Stamp Tax on Vertical Property: CAAD Rules on Verba 28 TGIS for Individual Building Fractions

ARBITRAL DECISION

REPORT

A – PARTIES

A…, taxpayer no.…, with tax residence in…, …-…, Merceana, B…, taxpayer no.…, with tax residence in…, …-…, Évora, C…, taxpayer no.…, with tax residence in…, …-…, Évora, D…, taxpayer no.…, with tax residence in…, …-…, Évora, E…, taxpayer no.…, with tax residence in…, …-…, Évora, F…, taxpayer no.…, with tax residence in…, …-…, Évora, hereinafter referred to as the Claimant or taxpayer.

AUTHORITY FOR TAX AND CUSTOMS (which succeeded the Directorate-General for Taxes, by means of Decree-Law no. 118/2011, of 15 December) hereinafter referred to as the Respondent or AT.

The application for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly constituted on 25-01-2016 to examine and decide the subject matter of the present proceedings, and was automatically notified to the Authority for Tax and Customs on 25-01-2016, as recorded in the respective minutes.

The Claimant did not appoint an arbitrator, wherefore, pursuant to article 6(1) and article 11(1)(b) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated arbitrator Dr. Paulo Ferreira Alves, and the appointment was accepted in accordance with the legal provisions.

On 07-01-2015 the parties were duly notified of such designation and made no declaration of intent to challenge the appointment of the arbitrators, pursuant to article 11(1)(a) and (b) of the RJAT and articles 6 and 7 of the Deontological Code.

In accordance with the provisions of article 11(1)(c) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal is duly constituted on 25-01-2016.

Both parties agree to the waiver of the meeting provided for in article 18 of the RJAT.

The arbitral tribunal is duly constituted. It is materially competent, pursuant to articles 2(1)(a) and 30(1) of Decree-Law no. 10/2011, of 20 January.

The parties possess legal standing and capacity, are legitimate and are legally represented (articles 4 and 10(2) of the same legislation and article 1 of Ministerial Order no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects that would invalidate it.

B – CLAIM

1. The Claimant herein seeks a declaration of illegality of the tax assessment acts for Stamp Duty:

which established a total tax payable of €23,689.67 (twenty-three thousand, six hundred and eighty-nine euros and sixty-seven cents).

C – GROUNDS FOR THE CLAIM

1. To support its request for an arbitral decision, the Claimant alleged, with a view to obtaining a declaration of illegality of the tax assessment acts for Stamp Duty already described in point 1 of this award, the following, in summary:

2. They were notified of the Stamp Duty assessment acts under Item 28 of the General Schedule of Stamp Duty, relating to the property located at Street…, no.…/…, …-…, Lisbon, for the years 2012 and 2013.

3. They are joint owners in equal shares of 1/6 of the urban property located at Street…, no.../…, …-…, Lisbon.

4. The property consists of eighteen independent units, separately identified for tax purposes, intended for residential use.

5. The taxable asset value (TAV) of the property subject to the collected tax amounts to €1,210,230.00, corresponding to the sum of the TAVs of the individual floors or sections with independent use existing therein.

6. The Claimant submitted a request for official review concerning the assessments on 21 April 2015.

7. The Claimant alleges that, since the Authority for Tax and Customs did not rule on the said official review, its implicit dismissal is presumed to have occurred on 21 August 2015, after 120 days had elapsed.

8. The Claimant argues that the assessments thus issued are defective in legality due to errors in the legal prerequisites for the application of the tax provided for in article 28 of the TGIS.

9. The Claimant defends that the substantive question in dispute underlying the assessment of the (il)legality of the acts subject to the present arbitral request relates to whether the taxable asset value relevant for purposes of determining the applicability of Item 28 of the TGIS, where a property not constituted as horizontal property ownership is concerned, is that of each unit considered autonomously or the sum of the taxable asset value attributed to each of those units.

10. It contends that, where vertical property ownership is concerned, Item 28 of the TGIS would only be applicable if one of the sections with independent use had a TAV exceeding €1,000,000.00.

11. The Claimant alleges a clear violation of the letter and spirit of the law; the assessments now in dispute, which uphold the understanding endorsed by the Tax Administration to the benefit of persisting in the collection of tax under Item 28 of the TGIS, clearly violates the substance-over-form principle in matters of property taxation that underlies the rule contained in article 12(3) of the ICIMI, and is susceptible to leading to situations of unjustifiable discrimination of materially identical situations, in manifest violation of the constitutional principles of equality and proportionality.

12. The Claimant contends that none of the said independent units intended for residential use have a TAV equal to or exceeding €1,000,000.00, and in no case does it exceed €92,630.00; the property in question is, quite simply, not subject to Stamp Duty under Item 28 of the TGIS.

13. The Claimant concludes by contending for the illegality and voidability of the Stamp Duty assessment acts due to violation of the scope of application of item 28.1 of the TGIS.

D – RESPONDENT'S REPLY

1. The Respondent, duly notified for this purpose, timely submitted its reply in which, in abbreviated summary, it alleged the following:

2. The situation of the Claimant's property literally falls within the scope of Item 28.1 of the TGIS.

3. The Claimant is therefore the owner of a property under the regime of full or vertical ownership, such that there are no autonomous units to which tax law can attribute the qualification of a property.

4. This follows from the definition of property in article 2 of the ICIMI, according to which only autonomous units of property under the regime of horizontal property ownership are considered as properties.

5. Accordingly, the Claimant, for purposes of IMI and stamp duty, by virtue of the wording of the said item, is not the owner of 13 autonomous units, but rather of a single property.

6. The Respondent alleges that horizontal property ownership is a specific legal regime of property provided for in article 1414 et seq. of the Civil Code, which provides for and regulates the manner of constitution as well as the other rules concerning the rights and obligations of co-owners, being afforded a more developed regime of property.

7. Furthermore, it contends that attempting to have the tax interpreter and enforcer apply, by analogy, the horizontal property ownership regime to the regime of full ownership would be, at a minimum, abusive and illegal. These two property ownership regimes are regimes of civil law, which have been imported into tax law, namely in the terms referred to by article 2 of the ICIMI.

8. It is forbidden to the tax law interpreter to equate the two property ownership regimes, in accordance with the rule according to which concepts from other branches of law have the meaning in tax law that is given to them in those branches of law, or as referred to in article 11(2) of the LGT.

9. On the other hand, given that in determining the meaning of tax norms and in qualifying the facts to which they apply the general rules and principles of interpretation and application of laws are observed, as provided in article 11(1) of the LGT which refers to the Civil Code which, in article 10 on the application of analogy, determines that this shall only be applicable in the case of gaps in the law.

10. It defends that tax law contains no such gap.

11. It cannot be accepted that, for purposes of Item 28.1 of the General Schedule annexed to the CIS, parts susceptible to independent use are given the same tax regime as autonomous units under horizontal property ownership, on pain of open violation of the principle of legality.

12. With the property subject to the regime of full ownership, but being physically constituted by parts susceptible to independent use, tax law attributed relevance to such materiality, evaluating individually, pursuant to article 12(3) of the ICIMI, each floor or part of property susceptible to independent use - considered separately in the matricular registration, but integrating the same matrix - proceeding to the assessment of IMI taking into account the taxable asset value of each part.

13. In that case, the matricular registration must reference each of the parts and also the taxable asset value corresponding to each of them, assessed separately in accordance with articles 37 et seq. of the ICIMI; the unit of the urban property in vertical ownership composed of several floors or sections is not, however, affected by the fact that all or some of those floors or sections are susceptible to independent economic use.

14. Such a property ceases to be just one, and its distinct parts are not thus legally equated to autonomous units under horizontal property ownership.

15. The fact that IMI was calculated on the basis of the taxable asset value of each part of property with independent economic use equally does not affect the application of Item 28(1) of the General Schedule.

16. This is because the determining factor for the application of that item of the General Schedule is the total taxable asset value of the property and not separately that of each of its parcels.

17. The Respondent further states that the matricular registration of each part susceptible to independent use is not autonomous per matrix, but appears in a description in the matrix of the property as a whole - see the property tax record of this property which is the owner's document containing the matricular elements of the property.

18. What is intended to be concluded is that these procedural norms of assessment, matricular registration and assessment of the parts susceptible to independent use do not permit the assertion that there exists an equating of the property under the regime of full ownership to the regime of vertical ownership, and this because, and as already stated,

19. Wherefore, the taxable asset value relevant for purposes of the incidence of the tax is thus the total taxable asset value of the urban property and not the taxable asset value of each of the parts that compose it, even when susceptible to independent use.

20. And this interpretation of the scope of application of the Stamp Duty follows from the combination of another scope of application rule for IMI which is article 1, according to which IMI is assessed on the taxable asset value of urban properties, bearing in mind the definition of property in article 2 and of urban property in article 4 and still the species of urban properties described in article 6.

21. The Respondent concludes that the tax acts challenged, in terms of substance, did not violate any legal or constitutional provision and should be maintained in the legal order.

E – STATEMENT OF FACTS

1. Before proceeding to the examination of these questions, it is necessary to present the factual matter relevant to its understanding and decision, which was undertaken on the basis of documentary evidence and taking into account the facts alleged.

2. Regarding factually relevant matters, this tribunal considers the following facts as established:

3. The Claimants are co-owners of an urban property corresponding to a property under the regime of full (non-horizontal) ownership; each Claimant is owner of 1/6 of the property.

4. The said property consists of 7 floors, corresponding to 18 units with independent use, and 18 sections with independent use and residential use, located at Street…, no.…/…, …-…, Lisbon, described in the property matrix under article…, of the parish of….

5. The taxable asset value of the property is €1,210,230.00, and the value of the fractions with independent use and residential use of the property is €1,210,230.00.

6. The assessment notes for the respective property relate to the following floors and sections, the taxable asset value of the said sections with independent use that compose the urban property being determined separately, in accordance with article 7(2)(b) of the Municipal Property Tax Code (ICIMI), resulting in the issuance of the following tax acts, here challenged:

[Table with identical entries to those listed in section B above]

1. The taxable asset value of the fractions with independent use and residential use of the property as at the date of the assessments is €1,258,950.00, such that none of the parts or floors with residential use and independent use has a taxable asset value exceeding €1,000,000.00.

2. The AT assessed the Stamp Duty provided for in Items no. 28 and 28.1 of the General Schedule of Stamp Duty (TGIS), in the wording introduced by article 4 of Law no. 55-A/2012, of 29/10, at the rates of 0.5% and 1%, considering as "TAV – total subject to tax", from the Stamp Duty assessments a total tax collection and tax payable of the value €12,589.50.

3. The Respondent was notified for payment of Stamp Duty, calculated on the total value of the eighteen (18) fractions with residential use and assessed individually on each fraction.

4. The Claimant proceeded to pay the tax in the amount of €23,689.67 (twenty-three thousand, six hundred and eighty-nine euros and sixty-seven cents), corresponding to the collection and respective installments.

5. The Claimant submitted the request for official review on 21 April 2015.

6. The Authority for Tax and Customs did not rule on the said complaint; it is presumed that its implicit dismissal occurred after 120 days, consequently on 21 August 2015.

F – FACTS NOT PROVEN

1. Of the facts with relevance for the decision of the case, contained in the claim, all the objects of concrete analysis; those which do not appear in the factuality described above have not been proven.

G – QUESTIONS TO BE DECIDED

1. Given the positions of the parties assumed in the arguments presented, the central questions to be decided are as follows, which must therefore be examined and determined:

a. As alleged by the Claimant:

(i) As alleged by the Claimant, the declaration of illegality of the tax assessment acts for Stamp Duty for the years 2012 and 2013, which established a total tax payable of €23,689.67 (twenty-three thousand, six hundred and eighty-nine euros and sixty-seven cents).

(ii) As alleged by the Claimant, the payment of default interest.

H – MATTERS OF LAW

1. Given the positions of the parties assumed in the pleadings submitted, the central question to be decided by the present arbitral tribunal consists in examining the legality of the Stamp Duty assessment acts, which bore on the residential fractions of the Claimant in the urban property described above, for violation of law, due to erroneous interpretation and application of Item 28.1 of the TGIS in the amendments introduced by article 4 of Law no. 55-A/2012, of 29 October.

2. In the case sub judice, it is necessary to determine whether the fractions subject to the tax are covered by the criteria for the incidence of Stamp Duty, under Item no. 28 of the TGIS, in the amendments introduced by article 4 of Law no. 55-A/2012, of 29 October.

3. It is necessary to verify in the first place whether the fractions have residential use, and secondly whether the TAV of the fractions recorded in the matrix is equal to or exceeding €1,000,000.00; to do so it is necessary to examine the fundamental question of which TAV of a property in vertical (i.e., non-horizontal) ownership to consider for purposes of the said item. Whether the TAV that corresponds to each one of the parts of the property with residential use individually, or whether, conversely, it is determined by the total TAV of the property, which would correspond to the sum of all the TAVs of the residential fractions that compose it.

4. The factual matter is fixed and proven; we shall now determine the law applicable to the disputed facts, giving priority, in compliance with article 124(2)(a) of the CPPT, to defects whose establishment would determine more stable and effective protection of the Claimant's interests, regarding the defect of violation of law due to error as to the legal prerequisites for assessment, regarding the question of the classification of urban properties under the regime of full or vertical ownership, within the scope of application of article 28(1) of the TGIS, introduced by the Regime of Law no. 55-A/2012, of 29 October.

5. The change to the regime concerning subjection to Stamp Duty of properties with residential use by the addition of Item 28 to the General Schedule of Stamp Duty, effected by article 4 of Law 55-A/2012, of 29/10 and amended by Law no. 83-C/2013, of 31 December, came to typify the following tax facts through the following wording:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable asset value recorded in the matrix, in accordance with the Property Tax Code (ICIMI), is equal to or exceeding (euros) 1,000,000 – on the taxable asset value used for purposes of IMI:

28.1 – For a residential property or for land for construction where the building, authorized or planned, is for residential purposes, in accordance with the provisions of the Property Tax Code - 1%;

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

1. The transitional provisions contained in article 6 of Law no. 55-A/2012 established the rules relating to the assessment of the tax provided for in that item:

"1 – In 2012, the following rules must be observed with reference to the assessment of the Stamp Duty provided for in Item no. 28 of the respective General Schedule:

a) The taxable event occurs on 31 October 2012;

b) The taxpayer subject to the tax is the one mentioned in article 2(4) of the Stamp Duty Code as of the date referred to in the preceding subparagraph;

c) The taxable asset value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Property Tax Code by reference to the year 2011;

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

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

f) The applicable rates are as follows:

i) Properties with residential use assessed in accordance with the Property Tax Code: 0.5%;

ii) Properties with residential use not yet assessed in accordance with the Property Tax Code: 0.8%;

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

2 – In 2013, the assessment of the Stamp Duty provided for in Item no. 28 of the respective General Schedule must bear on the same taxable asset value used for purposes of assessment of the property tax to be effected in that year.

3 – The non-submission, in whole or in part, within the prescribed time limit, of the amounts assessed as Stamp Duty constitutes a tax infraction, punished in accordance with the law."

1. On the interpretation of this statute, a decision has already been issued by award 53/2013-T[1], which states:

"The wording used in Item 28.1 and in sub-items i) and ii) of subparagraph f) of article 6(1) of Law no. 55-A/2012, uses a concept not employed in any other tax legislation in these precise terms, which is that of 'property with residential use.' Notably in the ICIMI, which in various norms of the CIS incorporated by that Law is indicated as legislation of subsidiary application relative to the tax provided for in the said Item no. 28 [articles 2(4), 3(3)(u), 5(u), 23(7), and 46 and 67 of the CIS], a concept defined in those terms is not employed."

1. With regard to the concept of properties, it is necessary to resort to the concepts of properties used in the ICIMI, in which the species of properties are enumerated in its articles 2 to 6, which is transcribed:

Article 2

Concept of Property

1– For purposes of this Code, property means any portion of territory, embracing waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, under 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 situated, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have patrimonial nature.

2 – Buildings or constructions, although movable by nature, are deemed to have a character of permanence when devoted to non-temporary purposes.

3 – The character of permanence is presumed when the buildings or constructions have been situated at the same location for a period exceeding one year.

4 – For purposes of this tax, each autonomous unit, under the regime of horizontal property ownership, is deemed to constitute a property.

Article 3

Rustic Property

1 – Rustic property means lands situated outside an urban agglomeration that are not to be classified as land for construction, in accordance with article 6(3), provided that:

They are devoted to or, in the absence of concrete use, have as their normal destination use generating agricultural income, such as are considered for purposes of personal income tax (IRS);

Not having the use indicated in the preceding subparagraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Also rustic property is land situated within an urban agglomeration, provided that, by force of legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact having this use.

3 – Also rustic property:

Buildings and constructions directly devoted to the production of agricultural income, when situated on the lands referred to in the preceding numbers;

Waters and plantations in the situations to which article 2(1) refers.

4 – For purposes of this Code, urban agglomerations are considered to be, beyond those situated within legally fixed perimeters, nuclei with a minimum of 10 housing units served by publicly used streets, with their perimeter delimited by points 50 m from the axis of the streets in the transverse direction and 20 m from the last building in the direction of the streets.

Article 4

Urban Property

Urban property means all property that should not be classified as rustic, without prejudice to the provisions of the following article.

Article 5

Mixed Property

1. Whenever a property has rustic and urban parts it is classified in its entirety in accordance with the principal part.

2. If neither of the parts can be classified as principal, the property is deemed mixed.

Article 6

Species of Urban Property

1 - Urban properties are divided into:

Residential;

Commercial, industrial or for services;

Land for construction;

Others.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes.

3 – Land for construction means lands situated within or outside an urban agglomeration for which licensing or authorization has been granted, admission of prior notification or favorable information issued for a subdivision or construction operation, and also those so declared in the acquisition deed, excepting lands for which competent entities prohibit any such operations, namely those located in green zones, protected areas or which, in accordance with municipal territorial planning plans, are devoted to spaces, infrastructure or public facilities. (As amended by Law no. 64-A/08, of 31-12)

4 – Falling within the provision of subparagraph d) of article 6(1) are lands situated within an urban agglomeration that are not land for construction nor fall within the provisions of article 3(2) and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination purposes other than those referred to in article 6(2) and also those in the exception of article 6(3).

1. On the interpretation of tax norms, for the case sub judice, article 11 of the General Tax Law tells us, which establishes the essential rules for the interpretation of tax laws, in the following terms:

Article 11

Interpretation

In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

Whenever, in tax norms, terms proper to other branches of law are employed, the same must be interpreted in the same sense that they have there, unless otherwise follows directly from the law.

If doubt persists as to the meaning of the scope of application norms to be applied, account must be taken of the economic substance of the tax facts.

Gaps resulting from tax norms covered within the legislative assembly's reserved domain are not capable of analogical integration.

1. To this provision, it is also necessary to resort to the general principles for the interpretation of laws, to which article 11(1) of the LGT refers; these are established in article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of the Law

1- Interpretation must not be limited to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.

2- However, the legislative intent cannot be considered by the interpreter unless it has in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3- In fixing the meaning and scope of the law, the interpreter will presume that the legislator adopted the most correct solutions and knew how to express his intent in appropriate terms.

1. Given the legal foundation already expounded, and considering the articles transcribed and stated, the following hypotheses for interpretation arise of the concept of "property with residential use," as referring to residential properties, and as the concept of "property with residential use" as a distinct concept from "residential properties."

2. It results from articles 2 to 6 of the ICIMI transcribed above that the legislator does not employ, in the classification of properties, the concept of "property with residential use"; equally, this concept is not found, with this terminology, in any other statute.

3. The lack of exact terminological correspondence of the concept of "property with residential use" with any other employed in other statutes may give rise to various interpretive hypotheses.

4. The text of the law, being the starting point for the interpretation of the expression "properties with residential use," being on the basis of it that the "legislative intent" must be reconstructed, as required by article 9(1) of the Civil Code, applicable by force of the provisions of article 11(1) of the LGT, already transcribed.

5. On the interpretation of the concept of "property with residential use," it is important to cite award 53/2013-T[2] which has already ruled on this matter. This award equally supports two interpretive hypotheses of the concept of "property with residential use," respectively in the same sense of the present decision, regarding the concept of "property with residential use" as referring to residential properties, and regarding the concept of "property with residential use" as a distinct concept from "residential properties."

6. Award 53/2013-T writes, on the concept of "property with residential use" as referring to residential properties:

"The concept closest to the literal sense of this expression used is manifestly that of 'residential properties,' defined in article 6(2) of the ICIMI as encompassing 'buildings or constructions' licensed for residential purposes or, in the absence of a license, which have as their normal destination residential purposes.

If it is understood that the expression 'property with residential use' coincides with that of 'residential properties,' it is manifest that the assessments will suffer from error as to the factual and legal prerequisites, since all the properties relative to which Stamp Duty was assessed under the said Item no. 28.1 are lands for construction, with any building or construction, required to fulfill that concept of 'residential properties.'

Accordingly, if the interpretation is adopted that 'property with residential use' means 'residential property,' the assessments whose declaration of illegality is sought will be illegal, because there is no building or construction on any of the lands.

However, the non-coincidence of the terms of the expression used in Item no. 28.1 of the TGIS with that which is extracted from article 6(2) of the ICIMI, points toward the sense that it was not intended to use the same concept."

1. On the interpretation of the second hypothesis: Concept of "property with residential use" as a distinct concept from "residential properties," award 53/2013-T is cited again, in which it writes:

"The word 'use,' in this context of the use of a property, has the meaning of 'action of directing something to a determined use.' ( [3] )

'When, as is usually the case, norms (legislative formulas) comprise more than one meaning, then the positive function of the text is translated into giving stronger support to or suggesting more strongly one of the possible senses. It is that, among the possible senses, some will correspond to the more natural and direct meaning of the expressions used, whereas others will only fit within the verbal framework of the norm in a forced, contrived manner. Now, in the absence of other elements that would induce the selection of the less immediate sense of the text, the interpreter should choose in principle that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely to their technical-legal meaning, in the supposition (not always exact) that the legislator knew how to express his intent correctly.' ( [4] )

The relevance of the text of the law is especially emphasized in the matter of interpretation of norms of incidence of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on property, on acts, etc.), that leaves no appreciable margin for application of the primary interpretive criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this Item no. 28.1, hastily included at the margin of the General State Budget, by a tax legislator without perceivable overall tax guidance, who implements successively norms of tax increases as the ups and downs of budget execution occur, the impositions of international institutional creditors (represented by the 'troika') and oversight by the Constitutional Court.

In truth, although in the 'Explanatory Memorandum' of the Bill no. 96/XII/2.ª ( [5] ) on which Law no. 55-A/2012 was based, reference is made to the commendable concern of the Government to 'strengthen the principle of social equity in austerity, ensuring an effective distribution of the necessary sacrifices for compliance with the adjustment program' and to its commitment 'to ensure that the distribution of these sacrifices will be made by all and not only by those who live from the income of their labor,' it is manifest, on one hand, that these equity reasons, certainly existing, did not begin to be valid in mid-2012, already existing at the beginning of the year, when the General State Budget came into force and, on the other hand, that the scope of Item no. 28.1, in taxing additionally properties with residential use and not also properties not having such use, lets be seen that the concerns of social equity and the proclaimed intention of distribution of sacrifices by all, affects much more some than properly all.

In this context, given that there do not exist certain interpretive elements that permit detection of legislative coherence in the solution adopted in the said Item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretive purposes in the face of article 9(3) of the Civil Code), the tenor of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same article 9(3), that the legislator knew how to express his intent in appropriate terms.

In the face of those meanings of the words 'use' and 'to use,' which are 'to give destination' or 'to apply,' the formula used in that Item no. 28.1 of the TGIS manifestly embraces properties that are already applied to residential purposes, such that it is important to inquire whether it will also embrace properties which, despite not yet being applied to residential purposes, are destined for these and those whose destination is unknown. (…)

For this reason, it will be necessary to clarify when it can be understood that a property is devoted to a residential purpose, namely whether it is when such destination is fixed for it in a licensing act or similar, or only when the actual application of that destination is concretized.

Already from the confrontation of Item no. 28.1 of the TGIS with article 6(2) of the ICIMI, which defines the concept of residential properties, it manifestly points toward the sense that actual use is necessary.

In truth, a building or construction licensed for residential purposes or, even without a license, but which has as its normal destination residential purposes, is, in the face of article 6(2) thereof, a residential property.

For this reason, in the presupposition that the legislator of Law no. 55-A/2012 knew how to express his intent in appropriate terms (as article 9(3) of the Civil Code requires to be presumed), if he intended to refer to those properties already licensed for residential purposes or which have residential purposes as their normal destination, he would certainly have used the concept of 'residential properties,' which would express perfectly and clearly his intent, in the face of the definition given by article 6(2) of the ICIMI.

Consequently, it must be presumed that the use of a different expression is intended to mean a different reality, such that, in good hermeneutics, 'property with residential use' cannot be a property merely licensed for residential purposes or destined for such purpose (that is, it will not suffice that it be a 'residential property'), having to be a property that already has actual residential use.

That this is the sense of the expression 'use' in the same context of classification of properties that the ICIMI makes is confirmed by article 3 in which, regarding rustic properties, reference is made to those 'devoted to or, in the absence of concrete use, having as their normal destination use generating agricultural income,' which shows that use is concrete, actual. In truth, as is seen from the final part of this text, a property may have as its destination a given use and be or not be devoted to it, which shows that use is, at the level of the connection of a property to a given use, something more intense than mere destination and which may or may not occur, downstream thereof and not upstream. ( [6] )

The correctness of this interpretation in the sense that only properties actually devoted to residential purposes fit within the scope of Item no. 28.1 of the TGIS is also confirmed by the perceivable legislative intent of the restriction of the field of application of the norm to properties with residential use, in the context of the 'circumstances in which the law was drafted and the specific conditions of the time in which it is applied,' which article 9(1) of the Civil Code also upholds as interpretive elements. ( [7] ).

From the outset, the limitation of Stamp Duty taxation to 'properties with residential use' lets one perceive that it was not intended to embrace within the scope of the tax properties devoted to services, industry or commerce, that is, properties devoted to economic activity, which is understood in a context where, as is notorious, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching maximum historical levels, with an avalanche of business closures resulting from economic unsustainability. (bold in original)

Having in mind this situation and being acknowledged and public that the revitalization of economic activity and the increase of exports are the exit doors from the crisis, it is understood that legislative measures were not taken that would hinder economic activity, namely the aggravation of the tax burden that hinders it and affects competitiveness in international terms.

For this reason, it must be concluded that the available interpretive elements, including the 'circumstances in which the law was drafted and the specific conditions of the time in which it is applied,' clearly point toward the sense that it was not intended to embrace within the scope of Item no. 28.1 the situations of properties not yet devoted to residential purposes, namely lands for construction held by companies. ( [8] )"

1. Given the foregoing, it is verified that the 39 fractions intended for residential use are covered by the norm of application of Item 28.1, because they are urban properties and properties with residential use, the concept of which results from article 2 of the ICIMI.

2. It is necessary, however, now to decide for purposes of application of Item no. 28 of the TGIS, which TAV to consider in properties in vertical regime (that is, non-horizontal) if individually determined by the TAV that corresponds to each one of the parts of the property with residential use, or if determined by the total TAV of the property, which would correspond to the sum of all the TAVs of the residential fractions that compose it.

3. On this matter, the Arbitral Tribunal of CAAD has already decided through decision no. 50/2013-T and 132/2013-T.

4. It is important for purposes of the case sub judice to refer, regarding decision 50/2013-T, which tells us, on the treatment to be afforded for purposes of Item 28.1 of the TGIS to properties in vertical ownership and cumulatively which TAV (individual or total) to consider:

"From here we can conclude that, in the legislator's view, it is not the rigor of the juridical-formal situation of the concrete property that matters but rather its normal use, the purpose to which the property is put. We further conclude that for the legislator the situation of the property in vertical ownership or in horizontal ownership 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."

1. It is still important to refer from the respective decision:

"Using the criterion that the law itself introduced in article 67(2) of the Stamp Duty Code, 'to matters not regulated in the present code concerning Item 28 of the General Schedule applies subsidiarily' [the rules of the Property Tax Code].

Well then, being thus, considering that the registration in the property matrix of immovables in vertical ownership, composed of different parts, floors or sections with independent use, in accordance with the ICIMI, obeys the same registration rules as immovables composed of horizontal ownership, the respective IMI as well as the new SD [Stamp Duty], being assessed individually in relation to each of the parts, it offers no doubt that the legal criterion for defining the incidence of the new tax must be the same. (…)

Therefore, if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, clearly it established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new tax.

Thus, the new Stamp Duty would only apply if one of the parts, floors or sections with independent use presented a TAV exceeding €1,000,000.00.

The AT cannot thus consider as the reference value for the incidence of the new tax the total value of the property, when the legislator itself established a different rule in the context of the ICIMI, and this is the code applicable to matters not regulated as concerns Item 28 of the TGIS.

The criterion sought by the AT, of considering the value of the sum of the TAVs attributed to the parts, floors or sections with independent use, with the argument that the property is not constituted under the regime of horizontal ownership, finds no legal support and is contrary to the criterion applicable in the context of the ICIMI and, by referral, in the context of SD.

To which is added the fact that the law itself expressly establishes, in the final part of Item 28 of the TGIS, that the SD to apply to urban properties of value equal to or exceeding €1,000,000.00 – 'on the taxable asset value used for purposes of IMI.'

Thus, the adoption of the criterion defended by the AT violates the principles of legality and tax equality, as well as the prevalence of material truth over juridical-formal reality.

The tax legislator in article 12(3) of the ICIMI states that 'each floor or part of property susceptible to independent use is considered separately in the matricular registration which also discriminates the respective taxable asset value,' makes no distinction as to the regime of properties that are in horizontal or vertical ownership; if the property were in the regime of horizontal ownership, none of its residential fractions would be subject to incidence of the new tax, such that the AT cannot treat equal situations in a different manner."

1. To the same effect the arbitral tribunal of CAAD decided in award no. 132/2013-T:

"Moreover, to admit the differentiation of treatment could produce results incomprehensible from a legal standpoint and prejudicial to the objectives that the legislator 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 Respondent: a citizen who is the owner of a property constituted in full ownership intended for residential use, the total value of the autonomous units being equal to or exceeding €1,000,000.00 and the TAV of each one being less than €1,000,000.00, is subject to an annual tax of 1% of that value (as occurred in the situation being analyzed); already another citizen who holds a property with the same exact characteristics of the preceding one but which has been constituted in horizontal ownership, being, equally, the total value of the autonomous fractions equal to or exceeding €1,000,000.00 and the TAV of each one being less than €1,000,000.00, will not be subject to taxation under the terms of the mentioned 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, the respective TAVs? The answer can be illustrated through another hypothesis: a citizen who is the owner of a property in horizontal ownership, in which each one of his 20 fractions possesses a TAV less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the total TAV exceeded that value; already another citizen with identical 20 fractions distributed by 5, 10 or 20 properties would not be subject to any taxation under the terms of the said Item no. 28...

If this line of reasoning makes sense – justifying, therefore, the non-aggregation of the TAVs of the fractions of properties in horizontal ownership – one does not see a plausible reason why the same should not be applied to the autonomous units of properties in full ownership.

Observing now the case being analyzed, it is ascertained that the TAVs of the floors (autonomous units) of the property with residential use vary between €104,140.00 and €113,780.00, such that each one of them is less than €1,000,000.00. From this is concluded, as a result of what was stated, that Stamp Duty to which Item no. 28 of the TGIS refers cannot apply thereto, being, therefore, the assessment acts challenged by the claimant illegal."

1. Given the foregoing, and applying what the above-transcribed decisions tell us, to the present case, it results that for purposes of application of Item 28 of the TGIS to properties in vertical ownership, the same rules of the ICIMI that apply to properties in horizontal ownership apply, and in the same sense the TAV for purposes of application of Item is the individual TAV of each independent residential fraction, it being that in the present case none of the fractions exceeds the application criterion of €1,000,000.00.

2. Material truth is what imposes itself as the determining criterion of contributory capacity and not mere juridical-formal reality of the property, since the constitution of horizontal property ownership implies a mere juridical alteration of the property not even imposing a new assessment which now, such finding does not appear coherent with the decision of the AT to tax the residential parts of a property in vertical ownership, on the basis of the total TAV of the property and not of that actually attributed to each part.

3. The current legal regime does not impose the obligation of constitution of horizontal property ownership such that the action of the AT translates into an arbitrary and illegal discrimination. The AT cannot distinguish where the legislator itself understood not to do so, under pain of violating the coherence of the tax system, as well as the principle of tax legality provided for in article 103(4) of the CRP, and also the principles of tax justice, equality and proportionality.

4. As none of the fractions intended for residential use has a taxable asset value equal to or exceeding €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal prerequisite for incidence of the SD provided for in Item 28 of the TGIS is not met.

5. Thus, this tribunal concludes for the declaration of illegality of the assessments sub judice, for suffering from the defect of violation of Item no. 28.1, due to error as to the legal prerequisites, which justifies the declaration of its illegality and annulment (article 135 of the Administrative Procedure Code).

J – COMPENSATORY INTEREST

1. The Claimant further petitions for the payment of default interest.

2. Given the foregoing, the assessment of the SD, in the part covered by the annulment, which will be decreed, results from errors of fact and law attributable exclusively to the tax administration, insofar as the Claimant fulfilled its duty of declaration and such errors were committed by it and could not be unaware of different understandings.

3. In truth, it being demonstrated that the Claimant paid the tax challenged in an amount superior to what is due, by force of articles 61 of the CPPT and 43 of the LGT, the Claimant has the right to the default interest due, such interest to be counted from the date of payment of the indebted tax (annulled) to the date of issuance of the respective credit note, counting the deadline for such payment from the beginning of the deadline for the voluntary execution of the present decision (article 61(2) to (5) of the CPTRIB), all at the rate determined in accordance with the provisions of article 43(4) of the LGT.

4. The request of the Claimant is granted.

I – DECISION

Accordingly, having regard to all the foregoing, the present Arbitral Tribunal decides:

a) To declare well-founded the request for a declaration of illegality of the tax assessment acts for Stamp Duty, described in point 1 of the present award, which established a total tax collection and tax payable of €23,689.67 (twenty-three thousand, six hundred and eighty-nine euros and sixty-seven cents), for the defect of violation of the law regarding the provision contained in Item 28(1), due to error as to the legal prerequisites, which justifies the declaration of its illegality and annulment.

b) To order the Respondent to refund to the Claimant that amount indebted and paid, plus the payment of default interest already accrued for the period between the date of payment of the tax, to be calculated on the amount of €23,689.67, all in accordance with articles 61(2) to (5) of the CPPT and at the rate determined in accordance with the provisions of article 43(4) of the LGT until full reimbursement.

The value of the proceedings is fixed at €23,689.67 of the assessed value, bearing in mind the economic value of the proceedings measured by the value of the tax assessments challenged, and in accordance therewith the costs are fixed in the respective amount of €1,214.00 (one thousand two hundred and fourteen euros), charged to the Respondent in accordance with article 12(2) of the Regime for Tax Arbitration, article 4 of the RCPAT and Table I annexed hereto. – Article 35(10) and articles 43(1), (4) and (5) of the LGT, articles 5(1)(a) of the RCPT, 97-A(1)(a) of the CPPT and 559 of the CPC).

Notify.

Lisbon, 17 March 2016

The Arbitrator

Dr. Paulo Ferreira Alves

[1] On this matter the Arbitral Tribunal of CAAD has already decided in awards no. 42/2013-T, 48/2013-T, 49/2013-T

[2] On the interpretation of the concept of "property with residential use" for purposes of Item 28.1 of the TGIS, see the decisions issued by the Arbitral Tribunal of CAAD in proceedings no. 42/2013; 48/2013; 49/2013; 53/2013; 75/2013; 158/2013; 251/2013; 310/2013.

[3] Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, Volume I, page 102.

[4] BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 182.

[5] Bill no. 99/XII/2nd is available at http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=37245

[6] Other norms of the ICIMI let one perceive that the term 'use' is employed to reference situations already existing and not merely future, even if foreseeable, as 'destination' is. This is the case of article 9 of the ICIMI, which, after establishing that 'the tax is due as from' 'the 4th year following, inclusive, that in which land for construction has passed to appear in the inventory of a company which has as its object the construction of buildings for sale' or 'the 3rd year following, inclusive, that in which a property has passed to appear in the inventory of a company which has as its object its sale' [subparagraphs d) and e) of article 9(1)], determines that 'for purposes of the provisions of subparagraphs d) and e) of article 9(1), the taxpayers must communicate to the tax service of the area the situation of the properties, within the period of 60 days counted from the verification of the fact determining its application, the devotion of the properties to such purposes.' The 'devotion of the properties to such purposes,' in the context of this article 9, is reduced to the concrete attribution to the properties of the purpose 'for sale,' materialized by its inventorying, not sufficing that they have been constructed or acquired with a view to their sale.

[7] Not in mind in this approach are the special cases provided for in Item no. 28.2, of ownership of the properties by legal persons resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by order of the Minister of Finance to which, as in other norms, strong tax penalties are attributed, because these are situations normally associated with tax evasion.

[8] Outside the special cases provided for in Item no. 28.2.