each part capable of independent use must be, for purposes of Municipal Property Tax, valued in light of its specificities and use, resulting in an autonomous taxable property value, individualizable and corresponding to each part capable of independent use."

[5] Excerpts from the Decision in case no. 50/2014-T, also referring to the Arbitration Decision in case no. 48/2013-T, regarding the analysis of the Discussion of the legislative proposal in the Parliament.