Stamp Tax on Vertical Property: CAAD Ruling on Verba 28 TGIS for Independent Housing Units

ARBITRAL DECISION

I – REPORT

A – PARTIES

IMOBILIÁRIA A... COMPANY, with registered office at Av. …, …, 1st A, … Lisbon and with Tax Identification Number …, hereinafter referred to as Claimant or Taxpayer.

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

The petition for constitution of the arbitral tribunal was accepted by the President of CAAD, and the Arbitral Tribunal was duly constituted, on 18-09-2014, to assess and decide on the subject matter of the present proceedings, and was automatically notified to the Authority for Tax and Customs on 18-09-2014, as confirmed by the respective minutes.

The Claimant did not proceed with the appointment of an arbitrator, whereby, pursuant to the provisions of Article 6, No. 1 and Article 11, No. 1, letter 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 His Excellency Dr. Paulo Ferreira Alves, with the appointment having been accepted in accordance with legal provisions.

On 07-11-2014 both parties were duly notified of this designation and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with Article 11, No. 1, letters a) and b), of the RJAT and Articles 6 and 7 of the Code of Ethics.

In compliance with the provision of Article 11, No. 1, letter 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 27-11-2014.

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

The arbitral tribunal is duly constituted. It has material competence, pursuant to Articles 2, No. 1, letter a), and 30, No. 1, of Decree-Law No. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are legally represented (Articles 4 and 10, No. 2, of the same instrument and Article 1 of Order No. 112-A/2011, of 22 March).

The proceedings do not suffer from defects that would render them invalid.

B – CLAIM

1. The Claimant now seeks a declaration of illegality of the tax assessment acts under Stamp Duty, Nos. 2014 …, …, …, …, … and …, which fixed a total tax to be paid of €5,070.78 (five thousand and seventy euros and seventy-eight cents).

C – GROUNDS FOR THE CLAIM

1. To support its petition for arbitral pronouncement, the Claimant alleged, with a view to the declaration of illegality of the tax assessment acts under Stamp Duty, Nos. 2014 …, …, …, …, … and …, in summary, the following:

2. The assessment act in question, under the taxation of item 28.1 of the General Table of Stamp Duty on thirty-nine floors or divisions with independent use, intended for housing, resides in the fact that the sum of the property value of said floors or divisions with independent use of the said property amounts to the total amount of €3,178,220.00, which is manifestly illegal and therefore its annulment should be declared.

3. The Claimant alleges that it is the owner of the urban property situated at Avenue …, No.…, in Lisbon, described in the Land Registry Office of Lisbon, under file No. …, registered in the urban property matrix under article … in ….

4. The property is an urban property comprising 10 (ten) floors and divisions with independent uses, whose taxable property value (VPT) was determined separately, in accordance with the provisions of Article 7, No. 2, letter b) of the Code of the Municipal Property Tax.

5. The property is in vertical ownership and comprises a total of 7 floors with independent use, all of which are intended for housing, and its total VPT amounts to €1,153,830.00, and the Claimant further states that the property, although constituted by various floors with totally independent use, was never established under the horizontal property regime.

6. Each of the independent floors has an assigned taxable property value, determined in accordance with the Code of the Municipal Property Tax, ranging between €37,010.00 and €257,670.00.

7. The Respondent contends that in the case of an urban property with characteristics identical to those described in the present file, the subjection to stamp duty is determined not by the VPT of the property, but by the VPT assigned to each of the floors or divisions.

8. The Claimant argues that Law 55-A/2012 makes no reference to the concept of property with housing dedication, referring instead to Article 67, No. 2 of the Stamp Duty Code which provides that matters regulated in the present Code, relating to item 28 of the TGIS, apply subsidiarily the Code of the Municipal Property Tax (CIMI).

9. It further alleges that the concept of urban property is what results from Article 2 of the CIMI, and the determination of the VPT complies with the terms set out in Article 38 and following of the same legal instrument.

10. Thus Article 6 of the CIMI indicates the different species of urban properties, among which are housing properties, with which for the legislator the determining factor is the normal use of the property, that is, the purpose to which it is intended.

11. The Claimant argues that the legislator made no distinction between properties in vertical ownership and properties subject to the horizontal property regime, and in the case at hand only the substantive truth underlying the property and its respective use can be relevant.

12. In the case of an urban property with characteristics identical to those described, the subjection to stamp duty is determined not by the VPT of the property, but by the VPT assigned to each of the floors or divisions.

13. The Claimant reiterates that stamp duty would only be levied if any of the parts or floors with independent use presented a VPT exceeding €1,000,000.00.

14. Thus, the total value of the property cannot be considered as the reference value for the new tax, since the legislator itself established a different rule in the context of the CIMI, which is the Code applicable to matters not regulated regarding item 28 TGIS.

15. The Claimant further argues that it is illegal and unconstitutional to consider as the reference value the sum of the property values assigned to each of the floors, insofar as this constitutes a clear violation of the principle of equality and fiscal proportionality.

16. The Claimant understands that the fiscal legislator cannot treat equal situations in a differentiated manner, because if it were a property subject to the horizontal property regime, none of the fractions would be subject to the new stamp duty.

17. The Claimant concludes by arguing for the voidability of the stamp duty assessment acts due to violation of law, since the criterion sought by AT lacks legal foundation and is contrary to the criterion adopted in the context of CIMI, applicable to stamp duty cases that are not otherwise regulated.

D – RESPONSE OF THE RESPONDENT

1. The Respondent, duly notified to that effect, timely submitted its response in which, in brief summary, it alleged the following:

2. The situation of the Claimant's property falls literally within the provision of item 28.1 of the TGIS, and further argues that the subjection to stamp duty of item 28.1 of the General Table attached to the CIS results from the conjunction of two facts: housing dedication and the property value of the urban property registered in the matrix being equal to or greater than €1,000,000.00.

3. The Respondent alleges that the Claimant is, therefore, the owner of a property under a regime of full or vertical ownership, whereby there are no autonomous fractions to which fiscal law can attribute the qualification of property.

4. The Respondent argues that this derives from the notion of property in Article 2 of the CIMI, according to which only the autonomous fractions of property under the horizontal property regime are deemed to be properties.

5. Thus, the Claimant, for purposes of IMI and stamp duty, by virtue of the wording of said item, is not the owner of 12 autonomous fractions, but rather of a single property.

6. The Respondent argues that what the Claimant seeks is that AT consider, for purposes of assessing this tax, that there exists an analogy between the regime of full ownership and that of horizontal ownership, on the ground that it is illegal for there to be discrimination in the fiscal-legal treatment of the two property regimes.

7. The Respondent further bases its argument on the fact that horizontal property is a specific legal regime of property provided for in Article 1414 and following of the Civil Code, which provides for and regulates the manner of constitution as well as other rules regarding the rights and obligations of co-owners, recognizing it as a more developed regime of property. These two property regimes are civil law regimes, which have been imported into tax law, namely as referred to in Article 2 of the CIMI.

8. In support of its position, the Respondent argues that, taking into account that in determining the meaning of tax rules 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, No. 1 of the LGT, which refers to the Civil Code which, in Article 10 on the application of analogy, determines that this is only applicable in case of gaps in the law, a gap that fiscal law does not have.

9. Moreover, it states that, according to the CIMI, to which item 28.1 of the TGIS refers, that, in the horizontal property regime, the fractions constitute properties. The property not being subject to this regime, legally the fractions are parts capable of independent use, without common parts.

10. Thus, it cannot be accepted that for purposes of item 28.1 of the General Table attached to the CIS, parts capable of independent use have the same fiscal regime as the autonomous fractions of the horizontal property regime, under penalty of open violation of the principle of legality.

11. Whereby, finding the property subject to the regime of full ownership, but being physically constituted by parts capable of independent use, fiscal law attributed relevance to such materiality, evaluating individually, in accordance with Article 12, No. 3, of the C.I.M.I., each floor or part of a property capable of independent use - considered separately in the matrix inscription, but forming part of the same matrix - proceeding to the assessment of IMI taking into account the taxable property value of each part.

12. Seeing that the floors or independent divisions, evaluated in accordance with Article 12, No. 3, of the CIMI, are considered separately in the matrix inscription, which equally discriminates the respective taxable property value on which IMI is assessed.

13. And by virtue of the fact that IMI was determined based on the taxable property value of each part of a property with independent economic use does not equally affect the application of item 28, No. 1, of the General Table.

14. The Respondent argues that the determining fact of the application of this item of the General Table is the total property value of the property and not separately that of each of its parts.

15. In this sense, it argues that any other interpretation would violate the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in Article 103, No. 2, of the Constitution of the Portuguese Republic (CRP).

16. The Respondent bases its position by noting that the matrix inscription of each part capable of independent use is not autonomous, per matrix, but appears in the description in the matrix of the property in its entirety - see the property booklet of this property which represents the owner's document containing the matrix elements of the property.

17. The Respondent intends to conclude that these procedural rules of evaluation, matrix inscription and assessment of parts capable of independent use do not allow one to affirm that there exists an equating of the property under full property regime to the vertical property regime.

18. The tax fact of the stamp duty of item 28.1, consisting in the ownership of urban properties whose taxable property value contained in the matrix, in accordance with the C.I.M.I., is equal to or greater than €1,000,000.00, the property value relevant for purposes of the tax's scope of application is, thus, the total taxable property value of the urban property and not the taxable property value of each of the parts that compose it, even when capable of independent use.

19. The Respondent argues that this interpretation of the tax scope rule of stamp duty results from the conjunction of the tax scope rule for IMI which is Article 1, according to which IMI applies to the taxable property value of urban properties, taking into account the notion of property in Article 2 and of urban property contained in Article 4 and also the species of urban properties described in Article 6.

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

E – FACTUAL FINDINGS

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

2. As regards material facts, this tribunal deems the following facts established:

3. The Claimant is the owner of an urban property corresponding to a property in full (non-horizontal) ownership with 10 (ten) floors and 11 (eleven) divisions capable of independent use, composed of 7 floors with independent use intended for housing, located at Avenue …, No.…, in Lisbon, described in the Land Registry Office of Lisbon, under file No. …, registered in the urban property matrix under article… in ….

4. The assessment notices for the respective property relate to the following floors and divisions, whose taxable property value of said divisions with independent use, which make up the urban property, were determined separately, in accordance with Article 7, No. 2, letter b), of the Code of the Municipal Property Tax (CIMI), with a taxable property value assigned to each one respectively:

1 - Floor/Division: U-….-º1, intended for housing with the taxable property value according to the assessment made according to CIMI rules, having been assigned the value of €247,760.00 - referring to assessment notice 2014 …, referring to the 2nd Payment, with a total quota to be paid of €2,477.60 and a tax to be collected of €825.86.

Floor/Division: U-…-º2, intended for housing with the taxable property value according to the assessment made according to CIMI rules, having been assigned the value of €247,760.00 - referring to assessment notice 2014 …, referring to the 2nd Payment, with a total quota to be paid of €2,477.60 and a tax to be collected of €825.86.

Floor/Division: U-…-º3, intended for housing with the taxable property value according to the assessment made according to CIMI rules, having been assigned the value of €255,190.00 - referring to assessment notice 2014 …, referring to the 2nd Payment, with a total quota to be paid of €2,551.90 and a tax to be collected of €850.63.

Floor/Division: U-…-º4, intended for housing with the taxable property value according to the assessment made according to CIMI rules, having been assigned the value of €255,190.00 - referring to assessment notice 2014 …, referring to the 2nd Payment, with a total quota to be paid of €2,551.90 and a tax to be collected of €850.63.

Floor/Division: U-…-º5, intended for housing with the taxable property value according to the assessment made according to CIMI rules, having been assigned the value of €257,670.00 - referring to assessment notice 2014 …, referring to the 2nd Payment, with a total quota to be paid of €2,576.70 and a tax to be collected of €858.90.

Floor/Division: U-…-º6, intended for housing with the taxable property value according to the assessment made according to CIMI rules, having been assigned the value of €257,670.00 - referring to assessment notice 2014 …, referring to the 2nd Payment, with a total quota to be paid of €2,576.70 and a tax to be collected of €858.90.

1. The taxable property value of the building is €2,207,410.00, and the sum of the values of the fractions intended for housing is €1,558,250, and none of the parts or floors with housing dedication has a taxable property value exceeding €1,000,000.00.

2. AT assessed the stamp duty provided for in items No. 28 and 28.1 of the General Table of Stamp Duty (TGIS), in the version introduced by Article 4 of Law No. 55-A/2012, of 29/10, at the rate of 1%, considering as "VPT – total subject to tax," the amount of €1,558,250 which corresponds to the sum of the VPT of the seven independent housing fractions.

3. The Respondent was notified for payment of stamp duty, composed of thirty-nine individual notices calculated on the total value of the thirty-nine fractions and taxed individually on each fraction.

4. The Respondent proceeded to pay the 2nd (second) installment of the total tax in the amount of €5,070.78 (five thousand and seventy euros and seventy-eight cents).

F – FACTS NOT PROVEN

1. Of the facts with interest for deciding the case, contained in the challenge, all those subject to concrete analysis, except those not contained in the factuality described above, were not proven.

G – QUESTIONS FOR DECISION

1. Having regard to the positions assumed by the parties in the arguments presented, the central questions to be settled and which must therefore be assessed and decided are as follows:

a) As alleged by the Claimant, the declaration of illegality of the tax assessment acts under Stamp Duty, Nos. 2014: …, …, …, …, … and ….

H – SUBSTANTIVE LAW

1. Having regard to the positions assumed by the parties in the pleadings presented, the central issue to be resolved by the present arbitral tribunal consists in assessing the legality of the stamp duty assessment acts, in the total amount of €5,070.78, which applied to the Claimant's housing fractions in the urban property described above, for violation of law, due to the erroneous interpretation and application of item 28.1 of the TGIS as amended by Article 4 of Law No. 55-A/2012, of 29 October.

2. In the case sub judice, it must be determined whether the fractions subject to the tax are covered by the tax scope criteria for stamp duty, in accordance with item No. 28 of the TGIS, as amended by Article 4 of Law No. 55-A/2012, of 29 October.

3. It must first be verified whether the fractions are of housing dedication, and secondly whether the VPT of the fractions contained in the matrix is equal to or greater than €1,000,000.00, for which it is necessary to address the fundamental question of what is the VPT of a property in vertical ownership (that is, not horizontal) to be considered for purposes of the said item. Whether the VPT corresponding to each of the parts of the property with housing dedication individually, or whether it is, instead, determined by the total VPT of the property, which would correspond to the sum of all the VPTs of the housing fractions comprising it.

4. AT understands that the fractions with independent use of housing dedication are the sum of their respective VPTs (total) which amounts to €1,558,250, and there is thus stamp duty to be assessed, since for a property in vertical ownership the criterion for determining the scope of stamp duty is the VPT corresponding to the sum of the VPTs of the floors and divisions intended for housing.

5. The Respondent's position understands that the property under full or vertical ownership regime is equated for CIMI purposes to a property under the horizontal property regime, whereby the VPT for purposes of item 28 is the individual VPT of each fraction and not the VPT of the sum of all the fractions.

6. The factual matter is fixed and proven, wherefore we now determine the applicable law to the disputed facts, giving priority, in compliance with the provisions of letter a) of No. 2 of Article 124 of the CPPT, to the defects whose resolution would determine a more stable and effective protection of the Claimant's interests, regarding the defect of law due to error concerning the prerequisites of the duty to assess, regarding the question of the classification of urban properties under full or vertical ownership, within the scope of application of Article 28, No. 1 of the TGIS, introduced by the Regime of Law No. 55-A/2012, of 29 October.

7. The amendment to the regime regarding the subjection to stamp duty of properties with housing dedication by the addition of item 28 of the General Table of Stamp Duty, effected by Article 4 of Law 55-A/2012, of 29/10, now typified the following tax facts, through the following wording:

"28 – Ownership, usufruct or surface right of urban properties whose taxable property value contained in the matrix, in accordance with the Code of the Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the taxable property value used for purposes of IMI:

28.1 – For property with housing dedication – 1%;

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

1. The transitional provisions are contained in Article 6 of Law No. 55-A/2012, which 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 stamp duty provided for in item No. 28 of the respective General Table:

a) The tax fact occurs on 31 October 2012;

b) The taxpayer in respect of the tax is the one mentioned in No. 4 of Article 2 of the Stamp Duty Code on the date referred to in the preceding letter;

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

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

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

f) The applicable rates are as follows:

i) Properties with housing dedication assessed in accordance with the Code of IMI: 0.5%;

ii) Properties with housing dedication not yet assessed in accordance with the Code of IMI: 0.8%;

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

2 – In 2013, the assessment of stamp duty provided for in item No. 28 of the respective General Table must apply to the same taxable property value used for purposes of municipal property tax assessment to be carried out in that year.

3 – Failure to remit, wholly or in part, within the prescribed period, the amounts assessed as stamp duty constitutes a tax offense, punished in accordance with the law."

1. The Decision 53/2013-T[1] has already pronounced on the interpretation of this instrument, which states:

"In the said item 28.1 and in the sub-items i) and ii) of letter f) of No. 1 of Article 6 of Law 55-A/2012, a concept was used that is not used in any other tax legislation in these precise terms, namely the concept of 'property with housing dedication.' Specifically in the CIMI, which in various norms of the CIS introduced by that Law is indicated as a diploma of subsidiary application in relation to the tax provided for in said item No. 28 [Articles 2, No. 4, 3, No. 3, letter u), 5, letter u), 23, No. 7, and 46 and 67 of the CIS], a concept defined in those terms is not used."

1. As to the concept of properties, it is necessary to resort to the concepts of properties used in the CIMI, in which the species of properties are enumerated in its Articles 2 to 6, which is transcribed as follows:

Article 2

Concept of Property

1 – For purposes of this Code, property is every fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or based therein, with a permanent character, 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 aforementioned, endowed with economic autonomy in relation to the land where they are located, although situated on a fraction of territory that forms an integral part of a diverse patrimony or does not have a patrimonial nature.

2 – Buildings or constructions, although movable by nature, are deemed to have a permanent character when intended for non-transitory purposes.

3 – Permanent character is presumed when buildings or constructions are based in the same location for a period exceeding one year.

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

Article 3

Rural Properties

1 – Rural properties are lands situated outside an urban nucleus that are not to be classified as building land, in accordance with No. 3 of Article 6, provided that:

They are intended for or, in the absence of concrete dedication, have as their normal purpose a use generating agricultural income, such as are considered for purposes of personal income tax (IRS);

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

2 – Lands situated within an urban nucleus are also rural properties, provided that, by force of a legally approved provision, they cannot be used to generate any income or can only be used to generate agricultural income, and are, in fact, having this dedication.

3 – The following are also rural properties:

Buildings and constructions directly intended for the production of agricultural income, when located on the lands referred to in the preceding numbers;

Waters and plantations in the situations referred to in No. 1 of Article 2.

4 – For purposes of this Code, urban nuclei are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwellings served by public roads, with their perimeter delimited by points distanced 50 m from the axis of the roads, in the transverse sense, and 20 m from the last building, in the sense of the roads.

Article 4

Urban Properties

Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article.

Article 5

Mixed Properties

1. Whenever a property has rural and urban parts it is classified, in its entirety, according to the principal part.

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

Article 6

Species of Urban Properties

1 - Urban properties are divided into:

Housing;

Commercial, industrial or for services;

Building land;

Others.

2 – Housing, 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 purpose each of these ends.

3 – Building land is understood to be land situated within or outside an urban nucleus, for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of a subdivision or construction operation, and also those that have been declared as such in the acquisition title, except for land in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are intended for spaces, infrastructure or public facilities. (As amended by Law No. 64-A/08, of 31-12)

4 – The provisions of letter d) of No. 1 are applicable to land situated within an urban nucleus that are not building land nor are covered by the provisions of No. 2 of Article 3 and also buildings and constructions licensed or, in the absence of a license, which have as their normal purpose purposes other than those referred to in No. 2 and also those of the exception in No. 3.

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

Article 11

Interpretation

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

Whenever tax rules employ terms specific to other branches of law, they should be interpreted in the same sense that they have there, unless otherwise directly results from the law.

Should doubt persist regarding the meaning of the tax scope rules to be applied, the economic substance of the tax facts should be taken into account.

Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration.

1. To this provision, it is also necessary to resort to the general principles of interpretation of laws, to which No. 1 of Article 11 of the LGT refers, which are established in Article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of Law

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

2 - However, the legislator's intent that does not have in the letter of the law a minimum of verbal correspondence, although imperfectly expressed, cannot be considered by the interpreter.

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

1. In light of the legal grounds already set forth, and having regard to the articles transcribed and stated, the following interpretative hypotheses arise regarding the concept of "property with housing dedication," as to whether the concept of "property with housing dedication" refers to housing properties, and as to the concept of "property with housing dedication" as a concept distinct from "housing properties."

2. It results from Articles 2 to 6 of the CIMI transcribed above, that the legislator does not use in the classification of properties the concept of "property with housing dedication," nor is this concept, with this terminology, found in any other statute.

3. The lack of exact terminological correspondence of the concept of "property with housing dedication," like any other used in other statutes, can give rise to several interpretative hypotheses.

4. The text of the law, being the starting point for the interpretation of the expression "properties with housing dedication," is the basis upon which the "legislative intent" must be reconstructed, as Article 9, No. 1 of the Civil Code, applicable by virtue of Article 11, No. 1, of the LGT, already transcribed, requires.

5. On the interpretation of the concept of "property with housing dedication," it is important to cite Decision 53/2013-T[2], which has already pronounced on this matter. A Decision which equally supports two interpretative hypotheses regarding the concept of "property with housing dedication," respectively in the same sense as the present decision, as to whether the concept of "property with housing dedication" refers to housing properties, and as to the concept of "property with housing dedication" as a concept distinct from "housing properties."

6. Decision 53/2013-T writes, on the concept of "property with housing dedication" as referring to housing properties:

"The concept most closely aligned with the literal wording of this used expression is manifestly that of 'housing properties,' defined in No. 2 of Article 6 of the CIMI as encompassing 'buildings or constructions' licensed for housing purposes or, in the absence of a license, which have as their normal purpose housing purposes.

If the expression 'property with housing dedication' is understood to coincide with that of 'housing properties,' it is manifest that the assessments would be defective due to error concerning the facts and law, since all properties in respect of which Stamp Duty was assessed under said item No. 28.1 are building land, without any building or construction required to meet that concept of 'housing properties.'

Therefore, if the interpretation is adopted that 'property with housing dedication' means 'housing property,' the assessments whose declaration of illegality is requested will be illegal, because there is no building or construction in 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 results from No. 2 of Article 6 of the CIMI, points to the sense that it was not intended to use the same concept."

1. Regarding the interpretation of the second hypothesis: Concept of "property with housing dedication" as a concept distinct from "housing properties," Decision 53/2013-T is cited again, in which it states:

"The word 'dedication,' in this context of use of a property, has the meaning of 'act of intending something for a particular use.' ( [3] )

'When, as is generally the case, the norms (legislative formulas) have more than one meaning, the positive function of the text is expressed in giving stronger support to or more strongly suggesting 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, while others will only fit within the verbal framework of the norm in a forced, affected manner. Now, in the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should opt in principle for that sense which better and more immediately corresponds to the natural meaning of the verbal expressions used, and specifically to their technical-legal meaning, in the supposition (not always exact) that the legislator knew how to express its intent correctly.' ( [4] )

The relevance of the text of the law is especially emphasized in the interpretation of tax scope rules 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 spending, on patrimony, on acts, etc.), which leaves no appreciable margin for the application of the primary interpretative criterion, which is the unity of the legal system, which calls for 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 outside the General State Budget, by a fiscal legislator without perceptible overall fiscal orientation, which is successively implementing norms of fiscal aggravation in accordance with budgetary setbacks, the impositions of international institutional creditors (represented by the 'troika') and the oversight of the Constitutional Court.

In fact, although in the 'Explanatory Memorandum' of the Bill No. 96/XII/2ª ( [5] ), on which Law No. 55-A/2012 was based, reference is made to the government's laudable concern to 'strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment program' and 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 work,' it is manifest, on the one hand, that those reasons for equity, surely existing, did not begin to apply in mid-2012, already existing at the beginning of the year, when the General State Budget entered into force, and on the other hand, that the scope of item No. 28.1, by additionally taxing properties with housing dedication and not also properties that do not have it, allows us to perceive that the concerns for social equity and the proclaimed intention to distribute sacrifices among all, affects much more some than actually all.

In this context, with no sure interpretative elements allowing to detect legislative coherence in the solution adopted in said item No. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in light of No. 3 of Article 9 of the Civil Code), the wording of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by the same No. 3 of Article 9, that the legislator knew how to express its intent in adequate terms.

In view of those meanings of the words 'dedication' and 'dedicate,' which are 'to give purpose' or 'to apply,' the formula used in that item No. 28.1 of the TGIS manifestly encompasses properties that are already applied to housing purposes, whereby it is important to inquire whether it will also encompass properties that, although not yet applied to housing purposes, are intended for such purposes and those whose purpose is unknown. (…)

Therefore, it must be clarified when it can be understood that a property is dedicated to a housing purpose, specifically whether it is when such purpose is fixed upon it in a licensing act or similar, or only when the effective attribution of that purpose is concrete.

From the outset, the comparison of item No. 28.1 of the TGIS with No. 2 of Article 6 of the CIMI, which defines the concept of housing properties, manifestly points to the sense that an actual dedication is necessary.

In fact, a building or construction licensed for housing or, even without a license, but which has housing as its normal purpose, is, in light of No. 2 of that Article 6, a housing property.

Therefore, on the assumption that the legislator of Law No. 55-A/2012 knew how to express its intent in adequate terms (as Article 9, No. 3, of the Civil Code, which is to be presumed, requires), if it intended to refer to these properties already licensed for housing or having housing as their normal purpose, it would certainly have used the concept of 'housing properties,' which would express perfectly and clearly its intent, in light of the definition given by that No. 2 of Article 6 of the CIMI.

Consequently, it must be presumed that the use of a different expression is intended to designate a distinct reality, whereby, in good hermeneutics, 'property with housing dedication' cannot be a property merely licensed for housing or intended for that purpose (that is, it will not be sufficient that it be a 'housing property'), and must be a property that already has an actual dedication to that purpose.

That this is the sense of the expression 'dedication,' in the same context of classification of properties that the CIMI makes, is confirmed by Article 3, in which, regarding rural properties, reference is made to those 'that are dedicated to or, in the absence of concrete dedication, have as their normal purpose a use generating agricultural income,' which shows that dedication is concrete, effective. In fact, as seen in the final part of this text, a property may have as its purpose a particular use and be or not be dedicated to it, which shows that dedication is, at the level of the connection of a property to a particular use, something more intense than mere purpose and may or may not occur, downstream of this and not upstream. ( [6] )

The correctness of this interpretation in the sense that only properties that are actually dedicated to housing are within the scope of item No. 28.1 of the TGIS is also confirmed by the discernible ratio legis of the restriction of the field of application of the norm to properties with housing dedication, in the context of the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied,' which Article 9, No. 1, of the Civil Code also establishes as interpretative elements. ( [7] ).

From the outset, the limitation of Stamp Duty taxation to 'properties with housing dedication' allows us to perceive that it was not intended to include within the scope of application of the tax properties with dedication to services, industry or commerce, that is, properties dedicated to economic activity, which is understandable in a context in which, as is notorious, the economy is in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historically maximum levels, with an avalanche of business closures resulting from economic unsustainability. (emphasis added)

With this situation in mind and being widely known and public that the reanimation of economic activity and the increase in exports are the doorways out of the crisis, it is understood that legislative measures were not taken that would hinder economic activity, specifically the aggravation of the fiscal burden that hinders it and affects competitiveness in international terms.

Therefore, it is to be concluded that the available interpretative elements, including the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied,' point clearly to the sense that it was not intended to include within the scope of item No. 28.1 situations of properties that are not yet dedicated to housing, namely building land held by companies. ( [8] )"

1. In light of the above, it is verified that the 39 fractions intended for housing are covered by the tax scope norm provided by item 28.1, since they are urban properties and properties with housing dedication, the concept of which results from Article 2 of the CIMI.

2. It now remains, however, to decide for purposes of application of item No. 28 of the TGIS, which VPT is to be considered in properties under vertical ownership regime (that is, not horizontal): if individually determined by the VPT corresponding to each of the parts of the property with housing dedication, or if determined by the total VPT of the property, which would correspond to the sum of all the VPTs of the housing fractions comprising it.

3. On this matter, the CAAD Arbitral Tribunal 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 as to Decision 50/2013-T, which tells us, regarding the treatment to be afforded for purposes of item 28.1 of the TGIS to properties in vertical ownership and cumulatively which VPT (individual or total) is to be considered:

"From this we can conclude that, from the legislator's perspective, what matters is not the juridical-formal rigor of the concrete situation of the property but rather its normal use, the purpose to which the property is destined. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership was not relevant, since no reference or distinction is made between one and the other. What is relevant is the material truth underlying its existence as an urban property and its use."

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

"Using the criterion that the law itself introduced in Article 67, No. 2 of the Stamp Duty Code, 'to matters not regulated in the present Code relating to item 28 of the General Table applies subsidiarily.'

Now, being so, considering that inscription in the property matrix in vertical ownership, constituted by different parts, floors or divisions with independent use, in accordance with the CIMI, complies with the same rules of inscription of immovables constituted in horizontal ownership, and their respective IMI, as well as the new SD, are liquidated individually in relation to each of the parts, there is no doubt that the legal criterion for defining the scope 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, it clearly established the criterion, which must be unique and unequivocal, for defining the rule of scope of the new tax.

Thus, only would there be room for application of the new stamp duty if any of the parts, floors or divisions with independent use presented a VPT exceeding €1,000,000.00.

Accordingly, AT cannot consider as the reference value for the scope of the new tax the total value of the property, when the legislator itself established a different rule as regards the CIMI, and this is the Code applicable to matters not regulated as regards item 28 of the TGIS.

The criterion sought by AT, of considering the value of the sum of the VPTs assigned to the parts, floors or divisions with independent use, with the argument that the property is not constituted under the horizontal property regime, finds no legal support and is contrary to the criterion resulting from the CIMI and, by referral, from SD.

To which is added the fact that the law itself expressly establishes, at the end of item 28 of the TGIS, that SD to apply to urban properties of value equal to or greater than €1,000,000.00 – 'on the taxable property value used for purposes of IMI.'

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

The fiscal legislator in Article 12, No. 3 of the CIMI says that 'each floor or part of a property capable of independent use is considered separately in matrix inscription which equally discriminates the respective taxable property value,' does not make any distinction as to the regime of properties that are in horizontal or vertical ownership; if the property were in the horizontal property regime, none of its housing fractions would be subject to the scope of the new tax, whereby AT cannot treat equal situations differently.

1. In the same sense decided the decision of the CAAD arbitral tribunal, No. 132/2013-T:

"Furthermore, it must be added that allowing differentiation of treatment could produce results incomprehensible from a legal perspective and contrary to the objectives which 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 now Respondent: a citizen who owns a property constituted under full ownership intended for housing, with the total value of the autonomous units equal to or greater than €1,000,000.00 and the VPT of each one less than €1,000,000.00, is subject to an annual taxation of 1% of that value (as happened in the situation under analysis); while another citizen who holds a property with the exact same characteristics as the previous one but which was constituted under horizontal ownership, with likewise the total value of the autonomous fractions equal to or greater than €1,000,000.00 and the VPT of each one less than €1,000,000.00, will not be subject to taxation under said item No. 28...

On the other hand, one could ask: if such fractions have the same owner, why does it not make sense to aggregate, for purposes of taxation, their respective VPTs? The answer can be illustrated through another hypothesis: a citizen who owns a property in horizontal ownership, in which each of its 20 fractions has a VPT less than €1,000,000.00, would be subject to taxation if – if such aggregation were admitted – the total VPT exceeded that value; while another citizen with identical 20 fractions distributed among 5, 10 or 20 properties would not be subject to any taxation under said item No. 28...

If this line of reasoning makes sense – thereby justifying the non-aggregation of the VPTs of the fractions of properties in horizontal ownership – no plausible reason is seen why the same should not be applied to the autonomous units of properties in full ownership.

Observing, now, the case under analysis, it is found that the VPTs of the floors (autonomous units) of the property with housing dedication range between €104,140.00 and €113,780.00, whereby each one is less than €1,000,000.00. From this it is concluded, as a result of what was mentioned, that stamp duty in question in item No. 28 of the TGIS cannot apply to them, the assessments challenged by the claimant being therefore illegal."

1. In light of the above, and applying what the decisions transcribed above 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 CIMI rules that apply to properties in horizontal ownership apply, and in the same sense the VPT for purposes of application of the item is the individual VPT of each independent housing fraction, and in the present case none of the fractions exceeds the criterion for scope of 1,000,000.00€.

2. The material truth is what imposes itself as the determining criterion of taxable capacity and not mere juridical-formal reality of the property, since the constitution of horizontal ownership implies a mere juridical alteration of the property without even imposing a new assessment which now, such a finding does not appear consistent with AT's decision to tax the housing parts of a property in vertical ownership, based on the total VPT of the property and not on that which is effectively assigned to each part.

3. The current legal regime does not impose an obligation for the constitution of horizontal ownership whereby the action of AT translates into arbitrary and illegal discrimination. AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of fiscal legality provided for in Article 103, No. of the CRP, and also the principles of justice, equality and fiscal proportionality.

4. As none of the fractions intended for housing has a taxable property value equal to or greater than €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal prerequisite for the scope of SD provided for in Item 28 of the TGIS is not verified.

5. In this manner, the present tribunal concludes that the assessments sub judice are declared illegal, as they suffer from the defect of violation of that item No. 28.1, due to error concerning the legal prerequisites, which justifies the declaration of their illegality and annulment (Article 135 of the CPA).

A – REGARDING COMPENSATORY INTEREST

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

2. Considering the foregoing, the assessment of SD, in the part covered by the annulment, which will be decreed, results from errors of fact and law imputable exclusively to the fiscal administration, insofar as the Claimant fulfilled its duty of disclosure and such errors were committed by that administration and the Claimant could not have been unaware of different understandings.

3. In truth, as it is demonstrated that the Claimant paid the impugned tax in an amount exceeding what is due, by virtue of the provisions of Articles 61 of the CPPT and 43 of the LGT, the Claimant has the right to compensatory interest due, such interest to be calculated from the date of payment of the undue (annulled) tax until the date of issuance of the respective credit note, with the period for such payment counting from the beginning of the period for voluntary execution of the present decision (Article 61, Nos. 2 to 5, of the CPPTRIB), all at the rate determined in accordance with the provisions of No. 4 of Article 43 of the LGT.

4. The Claimant's request is granted.

I – DECISION

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

To uphold the request for declaration of illegality of the tax assessment acts under Stamp Duty, Nos. 2014 …, …, …., …, … and …, which fixed a total tax of €5,070.78, due to the defect of violation of law as to the provision contained in item 28, No. 1, due to error concerning the legal prerequisites, which justifies the declaration of their illegality and annulment.

To order the Respondent to repay to the Claimant such amount wrongfully assessed and paid, plus the payment of compensatory interest already accrued relating to the period from 31 July 2014 to be calculated on the amount of €5,070.78 as well as the payment of future compensatory interest to be calculated from that date onwards, all in accordance with Nos. 2 to 5 of Article 61 of the CPPT and at the rate determined in accordance with the provisions of No. 4 of Article 43 of the LGT until complete reimbursement.

The amount in issue is fixed at €5,070.78 of the value of the assessment, taking into account the economic value of the proceedings assessed by the value of the tax assessments at issue, and in accordance therewith the costs are fixed, in the respective amount of €612.00 (six hundred and twelve euros), at the charge of the Respondent in accordance with Article 12, No. 2 of the Regime of Tax Arbitration, Article 4 of the RCPAT and Table I attached thereto. – No. 10 of Article 35, and Nos. 1, 4 and 5 of Article 43 of the LGT, Articles 5, No. 1, letter a) of the RCPT, 97-A, No. 1, letter a) of the CPPT and 559 of the CPC).

Notify.

Lisbon, 30 January 2015.

The Arbitrator

Paulo Renato Ferreira Alves