Stamp Tax on Vertical Property Under Entry 28 TGIS: CAAD Arbitration Ruling 606/2014-T

ARBITRAL DECISION

I. Report

1. A (hereinafter "Claimant"), with the tax identification number ("TIN") …, resident at Avenue … Lisbon, filed, on 4 August 2014, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, i.e., Legal Regime for Arbitration in Tax Matters ("LRATM"), a request for constitution of an arbitral tribunal, in order to have declared illegal the assessments, already paid, detailed below:

[TABLE - details of assessments]

concerning Stamp Duty ("IS"), in the total amount of €14,661.52, with the Tax and Customs Authority ("Respondent" or "TCA") being the defendant.

A) Constitution of the Arbitral Tribunal

1. Pursuant to the provisions of subparagraph (a) of paragraph 2 of Article 6 and subparagraph (b) of paragraph 1 of Article 11 of the LRATM, the Ethics Council of this Centre for Administrative Arbitration ("CAAD") appointed the signatory as sole arbitrator, who communicated acceptance of the appointment within the applicable period, and notified the parties of this appointment on 19 September 2014.

2. Thus, in accordance with the provisions of subparagraph (c) of paragraph 1 of Article 11 of the LRATM, and through the communication of the President of the Ethics Council of the CAAD, the Sole Arbitral Tribunal was constituted on 6 October 2014.

B) Procedural History

1. In the request for arbitral pronouncement, the Claimant petitioned for declaration of illegality of the IS assessments detailed above, relating to the years 2012 and 2013, concerning an urban property situated at Avenue …, in the municipality of Lisbon.

2. The TCA presented a response, petitioning for dismissal of the request for arbitral pronouncement, on the ground that there is no defect consisting of violation of law, requesting that the tax acts under analysis, as they do not violate any legal or constitutional provision, be maintained in the legal order.

3. By order of 14 February 2015, the Sole Arbitral Tribunal, pursuant to the provisions of subparagraph (c) of Article 16 of the LRATM, and following the request by the TCA, decided, without opposition from the parties, that it was not necessary to hold the meeting referred to in Article 18 of the LRATM, as a result of the simplicity of the matters at issue and considering that it had at its disposal all necessary elements to make a clear and impartial decision.

4. It likewise decided, in accordance with paragraph 2 of Article 18 of the LRATM, that oral arguments were not necessary, as the positions of the parties were clearly defined in their respective pleadings, and set 2 April 2015 as the deadline for the arbitral decision.

5. The Tribunal was regularly constituted and is competent to examine the matters indicated (Article 2, paragraph 1, subparagraph (a) of the LRATM), the parties have standing and capacity to sue and have full legal capacity (Articles 4 and 10, paragraph 2 of the LRATM and Article 1 of Order No. 112-A/2011, of 22 March). No nullities occur and no exceptions were raised, therefore nothing prevents judgment on the merits.

6. The present case is thus in conditions for a final decision to be rendered.

II. Question to be Decided

1. The pivotal question to be examined and decided regarding the merits of the case, as emerges from the procedural documents of the parties, is the following: concerning properties not constituted in horizontal property regime, comprising various floors and divisions capable of independent use (and with residential allocation), what is the Fiscal Property Value ("FPV") relevant for purposes of determining the IS to be paid, pursuant to Item No. 28 of the General Stamp Duty Table ("GSDT")?

2. That is, the present tribunal seeks to determine whether, as the Claimant alleges, the amount to be considered is the FPV assigned individually to each of the parts capable of autonomous use, or, conversely, the total value resulting from the sum of the FPVs of those autonomous fractions, as the Respondent suggests.

III. Decision on Matters of Fact and its Justification

1. Having examined the documentary evidence produced, the tribunal finds proven, as relevant to the decision of the case, the following facts:

I. The Claimant is the owner of an urban property situated at Avenue …, in the parish of …, registered in the urban property registry of the respective parish, municipality of Lisbon, under article … (a fact that only occurred on 22 October 2013, with the constitution of horizontal property of that property, through public deed).

II. Indeed, in 2012, at a time prior to the administrative reorganization of the territory of Lisbon, carried out by Law No. 57/2012, of 8 November, that property was registered in the urban property registry of the parish of …, under article …, constituted in vertical (or full) property, with 15 floors/divisions capable of independent use, as detailed below:

[TABLE - details of floors/divisions]

III. With regard to the fractions listed above, it is equally important to mention that the Claimant, with respect to 2012, and pursuant to Law No. 55-A/2012, of 29 October, was notified to pay IS relating to the fractions that had residential allocation (illustrated in the table above), and, in that manner, proceeded to their payment, in a total of €5,310.21 (as results from the documents attached by the Claimant to the case).

IV. At a time following the reorganization previously mentioned, the building came to be registered in the urban property registry of the parish of … under article …, now being, as previously mentioned, registered with article ….

V. The individual FPV of each of the autonomous fractions relevant to the present arbitral pronouncement, at the relevant date, was as follows:

[TABLE - individual FPVs]

VI. The sum of the individual FPVs of all fractions capable of independent use, with or without residential allocation, that constituted the aforementioned property, at the date relevant to the present case, was greater than €1,000,000.00, as appears from the documents annexed by the Claimant, and, likewise, illustrated above, at point II.

VII. The Claimant received, on 11 May 2014, with respect to the tax year 2012, and as a result of the provisions in Item No. 28 of the GSDT, the assessment notices from the TCA, mentioned above, in the total amount of €4,887.17, and proceeded to their payment on 24 June 2014.

VIII. The Claimant received, on 18 May 2014, with respect to the tax year 2013, and as a result of the provisions in Item No. 28 of the GSDT, the assessment notices from the TCA, mentioned above, in the total amount of €9,774.35, and proceeded to their payment on 23 July 2014.

IX. Considering the two tax years (2012 and 2013), the Claimant paid a total amount of €14,661.52.

1. The Tribunal's conviction regarding the facts found to be proven resulted from the documents appended to the file and the uncontested allegations of the parties, as specified in the points of the statement of facts enumerated above.

2. There is no factual matter relevant to the decision of the case found to be unproven.

IV. On the Law

A) Legal Framework

1. Given that the legal question to be decided in the present case requires that the relevant legal texts be interpreted, it is important, first of all, to list the norms that comprise the relevant legal framework, at the date of occurrence of the facts.

2. The subjection to IS of properties with residential allocation resulted from the addition of Item No. 28 to the GSDT, carried out by Article 4 of Law 55-A/2012, of 29 October, which typified the following tax facts:

"28 – Ownership, usufruct or right of surface of urban properties whose fiscal property value contained in the registry, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than €1,000,000.00 – on the fiscal property value for purposes of Municipal Property Tax:

28.1 – For property with residential allocation – 1%

28.2 – For property, where the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%."

1. It should be noted that, with regard to the 2012 tax year, Article 6 of that Law established the following transitional provisions:

"1 - In 2012, the following rules must be observed with regard to the assessment of stamp duty provided for in item no. 28 of the respective General Table:

a) The tax fact occurs on 31 October 2012;

b) The taxpayer of the tax is the one mentioned in paragraph 4 of Article 2 of the Stamp Duty Code on the date referred to in the preceding subparagraph;

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

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

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

f) The applicable rates are as follows:

i) Properties with residential allocation valued in accordance with the Municipal Property Tax Code: 0.5%;

ii) Properties with residential allocation not yet valued in accordance with the Municipal Property Tax Code: 0.8%;

iii) Urban properties where the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance: 7.5%.

(…)"

1. The aforementioned law likewise added, to the IS Code, paragraph 7 of Article 23, concerning the assessment of IS: "in the case of tax due for the situations provided for in item no. 28.1 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the MPTC", and Article 67, paragraph 2, which provides that "to matters not regulated in the present code concerning item 28 of the General Table the MPTC applies subsidiarily."

2. In this context, and having regard to the above indication, let us now focus on the Municipal Property Tax Code ("MPTC").

3. First, note Article 2, paragraph 4 of the MPTC, which tells us that "for purposes of this tax, each autonomous fraction, in the horizontal property regime, is deemed to constitute a property."

4. In turn, paragraph 3 of Article 12 of the MPTC, establishes that "each floor or part of a property capable of independent use is considered separately in the property registration, which also specifies its respective fiscal property value."

5. Thus, it is within this legal framework that it is important to decide whether, in cases where the horizontal property of an urban property with various autonomous fractions is not constituted, the FPV, for purposes of Item No. 28 of the GSDT, is calculated individually per fraction capable of being used autonomously, or, alternatively, determined by the sum of the FPVs of those fractions.

B) Arguments of the Parties

1. In this regard, the Claimant, in its request, alleges, in summary, as follows:

2. For purposes of IS assessment, in the context of Item No. 28 of the GSDT, "the FPV can only be that of the property registration corresponding to each one of the parts of the property with residential allocation, never that which corresponds to the sum of all FPVs of the floors/parts/divisions that comprise it."

3. Indeed, for the Claimant, being that the understanding recommended, in the context of Municipal Property Tax, by virtue of Item No. 28 of the GSDT, that must also be the treatment to be given, in the context of IS.

4. In this context, in the opinion of the Claimant, "the registration of properties in full property, when comprised of parts, floors or divisions capable of independent use, obeys the same rules of registration of properties constituted in horizontal property, and the respective Municipal Property Tax is assessed individually in relation to each one of the parts.

As the fiscal property value used for purposes of Municipal Property Tax is the value of each floor/division, then, by force of what is provided in item 28 of the GSDT, this means that the fiscal property value used for purposes of IS assessment is also the value of each floor/division."

1. The Claimant concluding that, "the criterion of incidence of the new IS is the same, i.e., it falls on the FPV of each floor/part/division."

2. For the Claimant, "fiscally, there are no differences in treatment between a property constituted in horizontal property and a property in full property with floors/parts/divisions capable of independent use: both are treated as one same reality, in that each part or fraction is treated as an economic unit and a unit capable of independent occupation."

3. Wherefore, the Claimant considers that the TCA "makes an incorrect interpretation and application of item 28 of the GSDT combined with Article 6 of Law 55-A/2012 and Article 12, paragraph 3 of the MPTC; the act is vitiated by violation of law, due to error in the assumptions," being thereby put in question, notably, the principles of tax equality and tax capacity.

4. Additionally, it should be noted that, according to the Claimant, the assessments now being challenged fell on divisions, at that date, allocated to services (i.e., without residential allocation), as previously illustrated.

5. Indeed, citing the Claimant, "that is, the TA excluded from IS assessment both garages (…) and divisions allocated to services."

6. In order to substantiate its request, the Claimant makes reference to arbitral decisions Nos. 50/2013-T, 132/2013-T and 218/2013-T which, in its understanding, address the same subject matter, going along with its point of view.

7. In that manner, the Claimant requested that the aforementioned assessment notices be annulled and, consequently, that it be reimbursed for the payments previously made, in the total amount of €14,661.52.

8. Additionally, it also requested that to that amount be added compensatory interest, pursuant to Article 43, paragraph 1 of the General Tax Law ("GTL").

9. For its part, the Respondent, after being duly notified for this purpose, presented its response in which, in summary, it alleged as follows:

10. The Claimant's request lacks legal support, "because although the assessment of IS, in the situations provided for in item no. 28.1 of the GSDT, is carried out in accordance with the rules of the MPTC, the truth is that the legislature reserved the aspects that require appropriate adaptations, namely those in which, as is the case with properties in full property, even though with floors or divisions capable of independent use (despite the fact that Municipal Property Tax is assessed in relation to each part capable of independent use) for purposes of IS the property in its entirety is relevant, since the divisions capable of independent use are not deemed to constitute a property, but only autonomous fractions in the horizontal property regime, as per paragraph 4 of Article 2 of the MPTC."

11. Indeed, in the opinion of the Respondent, the legislature intended to tax, with Item No. 28 of the GSDT, properties as a single legal-tax entity.

12. In that manner, in the understanding of the Respondent, where the property is in full property regime, it does not have autonomous fractions, to which tax law can assign, individually, the qualification of property, and must, therefore, be taxed as a whole (i.e., as a single property).

13. Parallel to this, the Respondent states that it does not understand why the Claimant considers that the present situation results in a violation of the principles of tax equality and tax capacity.

14. Indeed, for that party, horizontal property and vertical property are differentiated institutes, wherefore, in its words, "one cannot conclude for an alleged discrimination in violation of the principle of equality when, in truth, we are faced with distinct realities, valued by the legislature differently."

15. On the other hand, regarding the principle of tax capacity (whose violation was also raised by the Claimant), the TCA understands that, where it is authorized to adopt this mechanism for obtaining revenue, and its application is indistinct to all holders of property with residential allocation of value greater than €1,000,000.00, that principle is fully respected.

16. In conclusion, the Respondent requests that the present petition for declaration of illegality, whose purpose is embodied in the annulment of the disputed assessments, be judged dismissed, absolving it of the claim, affirming, equally, that at the date of occurrence of the tax fact, the fractions in question were allocated to housing and not to services.

C) Court's Appraisal

1. By way of introduction, it should be noted that, in the understanding of the present tribunal, and having regard to the legal framework previously presented, the essential normative proposition to be taken into consideration for the decision of the case is that which results from Item No. 28 of the GSDT.

2. It should likewise be noted that, in the eyes of the arbitral tribunal, the question to be decided concerns exclusively a matter of law, namely to understand, for purposes of applying the aforementioned item, what the relevant FPV is.

3. First, it is clear from the letter of the law that the FPV to be considered, for purposes of applying Item No. 28 of the GSDT, can only be that which is determined within the scope of the MPTC.

4. This is, indeed, what the referred item tells us, verbatim: "(…) whose fiscal property value contained in the registry, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than €1,000,000.00."

5. In that regard, attention should be paid, once more, to what follows from Article 2, paragraph 4 of the MPTC, which tells us that "for purposes of this tax, each autonomous fraction, in the horizontal property regime, is deemed to constitute a property."

6. Reinforced, nonetheless, by Article 12, paragraph 3 of the same Code, which establishes that "each floor or part of a property capable of independent use is considered separately in the property registration, which also determines its respective fiscal property value."

7. It is concluded, thus, that, for purposes of calculating the Municipal Property Tax to be paid, the FPV is considered individually for each floor or part capable of independent use.

8. And if this is the method of determination followed for the Municipal Property Tax, it must necessarily also be the model applied within the scope of Item No. 28 of the GSDT, in the terms previously explained.

9. Notwithstanding, and should doubts raised still subsist, the present tribunal relies on some arbitral decisions previously rendered, which have addressed the matter under analysis.

10. Thus, first, let us note decision No. 50/2013-T, of 29 October, a decision moreover indicated by the Claimant, which provides as follows.

11. "Law No. 55-A/2012 says nothing about the qualification of the concepts at issue, namely, regarding the concept of 'property with residential allocation.' However, Article 67, paragraph 2 of the Stamp Duty Code, added by the aforementioned Law, provides that 'to matters not regulated in the present code concerning item 28 of the General Table the MPTC applies subsidiarily.

The norm of incidence thus refers to urban properties, whose concept is that which results from the provisions of Article 2 of the MPTC, with the determination of FPV obeying the terms provided for in Article 38 and following of the same code.

Consulting the MPTC it is verified that its Article 6 only indicates the different types of urban properties, among which it mentions residential ones (…)

From this we can conclude that, in the legislature's perspective, what matters is not the legal-formal precision of the specific situation of the property but rather its normal use, the purpose to which the property is intended. We further conclude that for the legislature 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.

(…)

Using the criterion that the law itself introduced in Article 67, paragraph 2 of the IS Code, 'to matters not regulated in the present code concerning item 28 of the General Table applies subsidiarily'" (emphasis ours).

1. That is, taking into consideration that registration in the property registry of properties in vertical property, for purposes of the MPTC, follows the same registration rules as properties constituted in horizontal property, and the respective Municipal Property Tax, as well as the new IS, are assessed individually in relation to each one of the parts, it does not seem, to the present tribunal, that there exists any doubt that the legal criterion to define the incidence of the new tax must be the same.

2. In this context, if the law requires, with regard to Municipal Property Tax, the issuance of individualized assessment notices for the autonomous parts of properties in vertical property, in the same manner as it establishes for properties in horizontal property, it will require, in the same terms, regarding the rule of incidence of Item No. 28 of the GSDT.

3. Wherefore, the IS, within the scope of Item No. 28 of the GSDT, could only be incurred in a determined fraction if this, possibly, had an FPV greater than €1,000,000.00.

4. And, furthermore, that was indeed the understanding adopted by the TCA.

5. Indeed, this (the TCA) also issued individualized assessment notices, relating to each of the fractions capable of autonomous use, demonstrating that, in its opinion, the aforementioned fractions, despite not being legally constituted in horizontal property, would be, for all intents and purposes, independent from each other.

6. However, the TCA overlooked that it could not, by virtue of the framework previously set out, proceed to the sum of the individual FPVs of the aforementioned fractions, aiming at a value that would already fall within the tax base of Item No. 28 of the GSDT.

7. This when the legislature itself established a different rule within the scope of the MPTC, which, as previously referred to, is the code applicable to matters not regulated in the IS Code, with regard to Item No. 28 of the GSDT.

8. In sum, the criterion established by the TCA, of considering the value of the sum of individual FPVs assigned to the parts, floors or divisions with independent use, taking advantage of the fact that the property is not constituted in a horizontal property regime, does not find, in the eyes of the present tribunal, legal support, and is, notably, contrary to the criterion applicable in the context of the Municipal Property Tax and, by referral (in the terms mentioned above), in the context of IS.

9. In this context, the present tribunal considers that the criterion defended by the TCA violates the principles of legality and tax equality, and, likewise, that of the prevalence of material truth over legal-formal reality.

10. Parallel to this, note that Article 12, paragraph 3 of the MPTC does not make any distinction as to the regime of properties that are in horizontal or vertical property.

11. As such, and once if the property were in a horizontal property regime, none of its residential fractions would suffer incidence of the new tax, the TCA cannot treat materially equal situations differently.

12. In this regard, see what was stated regarding this matter in the Arbitral Decision rendered in the context of Case No. 132/2013-T, of 16 December, a decision referred to by the Claimant, and whose understanding the present tribunal accepts.

"Indeed, it makes no sense to distinguish in law what the law itself does not distinguish (ubi lex non distinguit nec nos distinguere debemus).

Moreover, distinguishing, in this context, between properties constituted in horizontal property and in full property would be an 'innovation' without associated legal support, all the more so because, as has been stated here, nothing indicates, neither in item no. 28, nor in the provisions of the MPTC, a justification for that particular differentiation.

Note, by way of example, what Article 12, paragraph 3 of the MPTC states: each floor or part of a property capable of independent use is considered separately in the property registration, which also specifies its respective fiscal property value.

The uniform criterion that is required is, therefore, that which determines that the incidence of the norm in question only takes place when one of the parts, floors or divisions with independent use of a property in horizontal or full property with residential allocation possesses an FPV greater than €1,000,000.00.

Fixing as the reference value for the incidence of the new tax the global FPV of the property in question, as the now respondent intended, finds no basis in the applicable legislation, which is the MPTC, given the referral made by the aforementioned Article 67, paragraph 2 of the IS Code.

(…)

Furthermore, admitting the differentiation of treatment could produce results incomprehensible from a legal point of view and contrary to the objectives that the legislature said it had for adding item no. 28. By way of example, suppose the following hypothesis, which seems plausible in light of the interpretation made by the now respondent: a citizen who is the owner of a property constituted in full property intended for housing, with the global value of the autonomous units equal to or greater than €1,000,000.00 and the FPV of each one less than €1,000,000.00, is subject to annual taxation of 1% of that value (as occurred in the situation under analysis); whereas another citizen who holds a property with the same exact characteristics as the previous one but that has been constituted in horizontal property, being, equally, the global value of the autonomous fractions equal to or greater than €1,000,000.00 and the FPV of each one less than €1,000,000.00, will not be subject to taxation under the aforementioned item no. 28.

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

If this line of reasoning makes sense – thereby justifying, therefore, the non-aggregation of the FPVs of fractions of properties in horizontal property – no plausible reason is seen for why the same is not applied to the autonomous units of properties in full property.

Observing, now, the case under analysis, it is found that the FPVs of the floors (autonomous units) of the property with residential allocation vary between (…), wherefore any one of them is less than €1,000,000.00.

From this it is concluded, as a result of what was referred to, that on the same IS referred to in item no. 28 of the GSDT cannot be incurred, and it is therefore illegal the acts of assessment challenged by the claimant" (emphasis ours).

1. A final point that is worth highlighting (notwithstanding the previous framework being sufficient to recognize the illegality of the acts of assessment practiced by the TCA), rests on the understanding advocated, both by the legislature and by the government itself, when adding Item No. 28 to the GSDT.

2. In this regard, let us now focus on the arbitral decision rendered in the context of case No. 48/2013-T, of 9 October, which analyzes, extensively, the objectives underlying the addition of the aforementioned item.

3. "Law No. 55-A/2012, of 29/10, has no preamble whatsoever, hence from it is not possible to extract the legislature's intention.

Such law from the Assembly of the Republic originated from law proposal No. 96/XII (2nd), which, in the statement of reasons, speaks of the introduction of fiscal measures included in a broader set of measures to combat budget deficit.

In the statement of reasons of the aforementioned law proposal, it is stated that, 'these measures are fundamental to reinforce the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to meet the economic adjustment program. The Government is strongly committed to ensuring that the distribution of those sacrifices will be made by all and not merely by those who live off their work income. In accordance with that objective, this act extends the taxation of capital and property, encompassing equitably a broad set of sectors of Portuguese society.'

In that statement of reasons it is further stated that, beyond the increase in taxation of capital income and securities gains, a rate is created under stamp duty applicable to urban properties of residential allocation whose fiscal property value equals or exceeds one million euros.

That is, in such statement of reasons, it is also not clarified what is meant by urban properties with residential allocation.

In his intervention in the Assembly of the Republic, in the presentation and discussion of the aforementioned law proposal, the Secretary of State for Tax Affairs stated the following:

'The Government elected as a priority principle of its fiscal policy social equity. This is even more important in times of rigor as a way to guarantee the just distribution of the fiscal effort.

In the demanding period that the country is going through, during which it is obliged to meet the economic and financial assistance program, it becomes even more pressing to affirm the principle of equity. It cannot always be the same – employees and pensioners – bearing the fiscal charges.

For the fiscal system to be more just it is decisive to promote the broadening of the tax base requiring an increased effort from taxpayers with higher income and thereby protecting Portuguese families with lower income.

For the fiscal system to promote more equality it is fundamental that the effort of budget consolidation be distributed among all types of income encompassing with special emphasis capital income and properties of high value. This matter, it should be remembered, was extensively addressed in the Constitutional Court's ruling.

Finally, for the fiscal system to be more equitable, it is crucial that all be called to contribute according to their tax capacity, conferring on the tax administration enhanced powers to control and monitor situations of fraud and tax evasion.

In this sense the Government presents, today, a set of measures that effectively reinforce a just and equitable distribution of the adjustment effort among a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties of value exceeding 1 million euros; the increase in taxation on capital income and on securities gains; and the reinforcement of anti-fraud and anti-tax evasion rules.

First, the Government proposes the creation of a special rate on high-value residential urban properties. It is the first time in Portugal that special taxation is created on high-value properties intended for housing. This rate will be 0.5% to 0.8% in 2012, and 1%, in 2013, and will apply to homes of value equal to or exceeding 1 million euros. With the creation of this additional rate the fiscal effort required of these owners will be significantly increased in 2012 and 2013'."

1. Following, it is necessary to gather the conclusions that allow, without margin for doubt, deciding on the matter under discussion (that is whether, for purposes of applying Item No. 28 of the GSDT, in cases where a property with various autonomous fractions, capable of independent use, is not constituted in horizontal property, the FPV relevant is determined by the sum of individual FPVs, or, alternatively, is individually considered).

2. In this sense, first note that the present matter is, from the outset, by force of Article 67, paragraph 2 of the IS Code, subject to the norms of the MPTC, "to matters not regulated in the present code concerning item 28 of the General Table the MPTC applies subsidiarily."

3. As such, and as has been mentioned so many times, in the understanding of the present tribunal, the mechanism for determining the FPV relevant for purposes of the aforementioned item, is that which is established in the MPTC.

4. Now, Article 12, paragraph 3 of the MPTC establishes that "each floor or part of a property capable of independent use is considered separately in the property registration, which also specifies its respective fiscal property value."

5. The legislature disregarding, in the terms previously mentioned, any prior constitution of horizontal or vertical property.

6. Indeed, for this (the legislature), what matters is the material truth underlying its existence as an urban property and its use.

7. It should be noted that the TCA itself appears to agree with the criterion set out, which is why the assessments that it itself issues are very clear in their essential elements, from which it results that the value of incidence corresponds to the FPV of each one of the floors and the assessments are individualized.

8. Therefore, if the legal criterion requires the issuance of individualized assessments for the autonomous parts of properties in vertical property, in the same manner as it establishes for properties in horizontal property, the criterion, which must be single and unequivocal, for the definition of the rule of incidence of the new tax has clearly been established.

9. Thus, there would only be grounds for incidence of IS (within the scope of Item No. 28 of the GSDT) if one of the parts, floors or divisions with independent use presented an FPV greater than €1,000,000.00.

10. The TCA cannot consider as the reference value for the incidence of the new tax the total value of the property, when the legislature itself established a different rule in the context of the Municipal Property Tax (and, as previously mentioned, this is the code applicable to matters not regulated with regard to Item No. 28 of the GSDT).

11. In conclusion, the current legal regime does not impose the obligation to constitute horizontal property, wherefore the action of the TCA translates into arbitrary and illegal discrimination.

12. Indeed, the TCA cannot distinguish where the legislature itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of fiscal legality provided for in Article 103 of the Constitution of the Portuguese Republic, and still the principles of justice, equality and fiscal proportionality.

13. In the case at hand, the property in question was, at the relevant date of facts, constituted in full property and had 15 fractions with independent use, as results from the documents attached by the Claimant.

14. Given that none of those fractions has fiscal property value equal to or greater than €1,000,000.00, as results from the documents joined to the case, it is concluded that the legal assumption of incidence was not met.

15. In parallel, and with respect to the allocation of the fractions which, in the terms previously mentioned, was also the subject of disagreement between the Claimant and the Respondent, the present tribunal opts not to proceed with its analysis, as the same, given the understanding set out above, ceases to be relevant.

V. Decision

1. Being the case that this Arbitral Tribunal decides:

A) To find the request for arbitral pronouncement well-founded and, in consequence, to declare illegal and annul the IS assessments mentioned above, with reference to the tax years 2012 and 2013, from which resulted tax to be paid in the amount of €14,661.52 (which should now be reimbursed), concerning the taxation of urban properties with FPV equal to or greater than €1,000,000, pursuant to the provisions in Item No. 28 of the GSDT;

B) To condemn the Respondent, pursuant to Article 43, paragraph 1 of the GTL and Articles 61, paragraphs 2 and 5 of the Tax Procedure Code, to the payment of compensatory interest, at the rate resulting from paragraph 4 of Article 43 of the GTL, calculated on the amount paid in excess (i.e., €14,661.52), from the day on which the aforementioned assessments were paid and until full reimbursement of the aforementioned amount; and

C) To condemn the Respondent in the costs of the case.

VI. Value of the Case

1. The value of the case is fixed at €14,661.52, pursuant to Article 97-A, paragraph 1, subparagraph (a), of the Tax Procedure Code, applicable by force of subparagraphs (a) and (b) of paragraph 1 of Article 29 of the LRATM and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings ("RCTAP").

VII. Costs

1. In accordance with the provisions in Article 22, paragraph 4 of the LRATM, the value of the arbitration fee is fixed at €918, pursuant to Table I of the aforementioned Regulation, charged to the Respondent, given the full acceptance of the claim.

Notify accordingly.

Lisbon, CAAD, 31 March 2015

The Arbitrator

(Sérgio Santos Pereira)