CAAD Case 605/2017-T: Stamp Tax on Vertical Property Under Clause 28.1 TGIS

ARBITRAL DECISION [1]

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 6 February 2018, with respect to the case identified above, decided as follows:

1.   REPORT
   

A… – Special Open Real Estate Investment Fund, with Tax Identification Number…, whose managing entity is B…- Real Estate Investment Fund Management Company, S.A., Legal Entity No…, with registered office at Street …, …, …, in Lisbon (hereinafter referred to as the "Claimant"), submitted a request for arbitral ruling and constitution of a Single Arbitral Tribunal on 20 November 2017, pursuant to the provisions of article 4 and no. 2 of article 10 of Decree-Law no. 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], against the Tax and Customs Authority (hereinafter referred to as the "Respondent").

The Claimant requests that the Arbitral Tribunal determine:

"The illegality of the dispatch of the Deputy Finance Director (…), of the Finance Directorate of Faro, dismissing the administrative complaint presented within the scope of administrative complaint process no. …2015…, of 17-08-2017 (…) and, consequently, the annulment of the Stamp Duty Tax assessments of item 28.1 of the General Stamp Duty Table, relating to the year 2014 (…), issued in 2015 (…) on the basis of its illegality/unconstitutionality for being grounded in reasoning that suffers from deficient interpretation of the applicable norms (…)" and,

That the "Claimant be reimbursed for the entire amount paid by virtue of the Assessments described (…), plus the indemnificatory interest that is due up to the date of such reimbursement".

1.3. The request for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD, and automatically notified to the Respondent, on 21 November 2017.

1.4. The Claimant did not proceed to appoint an arbitrator, whereby, pursuant to the provisions of article 6, no. 2, subsection a) of RJAT, the undersigned was designated, on 16 January 2018, as arbitrator by the President of the Deontological Council of CAAD, the appointment being accepted within the legally provided timeframe and terms.

1.5. On the same date, the Parties were duly notified of such designation, and did not express any intention to refuse the appointment of the arbitrator, in accordance with the provisions of article 11, no. 1, subsections a) and b) of RJAT combined with articles 6 and 7 of the Deontological Code.

1.6. In compliance with the provision of subsection c), no. 1, of article 11 of RJAT, the Arbitral Tribunal was constituted on 6 February 2018, and an arbitral order was issued on the same date, in the sense of notifying the Respondent to, in accordance with the provisions of article 17, no. 1 of RJAT, submit a Response, within a maximum period of 30 days and, if it wished, request the production of additional evidence.

1.7. Additionally, it was further stated in that arbitral order that the Respondent should send to the Arbitral Tribunal, within the Response timeframe, a copy of the administrative file.

1.8. On 7 March 2018, the Respondent attached the Administrative File to the proceedings and on 8 March 2018, the Respondent submitted its Response, having defended itself by way of challenge in the sense that "(…) the assessments in dispute constitute a correct interpretation and application of law to the facts, not suffering from any defect of violation of law (…)", concluding that "the present request for arbitral ruling should be judged unfounded, as not proven, maintaining in the legal order the disputed tax assessment acts, and accordingly absolving the (…) respondent of the requests".

1.9. Additionally, in the Response submitted, the Respondent further stated that "(…) since there is no interest or utility in holding the arbitral meeting provided for in article 18 of RJAT, the dispensation thereof is requested, as well as of the presentation of arguments, and in case the Claimant does not dispense with the latter, it is already requested that the same be presented in writing, in successive form".

1.10. The Claimant was notified on 9 March 2018 by arbitral order, dated 8 March 2018, to pronounce itself within 5 days on the content of what was requested by the Respondent (see previous point).

The Claimant said nothing regarding the content of the arbitral order referred to in the previous point.

Accordingly, by order of this Arbitral Tribunal, dated 22 March 2018, it was decided, in accordance with the procedural principles set forth in article 16 of RJAT, regarding the autonomy of the Arbitral Tribunal in conducting the proceedings and determining the rules to be observed [subsection c)], cooperation and good faith in proceedings [subsection f)] and the free conduct of proceedings provided for in article 19 and 29, no. 2 of RJAT, as well as taking into account the principle of the limitation of useless acts, provided for in article 130 of the Code of Civil Procedure (CPC), applicable by virtue of the provisions of article 29, no. 1, subsection e) of RJAT:

To dispense with the conduct referred to in article 18 of RJAT;

To dispense with the submission of arguments;

To designate 3 April 2018 for purposes of pronouncing the arbitral decision.

Finally, the Claimant was further warned that "up to the date of pronouncing the arbitral decision it should proceed to payment of the subsequent arbitral fee, in accordance with the provisions of no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD".

1.   CAUSE OF ACTION
   

2.1. The Claimant states that "(…) it is the owner of an immovable property located in …, District of Faro, Municipality of …, Parish of…, with the matriculation article … (…)".

2.2. The Claimant further clarifies that the said immovable property is "described in the Urban Property Booklet as a property in Full Ownership with Floors or Divisions Susceptible to Independent Use, consisting of an urban property intended for housing and commerce or industry, designated as Block C, composed of 9 buildings (…)" of 4 stories and 35 floors or divisions with independent use, with a total Taxable Patrimonial Value of "(…) € 3,201,420.65 (…)".

2.3. The Claimant states that it was notified of the tax assessment acts for Stamp Duty Tax, relating to the year 2014, whose payment notes are identified as follows:

[TABLE OF STAMP DUTY TAX PAYMENT NOTES FOR 2014 - containing identification numbers, floors/units, and amounts totaling € 28,791.90]

Criticism of Item 28 of the GSTDT - Unconstitutionality

2.4. With respect to the assessments, the Claimant infers that "(…) the Tax and Customs Authority summed the taxable patrimonial value of the parts of the Property susceptible to independent use, with housing allocation, determining a taxable patrimonial value of those same parts of € 3,201,420.65 (…) and, subsequently, (…) carried out a tax assessment act for parts of the property susceptible to independent use (with housing allocation)".

2.5. However, "the TPV of the floors (autonomous units) of the property in question, with housing allocation, vary between EUR 52,710.00 and EUR 227,444.90, that is, none of the independent units, which make up the Claimant's property, have a patrimonial value exceeding EUR 1,000,000.00" (italics and underlining by the Claimant).

2.6. And, in this context, the Claimant reiterates that it "does not understand (…) how the idea embodied in the current item 28 of the GSTDT, for taxation purposes, is that the mere fact that horizontal property ownership has not been constituted reflects any special contributory capacity of the respective owners compared to owners of identical properties but over which such horizontal property ownership has been constituted".

2.7. The Claimant believes that "since the Stamp Duty Code refers to the Property Tax Code, one should therefore consider that the registration in the matrix of immovables in vertical property ownership, constituted by different parts, floors or divisions with independent use, follows the same registration rules as immovables constituted in horizontal property ownership (…)", "(…) in light of the Property Tax Code, each autonomous part of the immovable has its own TPV, constituting the taxable value for purposes of this tax, and that value should therefore be the taxable value for Stamp Duty Tax purposes, namely, in the field of application of item 28.1 of the GSTDT which (…) expressly requires it by mentioning that the value to be considered is the patrimonial value used for Property Tax purposes" (underlining by the Claimant).

2.8. Thus, the Claimant argues that "the Tax Authority cannot sum the TPV determined individually for each floor of a property to reach a value exceeding 1 million euros and impose Stamp Duty Tax on the same (…)".[2]

2.9. Indeed, "it is the Claimant's understanding that there is no (…) apparent purpose of discouraging vertical property ownership, rather the legislator intended merely to expand the taxable base, requiring instead increased effort from taxpayers holding high-value real estate properties, insofar as they reveal their greater contributory capacity, regardless of whether the properties are horizontal or vertical in nature" (underlining by the Claimant).[3]

2.10 The Claimant acknowledges that "the wording of Item 28 of the GSTDT is susceptible to many doubts as to its interpretation", and that "the question of the unconstitutional nature of the application of Item 28 in the manner described here has already been raised".

2.11. Thus, given that "(…) fiscal matters must respect the principles of justice, equality and material truth, which implies that the Tax Authority treats fiscally in the same manner what is equal and differently what is different", "the Claimant does not see the reason why the differentiated treatment of fractions or parts of a property should be based merely and exclusively on the fact that it is in horizontal property ownership, provided that the fractions have independent use".[4]

2.12. Thus, " (…) the Claimant believes that there is a complete absence of legal foundation that legitimizes the criterion applied by the Tax Authority in this specific case, in considering the aggregate value of the TPV attributed to the divisions with independent use, on the basis that the property is not in the horizontal property ownership regime", considering that "the taxation carried out by the Tax Authority of the Stamp Duty Tax provided for in Item 28 of the GSTDT in the manner described here violates the principles of legality and fiscal equality, as well as the principle of material truth" (italics and underlining by the Claimant).

2.13. In these terms, the Claimant petitions that it be:

Determined "the illegality of the order dismissing the administrative complaint (…) no. …2015…, of 17-08-2017 (…) in accordance with the reasoning found attached thereto, and, consequently (…)";

Determined "the annulment of the Stamp Duty Tax assessments of item 28.1 of the General Stamp Duty Table, relating to the year 2014, relating to the urban matriculation article … of the parish of …, municipality of …, issued in 2015 (…), on the basis of its illegality/unconstitutionality for being grounded in reasoning that suffers from deficient interpretation of the applicable norms (…)" and,

The "Claimant be reimbursed for the entire amount paid by force of the Assessments described (…), plus indemnificatory interest that is due up to the date of such reimbursement".

1.   RESPONDENT'S RESPONSE
   

The Respondent, in the Response submitted, defended itself by way of challenge for understanding that the Claimant's arguments are not well-founded, for the reasons briefly presented below:

3.1. At the time to which the Stamp Duty Tax assessments in question refer, "(…) the Claimant held full ownership of the urban property under analysis (…), described as property in total ownership with floors or divisions susceptible to independent use, having the same taxable patrimonial value (TPV) exceeding EUR 1,000,000.00".

3.2. Thus, the Respondent clarifies that "in compliance with item no. 28.1 of the GSTDT, in the wording given by Law no. 83-C/2013, of 31/12, the incidence rule of which refers to urban properties, evaluated in accordance with the Property Tax Code with TPV equal to or exceeding EUR 1,000,000.00, and housing allocation, the Tax Authority proceeded to notify the payment documents with a view to payment of the assessments in question (…)".

3.3. Indeed, the Respondent argues that "the thesis defended by the Claimant lacks (…) legal support" since "(…) although the assessment of Stamp Duty Tax (…) proceeds in accordance with the rules of the Property Tax Code, the truth is that the legislator makes exceptions for aspects that require proper adaptation (…), such as is the case of properties in total ownership, even though with floors or divisions susceptible to independent use (even though Property Tax is assessed for each part susceptible to independent use) for purposes of Stamp Duty Tax the property as a whole is relevant since divisions susceptible to independent use are not deemed to be property, but only autonomous fractions in the horizontal property ownership regime (…)".

3.4. Thus, according to the Respondent "what is at issue here are assessments that result from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary appraisal".

3.5. Indeed, according to the Respondent, "what expressly results from the letter of the law is that the legislator intended to tax with item 28.1 in question the properties as a single legal-fiscal reality (…)", and that "the subjection to Stamp Duty Tax of item 28.1 of the GSTDT results from the combination of two facts: the housing allocation and the patrimonial value of the urban property registered in the matrix being equal to or exceeding EUR 1,000,000.00".

3.6. In these terms, "given that the property is in the total ownership regime (not possessing autonomous fractions, to which the tax law attributes the qualification of property, because from the notion of property in no. 4 of article 2 of the Property Tax Code results that only autonomous fractions of property in the horizontal property ownership regime are deemed to be property), it is the global TPV of the property that should (…) be relevant", whereby the Respondent believes that "the alleged violation of item 28.1 of the GSTDT should be judged unfounded, with the assessments in question remaining in the legal order as they constitute a correct application of law to the facts".

3.7. On the other hand, the Respondent further believes that "(…) the provision of item 28.1 of the GSTDT does not constitute any violation of the principle of equality, there being no discrimination in the taxation of properties constituted in horizontal property ownership and properties in total ownership with floors or divisions susceptible to independent use, or between properties with housing allocation and properties with other allocations".

3.8. Indeed, the Respondent argues that "horizontal property ownership and vertical property ownership are differentiated legal institutions", their "(…) civil law regimes are different, and tax law respects them".

3.9. Thus, the Respondent believes it is "(…) necessarily to be concluded that the notifications made for payment of the tax in question did not violate any legal or constitutional principle, and should therefore be maintained".[5]

3.10. With regard to the question raised concerning the (un)constitutionality of the incidence rule contained in item 28.1 of the GSTDT, when interpreted in the manner defended by the Respondent, it states that "(…) the Constitutional Court in Decision no. 620/2015, decided in case 305/15 (2nd section) (…) decided (…) not to declare unconstitutional the incidence rule contained in item 28.1 of the General Stamp Duty Table, when interpreted in the sense that it includes urban residential properties in total ownership composed of parts susceptible to independent use and considered separately in the matriculation registration (…)"

3.11. The Respondent concludes its Response by stating that "for all the foregoing, the assessments in dispute constitute a correct interpretation and application of law to the facts, not suffering from any defect of violation of law, and consequently, the claim presented should be judged unfounded".

PRELIMINARY RULING

4.1. The request for arbitral ruling is timely since it was submitted within the period provided for in subsection a) of no. 1 of article 10 of RJAT.[6]

4.2. The Parties have legal personality and capacity to be sued, are entitled regarding the request for arbitral ruling and are duly represented, in accordance with the provisions of articles 4 and 10 of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

4.3. The Tribunal is competent to rule on the request for a declaration of illegality of the order dismissing the administrative complaint, on the request for annulment of the Stamp Duty Tax assessments (of item 28.1 of the General Stamp Duty Table), relating to the year 2014, affecting the immovable property identified in the proceedings and on the request for indemnificatory interest.

4.4. The cumulation of claims here made by the Claimant is legal and valid, in accordance with the provisions of article 3, no. 1 of RJAT, given that the merits of the claims depend essentially on the appraisal of the same factual circumstances and on the interpretation and application of the same principles or rules of law.

4.5. No exceptions requiring ruling were raised.

4.6. No nullities exist, whereby it is now necessary to rule on the merits of the claim.

1.   FACTUAL MATTER
   

From the Proven Facts

5.1. The following facts are considered proven:

5.1.1. The Claimant is the owner of an urban property located in …, district of Faro, Municipality of …, Parish of …, registered in the urban property matrix under matriculation article no….

5.1.2. The said urban property is intended for housing and commerce or industry, is constituted in the vertical property ownership regime (or total ownership), being designated as "Block C" and is composed of nine buildings, of four stories, in a total of thirty-five floors or divisions susceptible to independent use.

5.1.3. The total TPV of the said urban property was, in 2014, EUR 3,201,420.65, determined within the scope of an evaluation carried out on 7 April 2014 in accordance with a copy of the Urban Property Booklet, the TPV subject to tax being EUR 2,879,190.00.

5.1.4. The TPV of each of the divisions (or parts susceptible to independent use) intended for housing, included in the Stamp Duty Tax assessment notes, relating to the year 2014, was situated between EUR 52,710.00 (value assigned to the floors designated as "E4 3rd", "E5 3rd", "E6 3rd", "E7 3rd", "E8 3rd" and "E9 3rd") and EUR 136,270.00 (value assigned to the floors designated as "E2 2nd" and "E3 2nd").

5.1.5. The Claimant was notified of the payment notes for the three installments of the Stamp Duty Tax assessments for the year 2014, dated 20 March 2015, whose payment deadline was, respectively, "April/2015", "July/2015" and "November/2015", relating to the fractions identified:

[TABLE WITH FRACTIONS, TPV, AND TAX AMOUNTS - E1 RC through E9 3rd, totaling EUR 2,879,190.00 in TPV and EUR 28,791.90 in total tax]

5.1.6. For purposes of determining the incidence of Stamp Duty Tax of item 28 on the various autonomous parts of the immovable (identified above), the Respondent considered (i) the sum of the TPV of all divisions or floors susceptible to independent use with housing allocation (which amounted to EUR 2,879,190.00) and (ii) the housing allocation of the said autonomous parts.

5.1.7. For purposes of tax assessment, the Respondent applied a rate of 1% Stamp Duty Tax on the individual TPV of each of the fractions intended for housing, identified above in point 5.1.5.

5.1.8. The Claimant made payment of the payment notes identified above in point 5.1.5, on 30 April 2015, on 31 July 2015 and on 30 November 2015, respectively.

5.1.9. The Claimant presented an administrative complaint (no. …2015…) against the Stamp Duty Tax assessments identified above, relating to the year 2014.

5.1.10. The Claimant was notified of Letter no…, of 30 June 2017, relating to the draft decision to dismiss the administrative complaint presented and to, within fifteen days, exercise its right to prior hearing.

5.11. The Claimant presented, on 19 July 2017, at the Finance Service of … its respective right of hearing, arguing along the same lines as the administrative complaint, which was forwarded to the Finance Directorate of Faro on 4 August 2017.

5.12. The Claimant was notified on 22 August 2017, of Letter no…, of 18 August 2017, relating to the order dismissing the administrative complaint identified, issued by the Deputy Finance Director (in substitution regime, by delegation), of the Finance Directorate of Faro.

5.2. No other facts capable of affecting the decision on the merits of the claim were proven.

Reasoning as to Factual Matters

5.3. Regarding the proven factual matters, the conviction of the Arbitral Tribunal was based, in addition to the free appraisal of the positions assumed by the Parties (regarding facts), on the content of the documents attached to the proceedings by both Parties and not contested.

From the Unproven Facts

5.4. No facts were found to be unproven with relevance to the arbitral decision.

LEGAL MATTERS

6.1. In the case under analysis, it is now necessary to analyze the factuality proven in order to determine:

6.1.1. The illegality of the order dismissing the administrative complaint submitted, issued on 17 August 2017, by the Finance Director of the Finance Directorate of Faro, within the scope of administrative complaint process no. …2015… and,

6.1.2. The illegality of the Stamp Duty Tax assessments identified in the claim, relating to the year 2014,

taking into consideration the arguments presented by the Claimant that "(…) there is a complete absence of legal foundation that legitimizes the criterion applied by the Tax Authority in this specific case, in considering the aggregate value of the TPV attributed to the divisions with independent use, on the basis that the property is not in the horizontal property ownership regime" (underlining by the Claimant).

6.2. Accordingly, it will be important to provide an answer to the following controversial legal question (underlying the request for arbitral ruling):

6.2.1. The subjection to Stamp Duty Tax, in accordance with the provisions of item no. 28.1 of the GSTDT (in force at the time to which the assessments subject to the claim relate), was determined by the TPV corresponding to each of the parts of the property with housing allocation or, conversely, was it determined by the global TPV of the property, which would correspond to the sum of all the TPVs of the floors (with such allocation) that comprise it?[7]

In this context, the Claimant believes that "(…) in light of the Property Tax Code, each autonomous part of the immovable has its own TPV, constituting the taxable value for purposes of this tax, and that value should therefore be the taxable value for Stamp Duty Tax purposes, namely, in the field of application of item 28.1 of the GSTDT which, moreover, expressly requires it by mentioning that the value to be considered is the patrimonial value used for Property Tax purposes", whereby "the Tax Authority cannot sum the TPV determined individually for each floor of a property to reach a value exceeding 1 million euros and impose Stamp Duty Tax on the same (…)".

In consequence, the Claimant argues for "the annulment of the Stamp Duty Tax assessments of item 28.1 of the General Stamp Duty Table, relating to the year 2014, relating to the urban matriculation article (…)" identified, "(…) on the basis of its illegality/unconstitutionality for being grounded in reasoning that suffers from deficient interpretation of the applicable norms (…)".

On the other hand, the Respondent argues that "the thesis defended by the Claimant lacks (…) legal support" since "(…) although the assessment of Stamp Duty Tax (…) proceeds in accordance with the rules of the Property Tax Code, the truth is that the legislator makes exceptions for aspects that require proper adaptation (…), such as is the case of properties in total ownership (…) for purposes of Stamp Duty Tax the property as a whole is relevant since divisions susceptible to independent use are not deemed to be property, but only autonomous fractions in the horizontal property ownership regime (…)".

Indeed, according to the Respondent, "what expressly results from the letter of the law is that the legislator intended to tax with item 28.1 in question the properties as a single legal-fiscal reality (…)", and that "the subjection to Stamp Duty Tax of item 28.1 of the GSTDT results from the combination of two facts: the housing allocation and the patrimonial value of the urban property registered in the matrix being equal to or exceeding EUR 1,000,000.00", whereby "given that the property is in the total ownership regime (…), it is the global TPV of the property that should therefore be relevant", and should "the alleged violation of item 28.1 of the GSTDT be judged unfounded, with the assessments in question remaining in the legal order as they constitute a correct application of law to the facts".

On the other hand, the Respondent argues that "(…) the Claimant, for purposes of Property Tax and also Stamp Duty Tax (…) is not the owner of autonomous fractions, but rather of a single property (…)" whereby it believes that it is "(…) to be concluded that the notifications made for payment of the tax in question did not violate any legal or constitutional principle, and should therefore be maintained".

Now, in order to answer the question set forth above in point 6.2.1, it will be important to analyze the amendments resulting from Law no. 55-A/2012, of 29 October (namely, the addition of item 28 to the GSTDT) and Law no. 83-C/2013 of 31 December, since that statute "introduced a set of amendments to the codifying statutes of three taxes – Personal Income Tax, Corporate Income Tax and Stamp Duty Tax – as well as to the General Tax Law (…), all guided by the objective of obtaining supplementary fiscal revenue and, in general, to counteract budgetary imbalance". [8][9][10]

Indeed, in 2012, "invoking the principles of social equity and fiscal justice, the taxation of capital income and securities capital gains was increased (…)", and "(…) measures to strengthen the fight against tax fraud and evasion (…) were introduced, to which were added the introduction, within the scope of Stamp Duty Tax, of the taxation of legal situations (…), which was understood to be capable of supporting increased fiscal effort, thereby distributing more equitably the burden to achieve the budgetary consolidation required of taxpayers" (underlining ours).[11]

And, if there were doubts regarding the alleged unconstitutionality of item 28 of the GSTDT, for alleged violation of the principles of proportionality, equality and contributory capacity, the Constitutional Court has already ruled on this matter, in particular, within the scope of the Decision of 11 November 2015 (case no. 542/14), in accordance with which it decided "(…) not to declare unconstitutional the rule of item 28 and 28.1 of the General Stamp Duty Table, added by article 4 of Law no. 55-A/20121, of 29 October, insofar as it imposes annual taxation on the ownership of urban properties with housing allocation, whose taxable patrimonial value is equal to or exceeding EUR 1,000,000.00", "with no violation of constitutionality parameters (…) being verified" (underlining ours).[12][13][14]

6.11. Thus, as referred to above, it is important to analyze the essence of item no. 28 of the GSTDT (added by article 4 of Law no. 55-A/2012, of 29 October, in force since 30 October 2012 and amended by article 194 of Law no. 83º-C/2013, of 31 December), in force at the time to which the Stamp Duty Tax assessments in question relate (year 2015), since, although that statute did not qualify the concepts contained in the said item no. 28, in particular the concept of "property with housing allocation", if the provisions of article 67, no. 2 of the Stamp Duty Code (also added by the said Law no. 55-A/2012) are observed, it can be seen that "for matters not regulated in this Code relating to item 28 of the GSTDT, the Property Tax Code shall apply subsidiarily".

6.12. Now, from reading the Property Tax Code, it is readily apparent that the concept of "property with housing allocation" referred to the concept of "urban property", defined in accordance with articles 2 and 4 of that Code.[15]

6.13. Indeed, in accordance with the provisions of article 2, no. 1 of the Property Tax Code, "for purposes of this Code, property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a permanent character, provided 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, in the circumstances referred to above, endowed with economic autonomy in relation to the land on which they are located, although situated in a fraction of territory that constitutes an integral part of diverse assets or has no patrimonial nature" (underlining ours).

6.14. Further, in accordance with no. 2 and no. 3 of the same article, "buildings or constructions, even if movable by nature, are deemed to have a permanent character when assigned to non-transitory purposes", and it is "presumed to have a permanent character when the buildings or constructions are situated at the same location for a period exceeding one year".

6.15. For purposes of Property Tax, "each autonomous fraction, in the horizontal property ownership regime, is deemed to constitute property" and, in accordance with the provisions of article 4 of that tax code "urban properties are all those that should not be classified as rural (…)" (underlining ours).

6.16. Among the various types of "urban properties" referred to in article 6 of the Property Tax Code, "residential urban properties" are expressly mentioned [no. 1, subsection a)], with no. 2 of the same article adding that these "are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes".

6.17. On the other hand, while it is true that no. 4 of article 2 of the Property Tax Code states that "for purposes of this tax, each autonomous fraction in the horizontal property ownership regime is deemed to constitute property", it is also true that there is nothing in the law that points to a distinction between horizontal property ownership and vertical property ownership regarding their identification as "residential urban properties".

6.18. Thus, from this it can be concluded that the autonomous parts of vertical property ownership with housing allocation should be considered as "residential urban properties".

6.19. As defended in various Arbitral Decisions, in particular in that issued within the scope of Case no. 88/2013-T, "from the legislator's perspective, what matters is not the strict legal form of the specific situation of the property but rather its normal use, the purpose for which it is intended", whereby, "it must therefore be concluded that for the legislator it is irrelevant whether the property is constituted in vertical or horizontal property ownership, the only relevant matter being the material truth underlying its existence as an urban property and its use" (underlining ours).

6.20. Indeed, in interpreting the legal text, it makes no sense to distinguish what the law itself does not distinguish, since to distinguish, in this context, between properties constituted in horizontal property ownership and properties constituted in total ownership would be an "innovation" without associated legal support.

In truth, neither in item no. 28 of the GSTDT, nor in the provisions of the Property Tax Code, is there anything indicating a justification for such differentiation, and it is today an accepted understanding that fiscal laws are interpreted through the determination of their true meaning, ascertained in accordance with the techniques and interpretative elements generally accepted by legal doctrine [see article 9 of the Civil Code and article 11 of the General Tax Law (LGT)].[16][17]

Moreover, it is necessary to also take into account that the incidence rules of taxes must be interpreted in their exact terms, without recourse to analogy, making prevailing the certainty and security in their application.[18]

In these terms, the uniform criterion that is necessary is that which determines that the incidence of the provision in question (item 28 of the GSTDT) takes place only when one of the parts, floors or divisions with independent use of property in horizontal property ownership (or total ownership), with housing allocation, has a TPV exceeding EUR 1,000,000.00.

Thus "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical property ownership, in the same manner as it establishes for properties in horizontal property ownership, it clearly established a unique and unequivocal criterion for defining the rule of incidence of item 28.1 of the GSTDT"[19], whereby setting as the reference value for such purpose the global TPV of the property in question (as the Respondent seeks), finds no basis in the applicable legislation (underlining ours).[20]

Finally, it will also be important to reinforce what is the ratio legis underlying the rule of item 28 of the GSTDT (in force at the time of the assessments in question), in compliance with the provisions of article 9 of the Civil Code[21], taking into account the circumstances in which the rule was drawn up, as well as the specific conditions of the time in which it was and is applied.

Indeed, at the time of the amendments introduced by the legislation already referred to, the legislator intended to introduce a principle of taxation on the wealth manifested in the ownership, usufruct or surface right of high-value urban properties with housing allocation, having considered, as the determining element of contributory capacity, urban properties with housing allocation of high value (luxury), that is, of value equal to or exceeding EUR 1,000,000.00, upon which a special rate of Stamp Duty Tax would then apply.

Indeed, it is this very conclusion that can be drawn from the analysis of the discussion of Bill no. 96/XII in the Republic's Assembly[22], with no invocation of a different interpretative ratio being apparent from the one presented here.[23]

Indeed, the justification for the measure designated as "special tax on residential urban properties of higher value" is based on the invocation of the principles of social equity and fiscal justice, calling upon those holding properties of high value intended for housing to contribute in a more intensive manner, thus making the new special tax apply to "houses of value equal to or exceeding 1 million euros".

Now, while such logic appears to make sense when applied to a "residence" (whether a house, an autonomous fraction, a part of property with independent use or an autonomous unit) whenever it represents, on the part of its holder, an above-average contributory capacity (and, to that extent, capable of determining a special contribution to ensure fair distribution of the fiscal burden), it would make no sense if applied "unit by unit" in order, through the sum of the individual TPVs of the same (because held by the same individual), to determine such value equal to or exceeding one million euros.

Furthermore, admitting the differentiation of treatment could produce results incomprehensible and discriminatory from a legal point of view, insofar as contrary to the objectives (promoting social equity and fiscal justice) that the legislator claimed to have in adding the said item no. 28 to the GSTDT.

Thus, the existence of property in vertical or horizontal property ownership cannot, of itself, be indicative of contributory capacity, with the law providing that both should receive the same fiscal treatment in compliance with the principles of justice, fiscal equality and material truth.

Conversely, the existence in each property of independent housing units, in horizontal or vertical property ownership regime, may be capable of triggering the incidence of the new tax if the TPV of each of the parts or fractions is equal to or exceeding the limit defined by law, that is, EUR 1,000,000.00.

In this sense the Decision of the Superior Administrative Court no. 0560/16, of 29 September 2016, ruled, to the effect that "regarding properties in vertical property ownership, for purposes of the incidence of Stamp Duty Tax (Item 28.1 of the GSTDT, in the wording of Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: the housing allocation and the TPV contained in the matrix equal to or exceeding EUR 1,000,000. In the case of a property constituted in vertical property ownership, the incidence of Stamp Duty Tax should be determined not by the TPV resulting from the sum of the TPV of all divisions or floors susceptible to independent use (individualized in the matriculation), but by the TPV attributed to each of those floors or divisions intended for housing" (underlining ours).[24][25]

In the case under analysis, if the property identified in the proceedings were constituted in horizontal property ownership, it would be clear that none of the residential divisions susceptible to independent use that comprise it would be subject to the incidence of the new tax, since in none of them does the TPV, individually considered, exceed the limit of EUR 1,000,000.00 defined by law (see point 5.1.4, above).

This is precisely why article 12, no. 3 of the Property Tax Code provides that "each floor or part of property susceptible to independent use is considered separately in the matriculation registration which similarly discriminates the respective TPV" so as not to create situations of violation of the principles of social equity and fiscal justice (underlining ours).

Given that the constitution of horizontal property ownership involves merely a legal alteration of the property, not even requiring a new evaluation, it is material truth that must be imposed as the criterion determining contributory capacity and not mere legal-formal reality of the property, and, in consequence, the discrimination operated by the Respondent translates into arbitrary and illegal discrimination.[26]

And, taking into account all the social and economic reality often underlying many properties in vertical property ownership, the legislator itself treated, in the Property Tax Code, the two situations (horizontal and vertical ownership) in an equitable manner, applying the same criteria.

Indeed, analyzing the situation sub judice, and as already referred to in point 6.34, above, it is found that the TPV of the autonomous units with housing allocation in the immovable described above (points 5.1.1 to 5.1.4, above) varied, for the year 2014, between the lowest value of EUR 52,710.00 and the highest value of EUR 136,270.00, whereby, in any of them, individually considered, the said TPV is always less than EUR 1,000,000.00.

Thus, in light of the above, the answer to be given to the question posed above (see point 6.2.1) will be that the subjection to Stamp Duty Tax, for purposes of item 28 of the GSTDT, was determined by the TPV corresponding to each of the parts of the property with housing allocation and not by the global TPV of the property, whereby it is to be concluded that upon the floors with housing allocation (of the property identified in the proceedings) the Stamp Duty Tax referred to in item no. 28 of the GSTDT (in force at the time to which the tax acts relate) cannot apply, and thus the Stamp Duty Tax assessments, relating to the year 2014, subject matter of the request for arbitral ruling submitted by the Claimant, are illegal, on the basis of a defect of violation of law, by error in the legal premises.[27]

For the same reasons, the order dismissing the administrative complaint submitted against the Stamp Duty Tax assessments now being annulled, issued by the Deputy Finance Director of the Finance Directorate of Faro within the scope of administrative complaint process no. …2015…, shall also be illegal.

On the Reimbursement of Tax Paid with Indemnificatory Interest

6.41. With regard to the payment of indemnificatory interest, in accordance with the provisions of no. 5 of article 24 of RJAT "payment of interest, regardless of its nature, is due in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process", from which it results that an arbitral decision is not limited to the appraisal of the legality of the tax act.

6.42. Likewise, in accordance with the provisions of article 24, no. 1, subsection b) of RJAT, the request for indemnificatory interest should be understood as a claim relating to tax acts (e.g. assessment), which aims to clarify/make concrete the content of the duty to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for such purpose".

6.43. As Jorge Lopes de Sousa states "it is within the competence of the arbitral tribunals operating at CAAD to fix the effects of the arbitral decision which can be defined in judicial review proceedings, namely, the annulment of the acts whose declaration of illegality is requested, the condemnation of the Tax and Customs Authority to payment of indemnificatory interest (…)" (underlining ours).[28][29]

6.44. Thus, in tax arbitration proceedings there may be a place for payment of indemnificatory interest, in accordance with the provisions of articles 43, nos. 1 and 2, and 100 of the LGT, when it is determined that there has been error attributable to the services from which resulted payment of the tax debt in an amount exceeding what is legally due.

6.45. In these terms, the right to indemnificatory interest will always depend on the verification of an error attributable to the services of the Respondent, from which resulted a payment of tax debt in an amount exceeding what is legally due.

6.46. Following the declaration of illegality of the Stamp Duty Tax assessment acts already identified above (see point 6.39) and the declaration of illegality of the order dismissing the administrative complaint presented against the said assessments (see point 6.40, above), in accordance with the provisions of subsection b), no. 1 of article 24 of RJAT (in compliance with what is established there), "the arbitral decision on the merits of the claim from which no appeal or challenge may be had binds the tax administration from the expiration of the period provided for appeal or challenge, the latter being required to restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for such purpose", whereby there must be a reimbursement of the amounts paid by the Claimant, relating to the Stamp Duty Tax for the year 2014, as a means of achieving the reconstruction of the situation that would exist had the illegality not been committed.

6.47. Thus, given what is established in article 61 of the Code of Tax Procedure and Process (CPPT), the requirements for the right to indemnificatory interest being met (that is, verified the existence of error attributable to the services from which resulted payment of the tax debt in an amount exceeding what is legally due, as provided for in no. 1 of article 43 of the LGT), the Claimant shall be entitled to indemnificatory interest at the legal rate, calculated on the amounts paid, within the scope of the Stamp Duty Tax assessments relating to the year 2014 (subject matter of the request for arbitral ruling), which shall be calculated in accordance with the provisions of no. 3 of article 61 of the CPPT, that is, from the date of payment of the unduly paid tax to the date of issuance of the respective credit note.

On Responsibility for Payment of Arbitral Costs

6.48. In accordance with the provisions of article 22, no. 4 of RJAT, "the arbitral decision issued by the arbitral tribunal contains the fixing of the amount and distribution between the parties of the costs directly resulting from the arbitral process".

6.49. Thus, in accordance with the provisions of article 527, no. 1 of the CPC (by virtue of article 29, no. 1, subsection e) of RJAT), it should be established that the Party which gave rise to the costs shall be condemned to pay them or, if there is no success in the action, whoever benefited from the proceedings.

6.50. In this context, no. 2 of the said article makes concrete the expression "gave rise to", according to the principle of default, understanding that the defeated party gives rise to the costs of the proceedings, in proportion to the extent to which it is defeated.

6.51. In the case under analysis, taking into account the above, the principle of proportionality requires that the full responsibility for costs be attributed to the Respondent, in accordance with the provisions of article 12, no. 2 of RJAT and article 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings.

DECISION

7.1. Taking into consideration the analysis carried out, this Arbitral Tribunal decided:

7.1.1. To judge the request for arbitral ruling to be well-founded, condemning the Respondent on the claim for declaration of illegality of the Stamp Duty Tax assessments (dated 20 March 2015), relating to the year 2014, on the basis of a defect of violation of law, by error in the legal premises, determining the annulment thereof;

7.1.2. To judge the request for annulment of the order dismissing (the administrative complaint presented against the said tax assessments) issued by the Deputy Finance Director of the Finance Directorate of Faro (in substitution regime), within the scope of the process no. …2015…, to be well-founded;

7.1.3. In consequence, to determine the return of the amounts unduly paid as Stamp Duty Tax for the year 2014, plus indemnificatory interest at the legal rate, calculated in accordance with legal terms;

7.1.4. To condemn the Respondent to payment of the costs of this proceeding.

Value of the proceeding: Taking into consideration the provisions of articles 299, 306, no. 2 of the CPC, article 97-A, no. 1 of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at EUR 28,791.90.

Costs of the proceeding: In accordance with the provisions of Table I of the Regulation of Costs in Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceeding is fixed at EUR 1,530.00, to be borne by the Respondent, in accordance with article 22, no. 4 of RJAT.

Notify.

Lisbon, 3 April 2018

The Arbitrator

Sílvia Oliveira

[1] The drafting of this decision is governed by the orthography prior to the 1990 Orthographic Agreement, except regarding the transcriptions made.

[2] In this context, the Claimant cites the Arbitral Decisions issued within the scope of Case no. 181/2013-T, of 10-02-2014 and within the scope of Case no. 50/2013, of 29-10-2013.

[3] In this context, the Claimant cites the Arbitral Decisions issued within the scope of Case no. 88/2014-T, of 04-07-2014, Case no. 177/2015-T, of 18 November 2015, Case no. 236/2015, of 15-10-2015, Case no. 132/2013-T, of 16-12-2013 (replaced by the decision of 19-04-2016), Case no. 181/2013-T, of 10-02-2014, Case no. 183/2013-T of 19-03-2014 and within the scope of Case 214/2016-T, of 01-10-2016 (the last three relating to assessments notified to the Claimant, relating to the year 2013).

[4] In this sense, the Claimant cites the Arbitral Decision issued within the scope of Case no. 218/2013, of 24-02-2014.

[5] In this sense, the Respondent cites the Arbitral Decision issued within the scope of Case no. 668/2015-T, of 5 May 2016, according to which "it was decided, and rightly so, to judge unfounded the request for arbitral ruling, maintaining in the legal order the Stamp Duty Tax assessments of Item 28.1 then challenged (…)".

[6] In this context, taking into account that the request for arbitral ruling includes the request to challenge the order dismissing (dated 18 August 2017 and notified to the Claimant on 22 August 2017) the administrative complaint presented against the Stamp Duty Tax assessment acts for the year 2014 (identified in the case), as a way to be able to declare, in final instance, the illegality of the Stamp Duty Tax assessments subject to the request, the decision to dismiss administrative complaint that involves the appraisal of the legality of a tax assessment act is covered by the provision of subsection e) of no. 1 of article 102 of the CPPT.

Thus, taking into consideration the provisions in no. l of article 102° of the CPPT, the period for bringing judicial review is three months counted from the facts enumerated in that article, in particular, "from the notification of the remaining acts that may be subject to autonomous challenge in accordance with this Code", as well as what is provided for in article 10, no. 1, subsection a) of RJAT, which establishes that the request for constitution of an arbitral tribunal should be submitted "within a period of 90 days, counted from the facts provided for in nos. 1 and 2 of article 102 of the CPPT, regarding acts susceptible to autonomous challenge (...)", whereby, taking into account the date of submission of the request for arbitral ruling (20 November 2017), the request is timely.

[7] The Claimant formulates an identical question at the beginning of the Arbitral Request when it refers to the question under appraisal being "whether item 28.1 of the General Stamp Duty Table (GSTDT), in the case of properties not constituted in horizontal property ownership, applies to the sum of the taxable patrimonial value attributed to the different parts or floors (global TPV), or rather to the taxable patrimonial value of each part of the property with independent economic use".

[8] In this Arbitral Decision, the content of Arbitral Decision no. 351/2017-T, of 4 December 2017 (by the undersigned) will be followed and adopted, inasmuch as it was drafted for the Claimant, for the same type of arbitral request, concerning Stamp Duty Tax affecting another urban property of the Claimant, also constituted in vertical property ownership.

[9] In accordance with the provisions of article 4 of Law no. 55-A/2012, of 29 October, item 28 of the GSTDT was added in the following terms (italics ours):

"28. Ownership, usufruct or surface right of urban properties whose TPV contained in the matrix, in accordance with the Property Tax Code, is equal to or exceeding EUR 1,000,000.00 – on the TPV for purposes of Property Tax:

28.1 - Per property with housing allocation - 1%.

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

With the amendments introduced by article 194 of Law no. 83º-C/2013, of 31 December, item 28 and item 28.1 were given the following wording:

"28. Ownership, usufruct or surface right of urban properties whose taxable patrimonial value contained in the matrix, in accordance with the Code of Property Tax (CIMI), is equal to or exceeding (euro) 1 000 000 - on the taxable patrimonial value used for purposes of Property Tax:

28.1. Per property with housing allocation or per land for construction whose construction, authorized or planned, is for housing, in accordance with the provisions of the Property Tax Code – 1%".

[10] See Decision of the Constitutional Court no. 590/2015, of 11 November (case no. 542/14) - point 9.

[11] See previous footnote.

[12] And already referring to the amendments introduced by Law no. 83-C/2013 of 31 December.

[13] Indeed, the Constitutional Court concludes that "(…) item 28 of the GSTDT does not suffer from any unconstitutionality, with no violation of the constitutional principles shaping tax law being verified, specifically the principles of fiscal equality, contributory capacity and proportionality (…)" (underlining ours).

[14] The Respondent in its Response states, regarding the question raised by the Claimant concerning the (un)constitutionality of the incidence rule contained in item 28.1 of the GSTDT, when interpreted in the manner defended by the Respondent, that "(…) the Constitutional Court in Decision no. 620/2015, decided in case 305/15 (2nd section) (…) decided (…) not to declare unconstitutional the incidence rule contained in item 28.1 of the General Stamp Duty Table, when interpreted in the sense that it includes residential urban properties in total ownership composed of parts susceptible to independent use and considered separately in the matriculation registration (…)".

[15] In truth, taking into consideration that the concept of "urban property with housing allocation" was not defined either by the legislator, or by the text of Law no. 55-A/2012 (which introduced it), or by the Property Tax Code, to which no. 2 of article 67 of the Stamp Duty Code (also introduced by that Law) refers subsidiarily, it had a rather short life, given that such concept was abandoned upon the entry into force of the State Budget Law for 2014 (in force since 1 January 2014 and therefore in force at the time of the tax assessments subject to the arbitral request), which gave new wording to that item no. 28.1 of the GSTDT, in accordance with which its objective scope of incidence is defined through the use of concepts that are legally defined in article 6 of the Property Tax Code.

[16] In this context, note the provisions of article 12, no. 3 of the Property Tax Code, in stating that "each floor or part of property susceptible to independent use is considered separately in the matriculation registration, which also discriminates the respective TPV".

[17] In this sense, see Administrative Court of Appeal Decision Case 07648/14, of 10 July 2014.

[18] See Administrative Court of Appeal Decision Case 5320/12, of 2 October 2012, Administrative Court of Appeal Decision Case 7073/13, of 12 December 2013 and Administrative Court of Appeal Decision 2912/09, of 27 March 2014.

[19] See Arbitral Decision no. 50/2013-T, of 29 October 2013.

[20] Which is the Property Tax Code, given the referral made by the cited article 67, no. 2 of the Stamp Duty Code.

[21] According to which the interpretation of a legal rule should not be limited to the letter of the law, but should reconstruct the legislative intention, based on the texts and other interpretative elements, taking into account the unity of the legal system.

[22] Available for consultation in the Journal of the Republic's Assembly, Series I, no. 9/XII/2, of 11 October 2012.

[23] As already referred to in various Arbitral Decisions issued by CAAD (in particular, in case no. 50/2013-T, of 29 October 2013).

[24] In this sense, see Decision of the Superior Administrative Court of 9 September 2015 (appeal no. 047/15), seconded by the Decisions of the Superior Administrative Court of 27 April 2016 (appeals nos. 1534/15), of 24 May 2016 (appeals nos. 1344/15 and 1352/15), of 4 May 2016 (appeals nos. 166/16, 1504/15 and 172/16) and of 29 June 2016 (appeal no. 408/15).

[25] Similarly, see Decision of the Superior Administrative Court, of 15 February 2017 (case no. 01425/14).

[26] Since the law does not impose the obligation to constitute the property in the horizontal property ownership regime.

[27] In this sense, the Decision of the Superior Administrative Court no. 01354/15, of 2 March 2016, also ruled, in accordance with the terms already referred to for the Decision of the Superior Administrative Court no. 0560/16, of 29 September 2016 (see point 6.33, above).

[28] See Leite de Campos, Diogo, Silva Rodrigues, Benjamim, Sousa, Jorge Lopes, in "General Tax Law - Annotated and Commented", 4th Ed., 2012, page 116).

[29] On the subject of indemnificatory interest, one may consult the same author (Sousa, Jorge Lopes), Interest in tax relations, in "Fundamental Problems of Tax Law", Lisbon, 1999, page 155 et seq).