Summary
Full Decision
ARBITRAL DECISION
REPORT
A…, resident at Rua…, no. … in …, with the Tax Identification Number (NIF)…, filed a request for arbitral decision pursuant to articles 2, no. 1 and 10 of the Legal Framework for Tax Arbitration approved by Decree-Law no. 10/2011, of January 20 (LFTA), as amended by Law 66-B/2012, seeking the annulment of Stamp Tax assessments (relating to item 28.1 of the corresponding General Table and the year 2014), with a total value of €10,862.30 (ten thousand, eight hundred sixty-two euros and thirty cents).
This request was filed at the Administrative Arbitration Center (CAAD) on September 15, 2015.
The respondent is the Tax and Customs Authority (AT).
The claimant did not designate an arbitrator. For this purpose, the President of the Deontological Council of the Administrative Arbitration Center designated the signatory hereof, who expressly accepted this appointment. The parties were duly notified thereof and did not manifest any objection.
The arbitral tribunal was thus constituted on November 30, 2015.
The AT timely filed its reply, supporting the legality of the tax act in question, on the grounds of absence of the alleged legal violation, with corresponding total dismissal of the claim and consequent absolution of the respondent.
The respondent understood, without objection from the claimant, that the first meeting of the arbitral tribunal referred to in article 18 of the LFTA and the submission of briefs were unnecessary. It therefore petitioned for the corresponding waiver. Prior to that decision, the claimant was invited to clarify which tax assessment acts it specifically contested and to attach a legible copy of the contested tax assessments and, if applicable, also proof of payment of those assessments. Once such clarification was verified and these documents were attached, it was then decided, on the previously stated terms and without objection from the parties, to waive both the holding of the first meeting of the arbitral tribunal referred to in article 18 of the LFTA and the submission of briefs.
The position of the parties is absolutely clear and there are no disputed questions of fact.
In light of the principles of arbitral tribunal autonomy (article 16, subsection c, of the LFTA) and free conduct of proceedings (article 19 of the LFTA), this singular arbitral tribunal considers it unnecessary to hold the hearing referred to in article 18, as well as to proceed with the submission of briefs, the holding of which it accordingly waived by order, having fixed herein the date for the pronouncement of the arbitral decision.
The tribunal was regularly constituted and is materially competent.
The parties have legal personality, judicial capacity, and are legitimate.
The proceedings do not suffer from nullities.
STATEMENT OF FACTS
The claimant's request is based on an alleged legal violation of the tax acts in question, due to error in the factual and legal premises. Such tax acts correspond to the assessments of item 28.1 of the General Table of the Stamp Tax Code for the year 2014, relating to the various units intended for housing and susceptible to independent use, and therefore the subject of autonomous registration in the property register, forming part of the urban property in full ownership, or vertical ownership (not constituted as horizontal property, therefore), registered in the urban property matrix under article…, of the parish of…, located at Rua…, no.…, with a total Tax Property Value (TPV) of €1,160,520.00, with the sum of the individual TPV of the units susceptible to independent use intended for housing equalling €1,086,230.00.
Such property consists of 6 floors, comprising 20 units susceptible to independent use, 3 of which correspond to shops (with individual TPV of €18,000.00, €32,280.00 and €24,010.00) and the remaining 17 intended for housing, which constitute units with independent use.
Each of the 20 independent units intended for housing has a TPV attributed and separately determined pursuant to subsection b) of no. 2 of article 7 of the Municipal Property Tax Code (MPTC). And none of those 17 parts or independent units with housing allocation has a tax property value exceeding €1,000,000.00.
The claimant proceeded on April 21, 2015, July 7, 2015, and November 11, 2015, respectively, to pay the first, second, and third installments of the corresponding tax, in a total amount of €10,862.30.
In its initial petition, the claimant appears to intend to contest only the second installment of the Stamp Tax (ST) assessments relating to the year 2014, with a total value of €3,744.10 (which it considers as the value of the claim). However, it nonetheless petitions for the annulment of the ST assessment relating to 2014, which as is known corresponds to the annual assessment and not one of its installments.
When invited to clarify the claim, the claimant came to confirm that the claim relates to the 2014 assessment of item 28.1 of Stamp Tax relating to the units intended for housing of the identified property, noting that it filed the initial petition in the course of the period for payment of the second installment of the tax, which as seen above is factual.
As stated, on December 31, 2014, none of the units of the identified property to which the assessments (annual) in question and the corresponding collection notices corresponded possessed a Tax Property Value (TPV) equal to or exceeding the amount of one million euros.
Consequently and in summary, the following facts are established as proven:
a) In 2014, the claimant was the owner of the identified urban property in vertical ownership, i.e., in full ownership, not constituted as horizontal property;
b) That property had a total TPV exceeding the value of one million euros;
c) It was composed of twenty units susceptible to independent use;
d) Such units were the subject of autonomous registration in the property register;
e) Three of them correspond to shops and the remaining seventeen to housing;
f) None of those units susceptible to independent use had a TPV equal to or exceeding the value of one million euros;
g) The total TPV of the property is €1,160,520.00;
h) The TPV of each of the three shops is €32,280.00, €24,010.00, and €18,000.00;
i) The total value of the remaining 17 units is therefore €1,086,230.00;
j) On March 20, 2015, the AT proceeded to assess the ST of item 28.1 of the GTST by reference to those independent units intended for housing and the year 2014;
k) The total value of those assessments amounts to €10,862.30;
l) This value corresponds to 1% of the sum of the TPV of the said units with autonomous registration in the property register;
m) The assessment acts in question gave rise to the collection documents corresponding to the first, second, and third installments of tax pursuant to law;
n) Those installments were due in April, July, and November of 2015;
o) The same were paid in full, respectively, on April 21, July 7, and November 11, always in 2015.
There are no other facts relevant to the assessment of the merits of the case that are not established as proven.
The established facts are based on documents provided by the claimant, whose correspondence to reality is not contested.
STATEMENT OF LAW
Indivisibility of the Assessment Act
As stated, the claimant comes to request the constitution of an Arbitral Tribunal to pronounce on the ST assessments pursuant to item 28.1 of the General Table of the Stamp Tax Code, added by article 4 of Law no. 55-A/2012, of December 29, with reference to the year 2014, on the units susceptible to independent use of the aforementioned property.
To this end, it invokes the illegality of the assessments, by violation of law, due to error in the factual and legal premises. And, in conclusion, it requests the annulment of the tax act, as well as the reimbursement of tax paid, plus compensatory interest.
Without objection from the respondent, the scope of the cause of action and the claim was satisfactorily clarified by the claimant. Such scope can be drawn from the literal tenor of the initial petition and, even if that were not the case, the claimant would have proceeded, at the invitation of the Arbitral Tribunal, to a mere improvement of the claim, pursuant to the aforementioned principles of arbitral tribunal autonomy and free conduct of proceedings, for the benefit of the principle of procedural economy and without prejudice to the principle of adversarial procedure.
In conclusion, although it is not clear whether the claimant's claim aimed at the annulment of an installment of a tax act or, conversely, at the annulment thereof, it came to clarify that it aimed at the annulment of the tax assessment acts, even though in its preamble and in the value of the case, it refers to the collection documents of the second installment thereof and the value corresponds to one-third of the value of the assessment. This notwithstanding the claimant petitioning for the declaration of invalidity and annulment of the Stamp Tax assessments relating to 2014, as it later reconfirmed.
With the cause of action and claim thus clarified, the merits thereof should be assessed (given that, as is known, an installment of tax would not be susceptible to autonomous assessment of its legality), and it is therefore urgent to analyze the substantive question of the assessment in question.
Position of the Parties
As is clear, the question in the case corresponds to the application, in situations of the so-called vertical property ownership, of Stamp Tax taxation inciding on urban properties with housing allocation and TPV equal to or exceeding one million euros. This controversial taxation was introduced in 2012 to strengthen budgetary control measures on the revenue side, in a context of financial (or economic-financial, cf. Sustainability and Solidarity in Times of Crisis, Suzana Tavares da Silva, in Fiscal Sustainability in Times of Crisis, Coord. José Casalta Nabais and Suzana Tavares da Silva, pages 61 et seq.) necessity.
It is well known that this new ST taxation has raised strong doubts, significant objections, and numerous case law. This is not only for specific cases of its application (e.g., vertical property ownership, co-ownership, land for construction, or its application to the year 2012), but also in general terms, due to its possible unconstitutionality, whether of its general regime or its transitional regime (see Luís Menezes Leitão, On Stamp Tax Taxation of Luxury Properties (item 28.1 GTST), in Tax Arbitration no. 1, pages 44 et seq.).
Claimant
The claimant comes, precisely, to contest the application of the new item 28.1 of the GTST to urban properties not constituted as horizontal property, but which include units susceptible to independent use, where the minimum value threshold established in the law is reached by the sum of the TPV of the separate (or autonomous) property register registrations corresponding to those various units, but not by any of them individually considered.
The claimant maintains that it is not the owner of a property with TPV equal to or exceeding that minimum amount, but rather the owner of a property in vertical ownership in which the TPV exceeding that value is achieved only by the sum of the TPV of the units susceptible to independent use allocated to housing, without any of them, individually considered, reaching that minimum amount of tax relevance.
For that reason, in the claimant's view, the assessments in question suffer from a legal violation, which would make them voidable (due to error in their factual and legal premises). The claimant disagrees with the interpretation that the AT makes of the scope of the cited item 28.1 of the General Table attached to the ST Code, which it considers illegal and unconstitutional, due to violation of the principles of legality, equality, taxpaying capacity, and prevalence of material truth.
Respondent
For its part, the respondent contests that understanding, instead supporting the maintenance of the assessments.
To this end, it emphasizes, in summary, that:
a) In the ST Code there is no definition of the concepts of urban property, so the provisions of the MPTC must be applied, to assess the possible subjection to ST (Cf. article 67, no. 2 of the ST Code as worded by Law no. 55-A/2012);
b) Article 2, no. 1 of the MPTC defines the concept of property;
c) Article 2, no. 4 of the MPTC reserves autonomous fractions of properties constituted under the regime of horizontal property, which it considers, exceptionally, as properties;
d) Conversely, where a property is constituted in full ownership with parts or units susceptible to independent use, it is the property as a whole, and no longer each of those parts, that integrates the concept of "property," for purposes of municipal property tax and ST, by referral from article 1, no. 6 of the ST Code;
e) This is not prevented by the fact that each floor/unit appears separately in the property register, and with the respective tax property values, as such discrimination is only relevant, for tax purposes, in light of the concept of property matrices contained in article 12 of the MPTC and in the matters regulated in that Code for the organization of matrices;
f) The requirement to organize matrices in this manner is due to the need to recognize the autonomy that, within the same property, belongs to each of its parts, which may be functionally and economically independent;
g) This autonomization is only justified because in the same property there may occur use for commerce or housing, with or without rental, which is determinant in the rules of tax assessment under the MPTC, in light of the different allocation coefficients provided in article 41 of that Code.
The respondent further adds that a Binding Information ruling has already been issued on this matter in Case: 2013… - Binding Information no. … with an endorsing order from the Deputy Director-General of the Tax and Customs Authority dated February 11, 2013.
From that understanding it follows that:
"3. For purposes of taxation under Stamp Tax, under item 28 of the respective general table, the distinction between properties constituted in full ownership and properties constituted under the regime of horizontal property is determinant. In the case of a property constituted in horizontal property, as provided in articles 1417 et seq. of the Civil Code, each autonomous fraction thus constituted is deemed to constitute a property, as follows from the provision in article 2, no. 4 of the MPTC, applicable by virtue of the provision in article 1, nos. 1 and 6 of the Stamp Tax Code, as worded by Law no. 55-A/2012 of October 29, and Item 28 of the General Table of Stamp Tax, in its current wording.
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For the proper and legal purposes, namely for purposes of taxation under Stamp Tax, item 28 of the GTST, properties constituted in full ownership are considered in their entirety as a single property. (…)
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For purposes of municipal property tax and consequently for purposes of subjection to Stamp Tax, item 28 of the General Table, annexed to the ST Code, by referral from that Code, the property in full ownership with parts or units susceptible to independent use (so-called full ownership) and the property under the regime of horizontal property are, regarding the concept of "fiscal property," distinct, since in the latter case the autonomous fraction, for purposes of municipal property tax, integrates the concept of property. This is an exception to the general rule, given that each autonomous fraction of a building subject to the regime of horizontal property belongs to an independent holder, who is the owner of his autonomous fraction and co-owner of the common parts of the property.
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Regarding the first case (full ownership) although the property has parts or units susceptible to independent use, the tax law concept is that this property constitutes a single unit, since its ownership, without prejudice to co-ownership, belongs only to a single owner."
Summary of Disputed Questions
In summary, in the present case, the relevant question is only whether to determine which TPV to consider in cases of vertical property ownership.
The legal matter will therefore address this question, which will now be developed, beginning with a brief framework of the circumstance of the new taxation and its insertion in the ST Code.
STATEMENT OF LAW
Vertical Property Ownership
As stated, Law no. 55-A/2012, of October 29, amended the Stamp Tax Code, adding a new item to the corresponding General Table.
On the matter of determining the (minimum) TPV relevant for the application of item 28.1 of the GTST in cases of vertical property ownership, decisions have already been pronounced, among others and beyond those referred to above, by the CAAD in cases nos. 50/2013-T, 132/2013, 181/2013-T, 183/2013-T, 272/2013-T, 280/2013-T, 26/2014-T, 30/2014-T, 88/2014-T, 177/2014-T, and 206/2014-T, which were subsequently confirmed by several other arbitral decisions.
In all of them the question was, as in the present case, whether the TPV relevant for the rule of incidence (28.1 of the GTST) is the TPV corresponding to each of the units susceptible to independent use separately considered in the property register or whether, on the contrary, the relevant TPV should correspond to the sum of all those units susceptible to independent use but forming part of the same property and which are allocated to housing.
And the answer, in those decisions, was always in favor of the first option and it is understood that correctly. Let us now examine the reasons underlying such case law and the interpretation followed here.
The Stamp Tax Code
The new item was inserted in the Stamp Tax Code, a choice that does not offer relevant contribution to systematically frame the new tax, as that tax "incides on a heterogeneous multiplicity of facts or acts … without a common trait that confers identity on them," which was, moreover, aggravated by the Patrimony Taxation Reform of 2003/2004, making even more complex "the problem of the classification of this tax" (cf. José Maria Fernandes Pires, Op. Cit., page 422).
But it is known that this new item was introduced as a way to strengthen budgetary control measures on the revenue side, in a context of financial (or economic-financial, cf. Sustainability and Solidarity in Times of Crisis, Suzana Tavares da Silva, in Fiscal Sustainability in Times of Crisis, Coord. José Casalta Nabais and Suzana Tavares da Silva, pages 61 et seq.) necessity, with the purpose of identifying new forms of exteriorization of taxpaying capacity that could be called upon to support the purpose of reducing the negative budgetary balance.
And it did so by choosing to have the new taxation incide exclusively on certain goods, thereby implying strong negative discrimination against them, which calls for a reinforced explanation of that choice, so as not to place the principle of equality, or equity in the terminology of Glória Teixeira, in crisis, whether in its sense of horizontal equity or in that of vertical equity (Glória Teixeira, Manual of Tax Law, page 56, 2nd ed., Almedina).
It appears to glimpse in the legislator's thinking the intention to identify in properties with TPV equal to or exceeding one million euros intended for housing ("luxury"), a referential, not arbitrary, of additional taxpaying capacity, capable of broadening the spectrum of contributions to the desired and necessary budgetary balance.
Within this framework, the question to be decided is whether a property constituted in full ownership or vertical ownership, but with apartments or units with independent uses, is a "property with housing allocation" for purposes of the application of article 1 of the ST Code and item 28.1 of the GTST, added by article 4 of Law no. 55-A/2012, of October 29 (especially since, as in the case at hand, it may have areas allocated to non-housing purposes) or whether by "property" should instead be considered the units separately considered in the property register and, furthermore, which TPV is relevant (whether the TPV relating to the property, whether the TPV inherent to the sum of its parts with housing allocation, or whether instead the TPV relating, autonomously, to each of these).
To this end, it is important to bear in mind that each apartment or part of a property susceptible to independent use is separately considered in the property registration of the total property, which also discriminates its tax property value (no. 2 of article 12 of the MPTC), and municipal property tax is assessed individually in relation to each apartment or part of a property susceptible to independent use (article 119, no. 1 of the MPTC).
And, if that is the case for municipal property tax, then so should it be for Stamp Tax. Let us examine why.
Literal Interpretation
As stated in the decision taken in case 206/2014-T: "Given that the ST Code refers to the MPTC, it must be concluded that the registration in the property matrix of properties in vertical ownership, constituted by different parts, apartments, or units with independent use, follows the same registration rules as horizontal property."
Being municipal property tax and Stamp Tax "assessed individually in relation to each of the parts," also "the legal criterion for defining the incidence of the new tax must be the same." In consequence, there will be incidence of item 28.1 of the GTST (only) if any of those parts, apartments, or units with independent use presents a TPV, at least, equal to the amount provided in the rule of incidence.
Thus, for this purpose, property will be the independent area, separately and autonomously considered in the property register, being subject to ST if two requirements are met: being intended for housing purposes and having a TPV equal to or exceeding one million euros, the criterion for assessing "luxury" residential properties. Otherwise, a reality not envisaged by the legislator would be created: that of, so to speak, a "housing property," possibly inserted within a larger property with various purposes, in which the TPV thereof, spurious to property registrations, would consist in the fiction of a TPV given by the addition of the autonomous TPV of each independent unit (and with housing purpose) considered in the property registration. That is, where the legislator considered two realities, the interpreter would now, without support in the legislative text, as occurs in the assessments now in question, have to fiction a third reality, hybrid, halfway between the totality of the urban property and each of its independent housing units. Units to which the legislator of municipal property tax, and of ST by referral to the MPTC, understood to give tax relevance.
Also in the decision rendered in case 272/2013-T (CAAD) it is stated that "considering that the registration in the property matrix of properties in vertical ownership, constituted by different parts, apartments, or units with independent use, pursuant to the MPTC, follows the same registration rules as properties constituted in horizontal property ownership, and the respective municipal property tax, as well as the new Stamp Tax, is assessed individually in relation to each of the parts, there is no doubt whatsoever that the legal criterion for defining the incidence of the new tax must be the same." In fact, it is further stated in that same decision that the AT's position "does not find legal support and is contrary to the criterion that results from application under the MPTC and, by referral, under Stamp Tax," which is why "the adoption of the criterion defended by the AT violates the principles of legality and tax equality, as well as the principle of prevalence of material truth over juridical-formal reality."
And in the same sense it is stated in the arbitral decision of case 30/2014-T (CAAD) to find in the AT's case law a "non-conformity with the literal element of the final part of the rule of incidence (item 28 of the GTST) which states that the tax incides on 'the tax property value used for purposes of municipal property tax,' and therefore should not incide on the sum of tax property values of properties, parts of properties, or apartments, having no legal support the operation of adding tax property values of apartments or parts of property susceptible to independent use, of housing allocation, severed from the TPV of the others with different purposes, in order to reach the threshold of eligible taxation of €1,000,000.00 or more."
As also stated in the arbitral decision taken in case 30/2014-T (CAAD), what happens regarding urban properties with housing allocation, in vertical property, with apartments or units susceptible to independent use, is that the AT proceeds, in ST assessment operations, as it proceeded in the present case, in the adaptation of the MPTC rules (adding the tax property values of a same property, without considering those that correspond to parts of the property with non-housing purpose, thereby giving rise to a new and hybrid TPV). In fact, that "adaptation" corresponds to "adding the TPV of each apartment or independent unit allocated to housing purposes (severed from the TPV of apartments or units intended for other purposes), creating a new juridical reality, without legal support, which is a global TPV of urban properties in vertical property, with housing allocation," which strikes "against the literal element of the rule of incidence" (incidence on "the tax property value used for purposes of municipal property tax"). Thus, "in urban properties with housing allocation, in vertical property, with apartments or units susceptible to independent use," should be considered the tax property value "that results exclusively from no. 3 of article 12 of the MPTC. Both for municipal property tax and for this ST."
In fact, in the case at hand, an innovative TPV would have to be obtained, given by the sum of some of the independent units, specifically the 13 intended for housing, to reach the minimum value that exhibits special taxpaying capacity (or, what amounts to the same thing, to subtract from the TPV of the property in vertical ownership the TPV of the independent units not intended for housing to confirm that still a total TPV equal to or exceeding one million euros was maintained). And this, clearly, without any support, as will be seen, in the letter or in the ratio of the law.
Concretely, as was concluded in the decision rendered in case 26/2014-T of the CAAD, "for purposes of application of item 28 of the GTST to properties in vertical property, the same MPTC rules as to properties in horizontal property apply, and in the same sense the TPV for purposes of application of the item is the individual TPV of each independent housing fraction, and in the present case none of the fractions exceeds the incidence criterion of €1,000,000.00," precisely as also occurs in the present case.
It is thus concluded, in summary, as clearly follows from the cited decisions, that the literal interpretation of the new item of the GTST cannot but be different from that sustained by the AT, indeed, the opposite, given the clear and indisputable referral made regarding the new item of the GTST to the MPTC rules, and the interpreter cannot "create" a new concept of property in order to thereby obtain a hybrid TPV, in cases of properties with housing and non-housing use, not recognized in the property register and without any support in the text of the law. What should also apply to properties in vertical ownership whose units are intended, all, for housing purpose and, by majority or identity of reason, to properties in which that is not so.
Economic Substance
Moreover, as well stated in Decision 117/2013-T of the CAAD, "an interpretation based exclusively on the literal tenor.... cannot be accepted, since in the interpretation of tax norms are observed the general rules and principles of interpretation and application of laws (article 11, no. 1, of the LGT) and article 9, no. 1, expressly prohibits interpretations based exclusively on the literal tenor of the norms by stating that 'interpretation must not limit itself to the letter of the law,' but should instead 'reconstruct from the texts the legislative thinking, taking especially into account the unity of the legal system, the circumstances in which the law was drafted, and the specific conditions of the time in which it is applied.' Being that to verify a correspondence between the interpretation and the letter of the law it will suffice 'a minimum of verbal correspondence, even if imperfectly expressed' (article 9, no. 3, of the Civil Code), which will only prevent the adoption of interpretations that cannot in any way be reconciled with the letter of the law, even acknowledging therein imperfection in the expression of the legislative intention."
And if we now look at the economic substance of the tax facts, in fulfillment of article 11, no. 3 of the LGT, without thereby adhering to an economic interpretation of tax law norms, today condemned by doctrine (cf. Taxes, General Theory, Américo Fernando Brás Carlos, page 196, 2014, 4th ed. Almedina), we must equally recognize that the expression "each urban property" used in no. 7 of article 23, by identity of reasons, encompasses not only urban properties in horizontal property, but also apartments, units, or parts of urban properties in vertical property, since they are allocated to housing purposes, always starting, in either case, from a single tax base for all legal purposes: the tax property value used for purposes of municipal property tax (final part of item 28 of the GTST), as was concluded in the arbitral decision of case 177/2014-T (CAAD).
Or, as stated in the decision rendered in case 272/2014-T of the CAAD, "in the legislator's perspective, what matters is not the juridical-formal rigor of the concrete situation of the property but rather its normal use, the purpose for which the property is intended," so that "for the legislator the situation of the property in vertical or horizontal property did not matter, as no reference or distinction is made between one and the other. What matters is the material truth underlying its existence as an urban property and its use."
That is, what matters is the economic reality of holding independent parts, e.g., susceptible to independent use or independent rental, as is the case with autonomous fractions in the case of horizontal property, and therefore susceptible of allowing use or the obtaining of income in a similar manner and thereby externalizing, for that reason, equal taxpaying capacity (as would be externalized by the sum of the TPV of various autonomous fractions of the same property in horizontal property or of various properties whose TPV, in aggregate, exceeded the value of one million euros, without such having been considered by the legislator as an externalization of taxpaying capacity relevant for purposes of ST).
Coherence of the System
And if we look at the totality of the tax system we will not find indications that would refute the conclusion drawn so far.
As stated in the Decision rendered in case 26/2014-T of the CAAD, there is no indication of the legislator's disapproval of vertical property ownership. In fact, "it will be said, not without reason, that the legislator, for purposes of taxation under municipal property tax, chose to confer autonomy, independence, on each of the parts or on each of the apartments of a single property, provided that some and the others show themselves to be of independent use, to the point of providing for individualized registration in the property matrix of each of those independent parts and of imposing on taxation under municipal property tax a collection also autonomous. Despite the juridical existence of a single property, it is the legislator himself who not only recommends but imposes the autonomous consideration of each of those independent parts, for purposes of taxation of assets." In fact, as follows from an economic interpretation of the fact, with prevalence of its substance over its form, as stated above. And if that is the case for municipal property tax, it would not be understood why it would not be so, also, for Stamp Tax, particularly in the case of the new taxation on "luxury" properties (in the sense used in the Assembly of the Republic by the then Secretary of State for Tax Affairs and referred to below).
In fact, if the legislator is indifferent to one or another form of structuring the ownership of urban properties in the MPTC, it would not be understood that it now intended to favor one to the detriment of the other, namely by considering one form of structuring more advanced than the other. In fact, as decided in cases 26/2014-T and 272/2014-T of the CAAD, "the current legal regime does not impose the obligation to constitute horizontal property," which is why "the discrimination effected by the AT translates into arbitrary and illegal discrimination," since "the AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of tax legality provided in article 103, no. 2 of the Constitution, and also the principles of tax justice, equality, and proportionality."
That is, the literal interpretation initially reached continues to hold good.
Legislative Intent
And the truth is that also nothing leads the interpreter to the conclusion that the concrete legislator of the new item of the GTST, contrary to the legislator of municipal property tax, which moreover remains unchanged, intended to discriminate vertical property against horizontal. As well recalled in the Decision rendered in the already-mentioned case 26/2014-T of the CAAD, "at the time of presentation and discussion, in Parliament, of bill no. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated: 'The Government proposes the creation of a special rate on urban residential properties of higher value. It is the first time in Portugal that special taxation is created on properties of high value intended for housing. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will incide on houses with a value equal to or exceeding 1 million euros' (cf. Parliamentary Record Series I no. 9/XII-2, of October 11, page 32). Now, as emphasized in that Decision, 'the Secretary of State for Tax Affairs presents this bill referring without hesitation to the expression 'houses'… with a value equal to or exceeding 1 million euros,' so that 'it results with utmost clarity that item 28.1 of the GTST cannot be interpreted in the sense that it encompasses each of the apartments, units, or parts susceptible to independent use when only from their sum results a TPV higher than that provided for in that item.' This is because, in that case, 'none of the 'houses'… presents, per se, 'a value equal to or exceeding 1 million euros'."
It being therefore clear, as stated in the aforementioned decision 272/2014-T, that for the legislator only that value of one million euros, provided it is allocated to "a housing unit (house, autonomous fraction, or apartment with independent use) conveys an above-average taxpaying capacity and, as such, susceptible to determining a special contribution to guarantee fair apportionment of tax burden."
And if that is the case, we must then attend to the concept of "house" as a physical reality that enables a housing purpose, a unit susceptible to independent use, including its rental, for it is in that economic reality that we will find the externalization of taxpaying capacity associated with "luxury housing" that the legislator considered relevant. Moreover, if that were not so, the legislator would proceed to a discrimination that would not be found justified, as has already been seen it is also not found in the system a censure of vertical property when compared with horizontal. Moreover, that distinction would clash with a necessary equity between identical externalizations of the same taxpaying capacity.
Taxpaying Capacity and Interpretation in Conformity with the Constitution
It is certain that the tax legislator is subordinate to the principle of equality, which, as well stated by Sérgio Vasques (Manual of Tax Law, pages 249 et seq., 2011, Almedina), is more than a mere negative limit and imposes more than mere prohibition of arbitrariness, instead postulating an apportionment of taxes according to the criterion of taxpaying capacity. Thus, the legislator must anchor taxation in reasonable and non-arbitrary economic elements, susceptible to justifying the tax claim in a taxpaying capacity concretely externalized by the taxpayer.
In this way it is imperative to seek in the text of the new item a reading that gives fulfillment to those principles. Or, what amounts to the same thing, not to draw from that text a meaning that violates them.
Now, the taxpaying capacities externalized by the ownership of a property composed of a set of autonomous fractions in horizontal property or by a set of units of independent use under the regime of vertical property cannot but be considered identical, if not even, possibly, smaller in the case of the second hypothesis. That is, a property does not certainly have a higher market value for being organized as vertical property. It is worth the same (permitting equal benefit from its use or equal income via its rental, as stated above), or will even have a smaller value, since the alternatives for transferability will possibly be smaller. And we know that TPV is intended to be an approximation, precisely, to the market value of properties and will therefore be the measure and limit of the taxpaying capacity relevant for the new item of the GTST.
Thus, the interpretation advocated by the AT, finding no hermeneutic justification, as has been seen so far, would further lead to manifest inequality between owners of properties in horizontal and vertical property (and it has also already been seen that there is no glimpsing of any discriminatory intent against the latter, even if it were admitted that such would be constitutionally admissible). In that same sense, as well emphasized in the decision of case 272/2014-T of the CAAD, the "existence of a property in vertical or horizontal ownership cannot be, per se, an indicator of taxpaying capacity. On the contrary, from the law it follows that one and the other should receive the same tax treatment in obedience to the principles of justice, tax equality, and material truth."
Concluding, "material truth is what imposes itself as the determining criterion of taxpaying capacity and not mere juridical-formal reality of the property, since constitution of horizontal property implies a mere juridical alteration of the property not even imposing a new evaluation" (as stated in the decision rendered in case 26/2014-T of the CAAD). And this fact "does not appear coherent with the AT's decision to tax the housing parts of a property in vertical ownership, according to the property's global TPV and not of what is effectively attributed to each part." Thus, "the AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality … and also the principles of justice, tax equality, and proportionality," as said by the creation ex novo of an innovative concept and a hybrid TPV, frequently corresponding to part of a property.
Conclusion
In these terms, the tax acts in question suffer from a legal violation, due to error in the legal and factual premises, for none of the parts of the said property susceptible to independent use and intended for housing possesses a TPV of value equal to or exceeding the threshold resulting from the applied norm, which makes the said tax acts voidable (which should therefore be declared).
Compensatory Interest
The claimant also requests payment of compensatory interest, due to illegal tax assessments having been paid, due to error attributable to the administration, pursuant to no. 1 of article 43 of the LGT. And in fact it is so, as follows from the annulment of the tax assessments that were (wrongly) paid.
In fact, it has been consistent case law that once the illegality of the assessment is verified, the error is always attributed to the administration, from which follows the duty to compensate the taxpayer with compensatory interest counted from the date of disbursement. Moreover, in the present case, as it has also been consistent case law, it is not seen how not to attribute to the AT the error due to the legislative interpretation that it itself created.
It is therefore evident that compensatory interest is due under the terms referred, being calculated pursuant to article 61 of the Tax Process Code (CPPT), taking into account the dates of payment of the various tax installments.
Operative Part
As a result of the foregoing, it is decided to render judgment fully in favor of the claimant's claim and, in consequence, to annul the assessment acts in question, on the grounds of legal violation, resulting from error in the premises.
Thus, with the identified ST assessment acts annulled, the claimant should be reimbursed of the amounts of tax wrongly assessed and paid, plus compensatory interest at the legal rate, calculated from the corresponding disbursements.
Value
As stated above, the assessments subject to the claim and annulment amount to a total value of €10,862.30 (ten thousand, eight hundred sixty-two euros and thirty cents), as this is the value of the claim and of the economic utility thereof and not the value initially indicated by the claimant, which corresponds only to the value of one of the tax installments.
It is therefore that and not this that constitutes the value of the action and the claim.
Thus and in accordance with the provisions of article 306, nos. 1 and 2, of the Code of Civil Procedure and article 97-A, no. 1, subsection a), of the Tax Process Code and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of €10,862.30 is fixed for the proceedings.
Costs
Pursuant to article 22, no. 4, of the LFTA, the amount of costs is set at €918.00 (nine hundred and eighteen euros), pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, entirely borne by the Tax and Customs Authority, here respondent.
Lisbon, May 17, 2016
Text prepared by computer, pursuant to the Code of Civil Procedure (CPC), applicable by referral from article 29, no. 1, subsection e) of the LFTA, with blank spaces, reviewed and signed by the undersigned arbitrator.
The Arbitrator
(Jaime Carvalho Esteves)
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