Stamp Tax on Vertical Property: CAAD Ruling on Clause 28.1 TGIS (Process 660/2016-T)

ARBITRAL DECISION

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 20 January 2017, with respect to the above-identified case, decided as follows:

1. REPORT

1.1. A..., with registered office at ..., number..., in Porto, registered in the Commercial Registry Office of Porto under the single registration and Legal Entity number ... (hereinafter referred to as the "Claimant"), filed a request for arbitral pronouncement and constitution of a Sole Arbitral Tribunal on 31 October 2016, 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)], in which the Tax and Customs Authority is requested (hereinafter referred to as the "Respondent").

1.2. The Claimant requests that the Arbitral Tribunal:

1.2.1. Declare "(…) this petition as well-founded and proven (…)" and declare "(…) the illegality of the assessments subject to this pronouncement (…)" and, consequently, order "(…) their annulment and restitution of the amounts already paid by the Claimant, plus compensatory interest counted up to the date of issuance and processing of the credit note".

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 3 November 2016.

1.4. The Claimant did not appoint an arbitrator, so, pursuant to Article 6, No. 2, paragraph a) of RJAT, the undersigned was designated as arbitrator by the President of the Deontological Council of CAAD, and the appointment was accepted within the legal timeframe and terms.

1.5. On 5 January 2017, both Parties were duly notified of this designation, and neither manifested a wish to refuse the arbitrator's designation, in accordance with Article 11, No. 1, paragraphs a) and b) of RJAT read together with Articles 6 and 7 of the Deontological Code.

1.6. In accordance with the provisions of paragraph c), No. 1, of Article 11 of RJAT, the Arbitral Tribunal was constituted on 20 January 2017, and an arbitral order was issued on the same date, to notify the Respondent to, pursuant to Article 17, No. 1 of RJAT, submit a Response within a maximum period of 30 days and, if desired, request the production of additional evidence.

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

1.8. On 21 February 2017, the Respondent attached to the case file the administrative file.

1.9. On 22 February 2017, the Respondent submitted its Response, defending itself by way of objection and concluding that "this request for arbitral pronouncement should be judged as without merit, as not proven, with the tax assessment acts challenged remaining in the legal order, whereby the respondent entity is absolved of the claim".

1.10. Additionally, in the Response submitted, the Respondent further stated that "(…) given that there is no interest and utility in holding the arbitral meeting provided for in Article 18 of RJAT, the waiver of the same is requested, as well as of the presentation of arguments, and if the Claimant does not waive the latter, it is requested, from now on, that such arguments be presented in writing, in successive manner".

1.11. The Claimant was notified by arbitral order dated 22 February 2017 to pronounce within 5 days on the possibility of waiving the arbitral meeting referred to in Article 18 of RJAT, as well as the presentation of arguments.

1.12. The Claimant presented, on 7 March 2017, a motion to the effect that it does not oppose the waiver of the arbitral meeting referred to in the previous point, but stating that it opposes the waiver of the presentation of written arguments.

1.13. Accordingly, by order of this Arbitral Tribunal dated 8 March 2017, it was decided:

1.13.1. To waive the arbitral meeting referred to in Article 18 of RJAT;

1.13.2. Not to waive the presentation of arguments and, consequently, to notify the Claimant and the Respondent to, in that order and in successive manner, present written arguments within 10 days, with the deadline for the Respondent to begin counting from the date of notification of the Claimant's arguments or from the expiration of the deadline granted for that purpose (in the event that the Claimant does not present arguments);

1.13.3. To set 24 March 2017 for purposes of rendering the arbitral decision.

1.14. Finally, the Claimant was also warned that "until the date of rendering the arbitral decision it should proceed with payment of the subsequent arbitral fee, in accordance with Article 4, No. 3 of the Costs Regulation in Tax Arbitration Proceedings and communicate such payment to CAAD".

1.15. On 23 March 2017, the Claimant filed a motion to attach to the case file copies of the payment receipts for the third installment of Stamp Tax object of the request (which it had protested to attach in the arbitral request).

1.16. On 23 March 2017, the Claimant presented arguments to the effect of reiterating the arguments presented in the initial petition, understanding that "based on the grounds invoked in the Initial Petition, and on the basis of the facts (…) referred to and which should be taken as proven, (…) the assessments (…) identified contain the following defects: (a) Defect of lack of grounds; (b) Error in the assumptions for the application of item 28 of TGIS", "grounds by which it is requested (…) that the said assessments be declared illegal and, consequently, annulled, ordering (…) the reimbursement of the tax paid, plus compensatory interest".

1.17. On 30 March 2017, the Respondent presented arguments to the effect of maintaining "(…) in its entirety (…) the entire content of its Response, demonstrating the absence of any illegality in the assessment of stamp tax subject to dispute", concluding that "(…) the arguments of the Claimant cannot, in any way, proceed, since they make an incorrect interpretation and application of the legal norms applicable to the case sub judice, as has been demonstrated", whereby "(…) this request for arbitral pronouncement should be judged as without merit, given the legality of the assessments, whereby the Respondent entity is absolved of the claim".

2. CAUSE OF ACTION

The Claimant supports its request, in summary, as follows:

2.1. It alleges that "on 31.12.2015 (…) it was owner of the urban property located at Rua…, …, Lisbon, described in the Land Registry Office of Lisbon under the number…, and registered in the urban property matrix of Lisbon, municipality of Lisbon, parish of…, under the property article …".

2.2. The Claimant further states that "the said property is divided into 14 units susceptible to independent use, two units per floor, on 7 distinct floors, including basement, ground floor and 5 floors", and it is not "(…) constituted under the horizontal property regime".

2.3. The Claimant further clarifies that "all units are devoted to housing", and "none of those units of independent use has a TPS [Tax Patrimonial Value] superior to EUR 1,000,000.00 (…)".

2.4. Additionally, the Claimant states that "by reference to 31.12.2015, the overall tax patrimonial value of the property was EUR 1,705,713.11".

2.5. Now, the Claimant continues by stating that "in the months of March, June and October 2016, by reference to the ownership of the property identified above (…) it was notified of documents for payment of the first, second and third installments of stamp tax assessments made on 20.03.2015, pursuant to Item 28.1 of the General Table of Stamp Tax (…)", and the Claimant, "without waiving the right to react against the said assessments (…)" proceeded with payment of the said installments.

2.6. Indeed, "the Claimant understands that the assessments identified above contain the (…) defects (…) of lack of grounds" and of "error in the assumptions for the application of item 28 of TGIS", "grounds by which it is finally requested that the said assessments be declared illegal and, consequently, annulled, with final ordering of the reimbursement of the tax paid, plus compensatory interest".

On the defect of lack of grounds

2.7. With respect to the alleged defect of lack of grounds, the Claimant understands that "contrary to legal norms (…) the truth is that (…) it was notified of various documents for payment, identified with different numbers, verifying, in summary, the absence of indication, in the notifications in question, of the assessment number underlying them", whereby the Claimant concludes that "the absence of legal grounds required constitutes a defect that taints the act with illegality, in accordance with (…) the Code of Tax Procedure and Process (…)".

2.8. Thus, the Claimant understands that "for the reasons (…) exposed, the assessments in question are infected by the defect of lack of grounds and should, consequently, be declared illegal and annulled, with ordering of the reimbursement of the amounts already paid plus compensatory interest (…)".

On the error in the assumptions for the application of item 28 of TGIS

2.9. On the other hand, and with respect to the alleged error in the assumptions for application of item No. 28 of TGIS, the Claimant understands that "as results from item 28 of the Stamp Tax Code, the same applies to the ownership, usufruct or right of superficies of properties or land for construction whose tax patrimonial value recorded in the matrix, in accordance with the Property Tax Code (IMI), is equal to or greater than € 1,000,000", and "in the case in question, we are, at the date of assessment, faced with a property in full ownership with floors or units susceptible to independent use".

2.10. Now, the Claimant states, "in accordance with No. 3 of Article 12 of the IMI Code, each floor or part of property susceptible to independent use is considered separately in the property registration, which also discriminates the respective tax patrimonial value", and "from analysis of the normative body involved here there results no legal provision that makes the tax patrimonial value of a property composed of various floors or units susceptible to independent use correspond to the sum of the respective parts".

2.11. Accordingly, the Claimant argues that "(…) the fiction of the existence of a tax patrimonial value corresponding to the sum of the tax patrimonial values of the various parts susceptible to independent use finds no support either in the letter or in the spirit of the law", and this is also "the understanding of the AT itself when proceeding to assess Stamp Tax for each unit susceptible to independent use".

2.12. The Claimant continues, stating that "for purposes of IMI (and therefore for purposes of IS), the legislator did not make any distinction between properties constituted under the horizontal property regime or full ownership" and therefore understands that "this is an illegal and arbitrary distinction that results solely and exclusively from the erroneous interpretation that the AT services made of the said item".

2.13. Indeed, the Claimant understands that "if the IMI legislator does not distinguish between those two legal realities (…) the interpreter of IS should not distinguish (…)".

2.14. The Claimant further states that "the ratio of the introduction of item No. 28 is quite clear: at a time when the Country is under an international financial assistance program, it is reasonable to ask those who have houses of value superior to one million euros, an additional effort", and "those were the words said by the Secretary of State: houses", whereby concludes, in this context, that "considering the ordinary language" used by the Secretary of State, it seems manifest that, even within that type of language, if the same wanted to refer to entire properties, it would have said: properties".

2.15. Accordingly, the Claimant understands that "the purpose of the introduction of the said item was precisely to ask these owners who live in luxury homes an additional effort in terms of taxation on property", and "the objective was not to tax autonomous units with TPS below that required by law, even though included in buildings whose overall TPS amounted to € 1,000,000.00".

2.16. And to reinforce its position, the Claimant cites various arbitral jurisprudence as well as the Decision of the STA [Supreme Administrative Court] of 09 September 2015 (Case 047/2015), under which it states that "with respect to properties under vertical ownership, for purposes of Stamp Tax incidence (…) subjection is determined by the combination of two factors: housing use and TPS recorded in the matrix equal to or greater than € 1,000,000", whereby "in the case of a property constituted under vertical ownership, the incidence of ST should be determined, not by the TPS resulting from the sum of the TPS of all units or floors susceptible to independent use (individualized in the property article), but by the TPS attributed to each of those floors or units intended for housing".

2.17. Thus, the Claimant concludes its statement to reiterate that "(…) the assessments in question are infected by the defect of violation of law due to error in the assumptions for application of item 28.1 of TGIS and should, consequently, be declared illegal and annulled, with final ordering of the reimbursement of the amounts already paid, plus compensatory interest (…)", since it understands that "(…) the Tax Authority is obliged to immediately and fully reconstitute the situation that would have existed if the illegality had not been committed (…)".

3. RESPONSE OF THE RESPONDENT

The Respondent, in the response submitted, defended itself by way of objection as follows described:

On the alleged error regarding the assumptions of law

3.1. In this context, the Respondent understands that "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 appreciation", whereby "in accordance, with the assessment being correct and the tax being due as calculated, no interest is due (default or compensatory), not least because there is no error attributable to the services, which merely acted, as they should, in strict compliance with the legal norm".

3.2. Indeed, the Respondent argues that "the thesis defended by the Claimant lacks (…) legal support" since "(…) although the assessment of ST, in the situations provided for in item No. 28.1 of TGIS, is carried out in accordance with the rules of the IMI Code, the truth is that the legislator reserves the aspects that require the necessary adaptations, namely those where, as in the case of properties under full ownership, even though with floors or units susceptible to independent use (much though IMI is assessed with respect to each part susceptible to independent use) for purposes of ST what matters is the property as a whole since the units susceptible to independent use are not regarded as property, but only the autonomous fractions under the horizontal property regime (…)".

3.3. Thus, according to the Respondent, "what expressly results from the letter of the law is that the legislator wished to tax with item 28.1 in question the properties as a single legal-tax reality (…)", and "subjection to stamp tax of item 28.1 of TGIS results from the combination of two facts: housing use and the tax patrimonial value of the urban property recorded in the matrix being equal to or greater than € 1,000,000.00".

3.4. Accordingly, "with the property being under the full ownership regime (not possessing autonomous fractions, to which fiscal law attributes the qualification of property, because from the notion of property in No. 4 of Article 2 of the IMI Code results that only autonomous fractions of property under the horizontal property regime are deemed properties), it is the global TPS of the property that must, therefore, matter", whereby the Respondent understands that "the alleged violation of item 28.1 of TGIS should be judged as without merit, with the assessment acts challenged remaining in the legal order for constituting a correct application of law to the facts".

3.5. Furthermore, the Respondent also understands that "(…) the provision of item 28.1 of TGIS does not constitute any violation of the principle of equality, with no discrimination existing in the taxation of properties constituted under horizontal ownership and properties under full ownership with floors or units susceptible to independent use, or between properties with housing use and properties with other uses".

3.6. Thus, the Respondent understands that "(…) the stamp tax collection notes, item 28 of TGIS, challenged in these proceedings remain entirely valid and legal, concluding to the legality of the same".

On the (alleged) lack of grounds of the tax act

3.7. In this context, the Respondent states that "from consultation of the said collection notes, it can be verified that the same refer to the assessment of Stamp Tax on real estate, item 28 of TGIS, where the property is duly identified by description – municipality/parish/article – the tax patrimonial value, the applicable rate, and in these same collection notes, we equally find the legal provisions under which the assessment was made" whereby it disagrees with the Claimant's position.

3.8. Citing Arbitral Decision No. 42/2013, the Respondent argues by stating that "in the so-called bulk acts, as is the case of the assessment challenged, the same formal rigor should not be required as should be required of other administrative acts intended for specific individualized situations (…)".

3.9. Additionally, the Respondent further states that "(…) with respect to the grounds of administrative acts (…)", it is understood "that the act is grounded when, by the motivation adduced, it shows itself apt to reveal to a normal recipient the reasons of fact and of law that determine the decision, enabling it to react effectively through the legal means available against the same, if it so wishes".

3.10. Now, for the Respondent, "it results demonstrated that the Claimant understood perfectly the sense and scope of the assessments, as results from the very legal-argumentative exercise that it makes (…) in this request for arbitral pronouncement", whereby the Respondent concludes that "(…) it is not apparent that the assessment in question in this proceeding lacks legal grounds, whereby it is considered that the burden of grounds was fulfilled and that the Claimant's request necessarily fails".

3.11. Additionally, the Respondent, by understanding that there is no "(…) any interest and utility in holding the arbitral meeting provided for in Article 18 of RJAT (…)" came to request in the Response "(…) the waiver of the same, as well as of the presentation of arguments, and if the Claimant does not waive the latter, it is requested, from now on, that such arguments be presented in writing, in successive manner".

3.12. The Respondent concludes the Response stating that "for all the above, the assessments in question constitute a correct interpretation and application of law to the facts, are duly grounded, suffering from no defect of violation of law, and should, consequently, be judged as without merit the claims advanced".

4. PROCEDURAL ORDER

4.1. The request for arbitral pronouncement is timely as it was presented within the deadline provided in paragraph a) of No. 1 of Article 10 of RJAT.

4.2. The Parties have legal personality and capacity, are legitimate regarding the request for arbitral pronouncement, and are duly represented, in accordance with 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 hear the request for arbitral pronouncement filed by the Claimant.

4.4. The joinder of claims made here by the Claimant is legal and valid, in accordance with Article 3, No. 1 of RJAT, given that the merit of the claims depends essentially on the appreciation of the same factual circumstances and on the interpretation and application of the same principles or rules of law.

4.5. With respect to the value of the request for arbitral pronouncement, taking into account the provisions of Article 306 and Article 297, both of the Code of Civil Procedure (CCP), of which "when several claims are joined in the same action, the value is the sum of the values of all of them", whereby, given that it is requested, in the case under analysis, the annulment of the Stamp Tax assessments of the year 2015 affecting the urban property identified in the proceedings, the value of the claim should correspond to the total of those assessments, namely EUR 17,057.16 (and not EUR 17,057.07, as indicated by the Claimant), without such alteration having implications on the amount of final costs of the proceedings.

4.6. No exceptions have been raised that require consideration.

4.7. There are no nullities, whereby, now, the merit of the claim must be examined.

5. FACTUAL MATTERS

Proven facts

5.1. The following facts are considered as proven (supported by the documents hereinafter identified, attached by the Claimant, as well as by the administrative file, attached by the Respondent):

5.1.1. The Claimant is owner of the urban property located at Rua…, No.…, in Lisbon, described in the Land Registry Office of Lisbon under the number…, and registered in the urban property matrix of Lisbon, municipality of Lisbon, parish of …, under the property article …, as per copy of the Urban Property Deed attached with the request (doc. No. 1).

5.1.2. The said urban property is constituted under the vertical (or full) ownership regime, consisting of 7 floors (basement, ground floor and five floors), in a total of fourteen floors or units susceptible to independent use, all intended, at the date to which the stamp tax assessments refer, for housing, as per copy of the Urban Property Deed attached with the request (doc. No. 1).

5.1.3. The overall TPS of the said urban property was, in 2015, EUR 1,705,713.11, determined within the scope of an appraisal carried out on 20 May 2010, as per copy of the Urban Property Deed attached with the request (doc. No. 1).

5.1.4. The TPS of each of the units (or parts susceptible to independent use) intended for housing, included in the Stamp Tax assessment notices, relating to the year 2015, ranged between EUR 114,943.53 (value attributed to the floor referred to as "5 ESQ") and EUR 126,794.68 (value attributed to the floor referred to as "4 ESQ"), as per copy of the Urban Property Deed attached with the request (doc. No. 1).

5.1.5. The Claimant was notified of the collection notes for payment of the three installments relating to the Stamp Tax assessments No. 2015… to 2015…, dated 5 April 2016, referring to the year 2015 (whose payment deadline was, respectively, "April/2016", "July/2016" and "November/2016"), relating to the property identified above (see points 5.1.1 and 5.1.2), as per copies of the respective collection documents attached with the request (docs. No. 3 to 16, 17 to 30 and 31 to 44, relating to the first, second and third installments of tax, respectively, and administrative file attached by the Respondent) [the amounts are expressed in Euro (EUR)]:

5.1.6. For purposes of determining the incidence of Stamp Tax of item 28 on various autonomous parts of the property (identified above), the Respondent considered (i) the sum of the TPS of all fourteen units or floors susceptible to independent use with housing use (which amounted, on 31 December 2015, to EUR 1,705,713.11) and (ii) the housing use of the said autonomous parts.

5.1.7. For purposes of tax assessment, the Respondent applied the rate of 1% Stamp Tax on the individual TPS of each one of the fractions (all intended for housing) identified above in point 5.1.5.

5.1.8. The Claimant made payment of the collection notes identified above in point 5.1.5, on 28 April 2016, on 22 and 26 July 2016 and 27 November 2016, respectively, as per copies of the respective bank transfer documents attached with the request (docs. No. 45 to 58 and 59 to 72, relating to payment of the first and second installments of tax) and copies of the respective bank transfer documents, attached with the motion presented on 23 March 2017, relating to payment of the third installments of tax).

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

Unproven facts

5.3. No facts as unproven with relevance to the arbitral decision were found.

6. LEGAL MATTERS

6.1. In the case under analysis, it is now necessary to proceed with the analysis of the factual circumstances given as proven in order to ascertain the (il)legality of the Stamp Tax assessments relating to the year 2015, subject to the request, taking into account the arguments presented by the Claimant that "(…) the assessments (…) identified contain the (…) defects (…) of lack of grounds" and of "error in the assumptions for the application of item 28 of TGIS", "grounds by which it is requested (…) that the said assessments be declared illegal and, consequently, annulled, with final ordering of the reimbursement of the tax paid, plus compensatory interest" (underlined by us).

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

6.2.1. Was subjection to Stamp Tax, in accordance with item No. 28.1 of TGIS (in effect on the date to which the assessments subject to the request refer), determined by the TPS corresponding to each of the parts of the property with housing use or, on the contrary, was it determined by the global TPS of the property, which would correspond to the sum of all the TPS of the floors (with that type of use) of which it is composed?

On the alleged error in the assumptions for application of item 28 of TGIS

6.3. In this context, the Claimant argues that "as results from item 28 of the Stamp Tax Code, the same applies to the ownership, usufruct or right of superficies of properties or land for construction whose tax patrimonial value recorded in the matrix, in accordance with the IMI Code, is equal to or greater than € 1,000,000", and "in the case in question we are, at the date of assessment, faced with a property under full ownership with floors or units susceptible to independent use" (underlined by us).

6.4. Now, the Claimant understands that, "in accordance with No. 3 of Article 12 of the IMI Code, each floor or part of property susceptible to independent use is considered separately in the property registration, which also discriminates the respective tax patrimonial value", and "from analysis of the normative body involved here there results no legal provision that makes the tax patrimonial value of a property composed of various floors or units susceptible to independent use correspond to the sum of the respective parts".

6.5. Thus, the Claimant understands that "the AT introduced in the assessments a distinction that the legislator did not introduce anywhere in the legislation, thus lacking legal basis for the AT to proceed with the said interpretation of item 28 of TGIS" whereby concludes that "(…) the assessments in question are infected by the defect of violation of law due to error in the assumptions for application of item 28.1 of TGIS and should, consequently, be declared illegal and annulled, with ordering of the reimbursement of the amounts already paid, plus compensatory interest (…)" (underlined by us).

6.6. On the other hand, the Respondent understands that "the thesis defended by the Claimant lacks (…) legal support" since "(…) although the assessment of ST, in the situations provided for in item No. 28.1 of TGIS, is carried out in accordance with the rules of the IMI Code, the truth is that the legislator reserves the aspects that require the necessary adaptations (…) as is the case of properties under full ownership, even though with floors or units susceptible to independent use (much though IMI is assessed with respect to each part susceptible to independent use) for purposes of ST what matters is the property as a whole since the units susceptible to independent use are not regarded as property, but only the autonomous fractions under the horizontal property regime (…)" (underlined by us).

6.7. Thus, the Respondent understands that "what (…) results from the letter of the law is that the legislator wished to tax (…) the properties as a single legal-tax reality (…)", whereby the challenged assessments "(…) result from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary appreciation" whereby, "in accordance, with the assessment being correct and the tax being due as calculated, no interest is due (default or compensatory), not least because there is no error attributable to the services, which merely acted (…) in strict compliance with the legal norm" (underlined by us).

6.8. Now, for purposes of responding to the question stated above in point 6.2.1, it will be important to analyze, from the outset, the changes resulting from Law No. 55-A/2012, of 29 October (i.e., the addition to TGIS of item 28) and Law No. 83-C/2013 of 31 December, since that instrument "introduced a set of changes in the codifying instruments of three taxes – IRS, IRC and Stamp Tax – as well as in the General Tax Law, among which the norm under analysis, all guided by the obtaining of supplementary fiscal revenue and, in general, to counteract budgetary imbalance". [4][5]

6.9. 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 reinforce action against tax fraud and evasion (…) were introduced, to which was added the introduction, in the scope of Stamp Tax, of the taxation of legal situations (…), which was understood to be capable of supporting increased fiscal effort, thus distributing more equitably the sacrifice to achieve the budgetary consolidation required of taxpayers" (underlined by us). [6]

6.10. And, if there were any doubts as to the alleged unconstitutionality of item 28 of TGIS, due to alleged violation of the principles of proportionality, equality and capacity to contribute, the Constitutional Court has already ruled on this matter, namely, in the Decision of 11 November 2015 (Case No. 542/14), whereby it decided "(…) not to declare unconstitutional the norm of items 28 and 28.1 of the General Table of Stamp Tax, added by Article 4 of Law No. 55-A/2012, of 29 October, to the extent that it imposes annual taxation on the ownership of urban properties with housing use, whose tax patrimonial value is equal to or greater than € 1,000,000.00", "with no violation of constitutionality parameters (…), nor any others (…)" being verified (underlined by us). [7][8]

6.11. Thus, as stated above, it is important to analyze the substance of item No. 28 of TGIS (added by Article 4 of Law No. 55-A/2012, of 29 October, in effect from 30 October 2012 and amended by Article 194 of Law No. 83-C/2013, of 31 December), in effect on the date to which the Stamp Tax assessments at issue refer (year 2015), since, although that instrument did not proceed with the qualification of the concepts contained in the said item No. 28, namely the concept of "property with housing use", if one observes the provisions of Article 67, No. 2, of the Stamp Tax Code (also added by the said Law No. 55-A/2012), it is verified that "to matters not regulated in this Code relating to item 28 of TGIS, the IMI Code is applied, subsidiarily".

6.12. Now, from reading the IMI Code, it is easily apparent that the concept of "property with housing use" referred back to the concept of "urban property", defined in accordance with Articles 2 and 4 of that Code. [9]

6.13. Indeed, in accordance with Article 2, No. 1 of the IMI Code, "for purposes of this Code, property is any fraction of land, comprising waters, plantations, buildings and constructions of any nature incorporated therein or based thereon, with a character of permanence, provided it forms part of the heritage of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are located, although located in a fraction of land that constitutes an integral part of a different heritage or does not have a patrimonial nature" (underlined by us).

6.14. Still 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 character of permanence when devoted to non-transitory purposes", with the "character of permanence" being presumed "when the buildings or constructions are based on the same location for a period exceeding one year".

6.15. For purposes of IMI, "each autonomous fraction, under the horizontal property regime, is deemed to constitute a property" and, in accordance with Article 4 of the Code of that tax, "urban properties are all those that should not be classified as rustic (…)" (underlined by us).

6.16. Among the various species of "urban properties" referred to in Article 6 of the IMI Code, "residential urban properties" are expressly mentioned [No. 1, paragraph a)], with No. 2 of the same article adding that these "are the buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each one of these purposes".

6.17. On the other hand, if it is true that No. 4 of Article 2 of the IMI Code refers that "for purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property", it is also true that there is nothing in law that points to discrimination between properties under horizontal ownership and property under vertical ownership regarding their identification as "residential urban properties".

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

6.19. As argued in various Arbitral Decisions, namely in that rendered in the scope of Case No. 88/2013-T, "in the legislator's perspective, it does not matter the legal-formal rigor of the concrete situation of the property but rather its normal use, the purpose to which it is intended", whereby, "it should thus be concluded that for the legislator it is irrelevant whether the property is constituted under vertical or horizontal ownership, with only the material truth underlying its existence as an urban property and its use being relevant" (underlined by us).

6.20. Indeed, in the interpretation of 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 under horizontal ownership and properties constituted under full ownership would be an "innovation" without associated legal support.

6.21. In fact, neither in item No. 28 of TGIS nor in the provisions of the IMI Code is there any indication of justification for this differentiation, and it is today understood unanimously that fiscal laws are interpreted through the determination of their true meaning, ascertained in accordance with the techniques and interpretative elements generally accepted by doctrine [see Article 9 of the Civil Code and Article 11 of the General Tax Law (LGT)]. [10][11]

6.22. Furthermore, it is necessary to also take into account that norms of tax incidence must be interpreted in their exact terms, without resort to analogy, making prevailing the certainty and security in their application. [12]

6.23. Accordingly, the uniform criterion that is required is one that determines that the incidence of the provision of the norm in question (item 28 of TGIS) only takes place when any of the parts, floors or units with independent use of property under horizontal (or full) ownership, with housing use, possesses a TPS exceeding EUR 1,000,000.00.

6.24. Thus, "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties under vertical ownership, in the same manner as it establishes for properties under horizontal ownership, it clearly established a criterion, which must be unique and unequivocal, for the definition of the rule of incidence of item 28.1 of TGIS" [13], whereby fixing as a reference value for that objective the global TPS of the property in question (as the Respondent intends), finds no basis in the applicable legislation (underlined by us). [14]

6.25. Lastly, it will also be important to reinforce what the underlying ratio legis of the rule of item 28 of TGIS (in effect on the date of the assessments at issue) is, in obedience to the provisions of Article 9 of the Civil Code, [15] taking into account the circumstances in which the norm was drawn up, as well as the specific conditions of the time in which it was and is applied.

6.26. Indeed, at the time of the changes introduced by the legislation already referred to, the legislator intended to introduce a principle of taxation on wealth exteriorized in the ownership, usufruct or right of superficies of luxury urban properties with housing use, having considered, as the determining element of capacity to contribute, urban properties, with housing use, of high value (luxury), i.e., of value equal to or greater than EUR 1,000,000.00, on which would now apply a special rate of Stamp Tax.

6.27. In fact, we understand that this is what can be concluded from analysis of the discussion of Bill No. 96/XII in the Assembly of the Republic, [16] with no invocation of a different interpretative ratio than that presented here being apparent. [17]

6.28. Indeed, the justification for the measure designated as "special tax on the highest value residential urban properties" is thus based, as we have seen, 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, with the new special tax thus applying to "houses of value equal to or greater than 1 million euros".

6.29. Now, if such logic seems to make sense when applied to a "residence" (whether it be a house, an autonomous fraction, a part of property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, an above-average capacity to contribute (and, to that extent, capable of determining a special contribution to ensure the fair distribution of fiscal effort), it would no longer make any sense if applied "unit by unit" to, through the sum of the individual TPS of the same (because held by the same individual), ascertain such value equal to or greater than one million euros.

6.30. It also follows that, admitting the differentiation of treatment could produce incomprehensible and discriminatory results from a legal point of view, as contrary to the objectives (of promoting social equity and fiscal justice) that the legislator claimed to have in adding the said item No. 28 to TGIS.

6.31. Thus, the existence of a property under vertical or horizontal ownership cannot, by itself, be indicative of capacity to contribute, with law providing that each of them should receive the same fiscal treatment in obedience to the principles of justice, fiscal equality and material truth.

6.32. Conversely, the existence in each property of independent dwellings, under horizontal or vertical ownership regime, may be susceptible to triggering the incidence of the new tax if the TPS of each of the parts or fractions is equal to or greater than the limit defined by law, namely EUR 1,000,000.00.

6.33. In this sense, the Decision of the STA No. 0560/16, of 29 September 2016, held that "with respect to properties under vertical ownership, for purposes of Stamp Tax incidence (Item 28.1 of TGIS, as amended by Law No. 55-A/2012, of 29 October), subjection is determined by the combination of two factors: housing use and TPS recorded in the matrix equal to or greater than € 1,000,000. In the case of a property constituted under vertical ownership, the incidence of ST should be determined, not by the TPS resulting from the sum of the TPS of all units or floors susceptible to independent use (individualized in the property article), but by the TPS attributed to each of those floors or units intended for housing" (underlined by us). [18]

6.34. In the case under analysis, if the property identified in the proceedings were under the horizontal ownership regime, it would be clear that none of the residential units capable of independent use, forming part thereof, would be subject to the incidence of the new tax, since in none of them does the TPS, individually considered, exceed the limit of EUR 1,000,000.00 defined by law (see point 5.1.4, above).

6.35. It is for this very reason that Article 12, No. 3 of the IMI Code provides that "each floor or part of property susceptible to independent use is considered separately in the property registration, which also discriminates the respective TPS" so as not to generate situations of violation of the principles of social equity and fiscal justice (underlined by us).

6.36. Given that the constitution of horizontal ownership implies merely a legal alteration of the property, not even requiring a new appraisal, it will be the material truth that imposes itself as the determining criterion of capacity to contribute and not the mere legal-formal reality of the property, whereby, consequently, the discrimination operated by the Respondent translates into arbitrary and illegal discrimination. [19]

6.37. And, taking into account the entire social and economic reality often underlying many properties under vertical ownership, the legislator itself in fiscal matters in the IMI Code treated the two situations (horizontal and vertical ownership) equitably, applying the same criteria.

6.38. Indeed, analyzing the situation sub judice, and as already referred to in point 6.34 above, it is found that the TPS of the autonomous units with housing use in the property described above (points 5.1.1 and 5.1.2, above) varies, for the year 2015, between the lowest value of EUR 114,943.53 (value attributed to the floor referred to as "5 ESQ") and the highest value of EUR 126,794.68 (value attributed to the floor referred to as "4 ESQ"), whereby in any of them, individually considered, the said TPS is always less than EUR 1,000,000.00.

6.39. Thus, given the foregoing, the answer to be given to the question raised above (see point 6.2.1) will be that subjection to Stamp Tax, for purposes of item 28 of TGIS, was determined by the TPS corresponding to each of the parts of the property with housing use and not by the global TPS of the property, whereby it will be concluded that on the floors with housing use (of the property identified in the proceedings) Stamp Tax referred to in item No. 28 of TGIS (in effect on the date to which the tax acts refer) cannot apply, with the Stamp Tax assessments thus being illegal, relating to the year 2015, subject to the request for arbitral pronouncement presented by the Claimant, on the basis of a defect of violation of law, due to error in the legal assumptions. [20][21]

On the alleged defect of lack of grounds

6.40. Now, taking into account that "the judge does not have to analyze and appraise all arguments, all reasoning, all legal reasons invoked by the parties in support of their positions", and in light of the answer given to the central question to be decided (see above point 6.2.1 and the previous point), to the effect of declaring illegal the Stamp Tax assessments relating to the year 2015, subject to the request for arbitral pronouncement presented by the Claimant, on the basis of a defect of violation of law, due to error in the legal assumptions, this Arbitral Tribunal understands that, consequently, the analysis of the alleged defect of lack of grounds of the Stamp Tax assessments at issue is precluded. [22]

On the reimbursement of tax paid with compensatory interest

6.41. With respect to the payment of compensatory interest, in accordance with No. 5 of Article 24 of RJAT, "interest is due, regardless of its nature, in the terms provided 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 appreciation of the legality of the tax act.

6.42. Equally, in accordance with Article 24, No. 1, paragraph b) of RJAT, it should be understood that the request for compensatory interest is a claim relating to tax acts (e.g. assessments), which aims to make explicit/concrete the content of the obligation to "reconstitute the situation that would have existed if the tax act subject to the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose".

6.43. As Jorge Lopes de Sousa states, "it is included within the competencies of the arbitral tribunals functioning at CAAD the fixing of the effects of the arbitral decision that can be defined in judicial proceedings for review, namely, the annulment of the acts whose declaration of illegality is requested, the condemnation of the Tax and Customs Authority to payment of compensatory interest (…)" (underlined by us). [23][24]

6.44. Thus, in tax arbitration proceedings there may be place for the payment of compensatory interest, in accordance with the provisions of Articles 43, Nos. 1 and 2, and 100 of the LGT, when it is determined that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due.

6.45. Accordingly, the right to compensatory interest will always depend on the verification of error attributable to the services of the Respondent, from which resulted payment of the tax debt in an amount greater than that legally due.

6.46. Following the declaration of illegality of the Stamp Tax assessment acts already identified above (see point 6.39) and, in accordance with the provisions of paragraph b) of No. 1 of Article 24 of RJAT (in accordance with what is established there), "the arbitral decision on the merits of the claim of which no appeal or review is possible binds the tax administration from the expiration of the period provided for appeal or review, and the latter must reconstitute the situation that would have existed if the tax act subject to the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", whereby there must be reimbursement of the amounts paid by the Claimant relating to the Stamp Tax of the year 2015, as a way to achieve reconstitution of the situation that would have existed if the illegality had not been committed.

6.47. Thus, in light of the provision in Article 61 of the Code of Tax Procedure and Process (CPPT), with the requirements for the right to compensatory interest being fulfilled (namely, verification of the existence of error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due, as provided in No. 1 of Article 43 of the LGT), the Claimant will have the right to compensatory interest, at the legal rate, calculated on the sums paid, within the assessments of Stamp Tax relating to the year 2015 (subject to the request for arbitral pronouncement), which will be counted in accordance with the provisions of No. 3 of Article 61 of the CPPT, namely from the date of payment of the undue tax until 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 rendered by the arbitral tribunal states the amount and the distribution among the parties of the costs directly resulting from the arbitral proceeding".

6.49. Thus, in accordance with Article 527, No. 1 of the CCP (per Article 29, No. 1, paragraph e) of RJAT), it should be established that the Party that caused costs shall be condemned in costs, or, if there is no prevailing of the action, whoever derived benefit from the proceeding.

6.50. In this context, No. 2 of the said article specifies the expression "caused costs", according to the principle of burden of proof, understanding that the defeated party causes costs of the proceeding, in the proportion in which it is defeated.

6.51. In the case under analysis, taking into account the foregoing, the entire responsibility for costs of this proceeding should be assigned to the Respondent, in accordance with Article 12, No. 2 of RJAT and Article 4, No. 4 of the Costs Regulation in Tax Arbitration Proceedings.

7. DECISION

7.1. Taking into account the analysis conducted, this Arbitral Tribunal decided:

7.1.1. To declare the request for arbitral pronouncement as well-founded, condemning the Respondent with respect to the request for declaration of illegality of the Stamp Tax assessments, dated 5 April 2016, on the basis of a defect of violation of law, due to error in the legal assumptions, annulling the respective tax assessment acts, with the consequent restitution of the sums unduly paid, plus compensatory interest at the legal rate, counted in accordance with legal terms;

7.1.2. To condemn the Respondent to payment of the entire costs of this proceeding.

Value of the proceeding: Taking into account the provisions of Article 306, No. 2 of the CCP, Article 97-A, No. 1 of the CPPT and Article 3, No. 2 of the Costs Regulation in Tax Arbitration Proceedings, the value of the proceeding is set at EUR 17,057.16.

Costs of the proceeding: In accordance with the provisions of Table I of the Costs Regulation of Tax Arbitration Proceedings, the value of the Arbitral Proceeding costs is set at EUR 1,224.00, charged to the Respondent, in accordance with Article 22, No. 4 of RJAT.

Notify parties.

Lisbon, 20 April 2017

The Arbitrator

Sílvia Oliveira

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

[2] And in this sense, also reference the decision of the STA of 22-11-2000 (Case No. 25389).

[3] In this context, it should be noted that from analysis of the proceeding it results that the request for arbitral pronouncement has, expressly, as its object the tax assessment acts for Stamp Tax identified, relating to the year 2015 (dated 5 April 2016), resulting from the application of item 28.1 of the General Table of Stamp Tax (TGIS), with respect to the urban property identified in the proceedings, in the total amount of EUR 17,057.16, with the request being for declaration of illegality of the said assessments (and consequently the annulment thereof), on the basis of the alleged lack of grounds of the tax acts and alleged error in the assumptions for application of the said item 28 of TGIS.

Accordingly, the moment of the beginning of counting the period for filing the request for arbitral pronouncement relating to the request for annulment of the Stamp Tax assessments identified was analyzed, taking into account that the provision in Article 10, No. 1, paragraph a) of RJAT (with respect to tax assessment acts) refers (regarding the beginning of counting the period) to that established in Nos. 1 and 2 of Article 102 of the CPPT (namely, counting of the period begins on the day following "the expiration of the period for voluntary payment of tax obligations legally notified to the taxpayer").

Now, in the case under analysis, we have Stamp Tax assessments to be paid in three installments (namely, by the end of the months of April, July and November 2016), and this payment in installments is nothing more than a technique for collection of tax and not a partial payment properly speaking.

Accordingly, for purposes of counting the period provided in Article 10 of RJAT, this should be ascertained according to the "expiration of the period for payment of each of the tax obligations legally notified" and, given that law does not contemplate autonomous challenge of each of the tax installments involved, at the date of filing of the request for arbitral pronouncement (31 October 2016) the 90-day period provided in Article 10 of RJAT was still in course, to be counted from the day following the expiration of the period for payment of the second installment (31 July 2016) of tax relating to each of the Stamp Tax assessments at issue, whereby it is concluded that the arbitral request is timely.

[4] In accordance with the provisions of Article 4 of Law No. 55-A/2012, of 29 October, item 28 of TGIS was added as follows (bold ours):

"28. Ownership, usufruct or right of superficies of urban properties whose TPS recorded in the matrix, in accordance with the IMI Code, is equal to or greater than EUR 1,000,000.00 – on the TPS for purposes of IMI:

28.1 - Per property with housing use - 1%.

28.2 - Per property, when the tax subjects 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 ordinance of the Minister of Finance - 7.5%".

With the changes introduced by Article 194 of Law No. 83-C/2013, of 31 December, item 28 and item 28.1 have taken the following form:

"28. Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value recorded in the matrix, in accordance with the Property Tax Code (IMI), is equal to or greater than (euro) 1,000,000 - on the tax patrimonial value used for purposes of IMI:

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

[5] See Decision of the Constitutional Court No. 590/2015, of 11 November (Case No. 542/14) - point 9.

[6] See previous footnote.

[7] And already referring to the changes introduced by Law No. 83-C/2013 of 31 December.

[8] Indeed, the Constitutional Court concludes that "(…) item 28 of TGIS does not suffer from any unconstitutionality, with no violation of the constitutional principles shaping fiscal law being verified, specifically the principles of fiscal equality, capacity to contribute and proportionality (…)" (underlined by us).

[9] In fact, taking into account that the concept of "(urban) property with housing use" was not defined either by the legislator, nor by the text of Law No. 55-A/2012 (which introduced it), nor by the IMI Code, to which No. 2 of Article 67 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis, it had a rather short life, given that such concept was abandoned when Law of the State Budget for 2014 came into effect (in effect from 1 January 2014 and, therefore, in effect on the date of the tax assessments subject to the arbitral request), which gave new form to that item No. 28.1 of TGIS, 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 IMI Code.

[10] In this context, note the provisions of Article 12, No. 3, of the IMI Code, in stating that "each floor or part of property susceptible to independent use is considered separately in the property registration, which also discriminates the respective TPS".

[11] In this sense, see AC TCAS Case 07648/14, of 10 July 2014.

[12] See AC TCAS Case 5320/12, of 2 October 2012, AC TCAS Case 7073/13, of 12 December 2013 and AC TCAS 2912/09, of 27 March 2014.

[13] See Arbitral Decision No. 50/2013-T, of 29 October 2013.

[14] Which is the IMI Code, given the referral made by the cited Article 67, No. 2, of the Stamp Tax Code.

[15] According to which the interpretation of a legal norm should not be limited to the letter of the law, but should reconstruct the legislative intent, starting from the texts and other elements of interpretation, taking into account the unity of the legal system.

[16] Available for consultation in the Diary of the Assembly of the Republic, Series I, No. 9/XII/2, of 11 October 2012.

[17] As already referred to in various Arbitral Decisions issued by CAAD (see Case No. 48/2013-T and Case No. 50/2013-T).

[18] In this sense, see Decision of the STA of 9 September 2015 (appeal No. 047/15), followed by Decisions of the STA of 27 April 2016 (appeal No. 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).

[19] As the law does not impose the obligation to constitute the property under the horizontal ownership regime.

[20] In this sense, see Arbitral Decision No. 368/2014-T, of 18 December 2014, issued by the undersigned.

[21] The Decision of the STA No. 01354/15, of 2 March 2016, also ruled in this sense, in the terms already referred to for Decision of the STA No. 0560/16, of 29 September 2016 (see point 6.33, above).

[22] In this sense, see Decision of the STJ No. 05S2137, of 29 November 2005, in which it is cited Alberto dos Reis [in "Code of Civil Procedure Annotated, Volume V", Coimbra Editora, 1981 (reprint), page 143], an author who argued that "one must not confuse questions raised by the parties with reasons or arguments invoked by them to assert their claims. These are, in fact, different things: failing to address a question that should be addressed, and failing to appraise any consideration, argument or reason advanced by the party. When the parties raise a certain question before the court, they make use, at every turn, of various reasons or grounds to assert their point of view; what matters is that the court decides the question raised; it is not incumbent upon it to appraise all grounds or reasons on which they base their claim" (underlined by us).

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

[24] On the subject of compensatory interest, one can see from the same author (Sousa, Jorge Lopes), Interest in tax relations, in "Fundamental Problems of Tax Law", Lisbon, 1999, page 155 et seq).