Summary
Full Decision
ARBITRAL DECISION
1. REPORT
1.1. A…, taxpayer number…, in his capacity as head of the illiquid and indivisible succession opened by the death of B…, taxpayer number…, hereinafter referred to as the Claimant, submitted on 29/11/2016 a request for arbitral pronouncement, in which he requests the annulment of the acts of assessment of Stamp Duty relating to the year 2015, in the total amount of € 13,623.20, on the grounds of error in the factual and legal assumptions.
1.2. The Honourable President of the Ethics Council of the Administrative Arbitration Centre (CAAD) designated Francisco Nicolau Domingos as arbitrator on 25/01/2017.
1.3. On 09/02/2017 the arbitral tribunal was duly constituted.
1.4. In compliance with the provision of Article 17, paragraph 1 of Decree-Law number 10/2011 of 20 January (RJAT), the Respondent was notified on 16/02/2017 to, if it so wished, submit a reply, request the production of additional evidence and attach the Administrative File (PA) to the case file.
1.5. On 22/03/2017 the Respondent submitted its reply in which it argues that the assessments in question should be maintained in the legal order, given that they correctly apply item 28.1 of the General Stamp Duty Table (TGIS).
1.6. The tribunal on 23/05/2017 decided to dispense with the holding of the meeting to which Article 18, paragraph 1 of RJAT refers, on the grounds of the principle of autonomy of the arbitral tribunal in conducting the proceedings and in determining the rules to be observed in order to obtain, within a reasonable timeframe, a pronouncement on the merits of the claims filed, cf. Article 16, letter c) of RJAT, granted a period of 8 days for the parties, if they so wished, to submit final written submissions and scheduled the date for issuing the arbitral decision.
1.7. The Claimant on 01/06/2017 submitted a submission in which it requests the attachment of documents proving payment of the 3rd instalment of the Stamp Duty assessments that are the subject of these proceedings.
1.8. The tribunal, on that same day, ordered notification of the Respondent to, if it so wished, exercise the right of reply with respect to the documents referred to in 1.7 of the present decision.
1.9. By order dated 14/06/2017, the tribunal admitted the attachment to the case file of the documents described in 1.7 of this decision.
1.10. The Claimant submitted final written submissions on 02/06/2017, in which it maintained its initial request for annulment.
1.11. The Respondent did not submit final submissions.
2. POSITIONS OF THE PARTIES
The Claimant argues that the property description number…, of the parish of …, municipality and district of Lisbon comprises several floors susceptible of independent use and that the Stamp Duty assessments with source in item 28.1 of the TGIS, relating to the floors: R/C D; R/C E; 1st D; 1st E; 2nd D; 2nd E; 3rd D; 3rd E; 4th D; 4th E; 5th D and 5th E of such building and to the year 2015 are illegal.
More specifically, it argues that the assessments in question embody an incorrect interpretation by the Tax and Customs Authority (AT) of item 28.1 of the TGIS, since they are based on the understanding that the taxable property value (VPT) relevant for tax purposes will be that resulting from the sum of the VPT of the divisions or floors susceptible of independent use and allocated to residential use.
In fact, it concludes that the property subject to the scope of item 28.1 of the TGIS is, in this case, each one of the units with individual economic value and the VPT to be considered is that of each of these units, there being, in the specific case, no verification of the existence of any one with a value exceeding € 1,000,000.00 and allocated to residential use.
It further argues that the assessments are illegal, in so far as they violate the principle of equality, since the Claimant finds no basis for the discrimination of owners of urban properties allocated to non-residential use, which are not covered by the scope of the tax.
Finally, it also petitions the payment of compensatory interest, given that the assessments in question relate to error attributable to the services.
For its part, the Respondent considers that the Claimant has no grounds, firstly, because subjection to item 28.1 of the TGIS results from the combination of two facts: i) residential allocation and ii) the taxable property value of the urban property registered in the property roll being equal to or exceeding € 1,000,000.00.
For this reason, it states that the concept of property is provided for in Article 2, paragraph 1 of the Stamp Duty Code (CIS), and it is established in its paragraph 4 that in the horizontal property regime, each autonomous fraction is deemed to constitute a property, a reality distinct in light of the article being that of "property in full ownership with floors or divisions susceptible of independent use". That is, there is a lack of legal support for the thesis that, although Stamp Duty assessments are made in the situations provided for in item 28.1 of the TGIS, in accordance with the CIMI rules, the legislator reserves the aspects that require appropriate adjustments, such as is the case with properties in full ownership in which divisions susceptible of independent use are not deemed to be properties.
It adds that, as regards properties in full ownership, which do not possess autonomous fractions to which tax law attributes the qualification of property, the VPT to be considered will be "… of the property as a whole".
Now, if the real property in question is registered in the property roll under the full ownership regime, constituted by 12 divisions allocated to residential use, it was on the basis of such circumstance that the Stamp Duty assessments were made, taking into account the nature of the urban property and its divisions allocated to residential use, at the date of the taxable event.
In this manner, if the assessments were made taking into account such factual elements, they do not suffer from any illegality.
Regarding the alleged violation of the principle of equality, it argues that: i) item 28.1 of the TGIS is a norm of a general and abstract character, applicable uniformly to all cases in which its respective factual and legal assumptions are met; ii) taxation in this respect is subject to the criterion of suitability, in the exact measure in which it aims at the taxation of wealth embodied in the ownership of real properties with residential allocation of high value and emerges in a context of economic crisis that cannot be ignored and iii) "… the fact that the legislator establishes a value (€ 1,000,000.00) as a delimiting criterion of the scope of the tax, below which the provision of the tax norm is not met, constitutes a legitimate choice of the legislator as to the fixing of the material scope of "luxury residential properties" that it intends to tax more heavily, all the more so because any other value of similar magnitude would, in the same way, assume an artificial character that is inherent to any quantitative fixing of a level or limit". Or, put another way, it is a legitimate, legal and constitutional option.
In summary, it contends for the complete dismissal of the request for arbitral pronouncement.
In this manner, the tribunal must address the following questions:
i) whether the Stamp Duty assessments are illegal due to error in the factual and legal assumptions;
ii) whether the Claimant is entitled to compensatory interest.
3. PRELIMINARY EXAMINATION
The cumulation of claims underlying the present proceedings is admissible, given that there is an identity between the matter of fact and the grounds thereof depends on the interpretation of the same principles and rules of law, cf. Article 3, paragraph 1 of RJAT. Furthermore, the subject matter of the proceedings comprises the same tax, that of Stamp Duty.
The proceedings do not suffer from defects of nullity, no questions have been raised that would prevent the examination of the merits of the case, the arbitral tribunal is duly constituted and is materially competent to hear and decide the claims, consequently, the conditions are met for the final decision to be issued.
4. FINDINGS OF FACT
4.1. Facts deemed to be proved
4.1.1. The building is registered in the property roll under article…, urban, parish of …, Lisbon and was part on 31 December 2015 of the illiquid and indivisible succession opened by the death of B….
4.1.2. Such building comprises, namely, 12 floors with independent use, registered as follows:
a) R/C D, with a VPT of € 109,980.00, residential;
b) R/C E, with a VPT of € 121,940.00, residential;
c) 1st D, with a VPT of € 113,040.00, residential;
d) 1st E, with a VPT of € 113,040.00, residential;
e) 2nd D, with a VPT of € 113,040.00, residential;
f) 2nd E, with a VPT of € 113,040.00, residential;
g) 3rd D, with a VPT of € 113,040.00, residential;
h) 3rd E, with a VPT of € 113,040.00, residential;
i) 4th D, with a VPT of € 113,040.00, residential;
j) 4th E, with a VPT of € 113,040.00, residential;
l) 5th D, with a VPT of € 113,040.00, residential;
m) 5th E, with a VPT of € 113,040.00, residential.
4.1.3. The Claimant was notified of the Stamp Duty assessments relating to the year 2015, in relation to each of such floors with residential allocation, in the total amount of € 13,623.20 and which break down as follows:
a) R/C D, in the amount of € 1,099.80;
b) R/C E, in the amount of € 1,219.40;
c) 1st D, in the amount of € 1,130.40;
d) 1st E, in the amount of € 1,130.40;
e) 2nd D, in the amount of € 1,130.40;
f) 2nd E, in the amount of € 1,130.40;
g) 3rd D, in the amount of € 1,130.40;
h) 3rd E, in the amount of € 1,130.40;
i) 4th D, in the amount of € 1,130.40;
j) 4th E, in the amount of € 1,130.40;
l) 5th D, in the amount of € 1,130.40;
m) 5th E, in the amount of € 1,130.40.
4.1.4. Payment of the assessments described in 4.1.3. was made as follows:
i) 1st instalment:
a) R/C D, € 366.60, on 29/04/2016;
b) R/C E, € 406.48, on 29/04/2016;
c) 1st D, € 376.80, on 29/04/2016;
d) 1st E, € 376.80, on 29/04/2016;
e) 2nd D, € 376.80, on 29/04/2016;
f) 2nd E, € 376.80, on 29/04/2016;
g) 3rd D, € 376.80, on 29/04/2016;
h) 3rd E, € 376.80, on 29/04/2016;
i) 4th D, € 376.80, on 29/04/2016;
j) 4th E, € 376.80, on 29/04/2016;
l) 5th D, € 376.80, on 29/04/2016;
m) 5th E, € 376.80, on 29/04/2016.
ii) 2nd instalment:
a) R/C D, € 366.60, on 28/07/2016;
b) R/C E, € 406.46, on 28/07/2016;
c) 1st D, € 376.80, on 28/07/2016;
d) 1st E, € 376.80, on 28/07/2016;
e) 2nd D, € 376.80, on 28/07/2016;
f) 2nd E, € 376.80, on 28/07/2016;
g) 3rd D, € 376.80, on 28/07/2016;
h) 3rd E, € 376.80, on 28/07/2016;
i) 4th D, € 376.80, on 28/07/2016;
j) 4th E, € 376.80, on 28/07/2016;
l) 5th D, € 376.80, on 28/07/2016;
m) 5th E, € 376.80, on 28/07/2016.
iii) 3rd instalment:
a) R/C D, € 366.60, on 30/11/2016;
b) R/C E, € 406.46, on 30/11/2016;
c) 1st D, € 376.80, on 30/11/2016;
d) 1st E, € 376.80, on 30/11/2016;
e) 2nd D, € 376.80, on 30/11/2016;
f) 2nd E, € 376.80, on 30/11/2016;
g) 3rd D, € 376.80, on 30/11/2016;
h) 3rd E, € 376.80, on 30/11/2016;
i) 4th D, € 376.80, on 30/11/2016;
j) 4th E, € 376.80, on 30/11/2016;
l) 5th D, € 376.80, on 30/11/2016;
m) 5th E, € 376.80, on 30/11/2016.
4.1.5. The building identified in 4.1.1. was not constituted under the horizontal property regime on 31/12/2015.
4.2. Facts not deemed to be proved
There are no other facts with relevance to the arbitral decision that have not been deemed to be proved.
4.3. Reasoning of the findings of fact deemed to be proved
The findings of fact deemed to be proved are based on the documents used for each of the facts alleged and whose authenticity was not called into question.
5. LAW
The first question that the tribunal must address consists in determining whether subjection to the norm of scope of item 28.1 of the TGIS should be implemented by the VPT corresponding to each one of the divisions susceptible of independent use, or whether, on the contrary, by the sum of the VPT of each of such divisions.
To accomplish this task it is necessary to seek the norm with respect to which the parties dispute its interpretation.
Article 1, paragraph 1 of the Stamp Duty Code (CIS) and item 28 of the TGIS, in the version in force at the date of the taxable event, provide that the following are subject to taxation: "Ownership, usufruct or right of superficies of urban properties whose taxable property value recorded in the property roll, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000 – on the taxable property value used for purposes of IMI:
28.1 - For residential property (…) – 1%...".
In this manner, it is necessary to examine the concept of "residential property" to which the norm in interpretation refers and that of "taxable property value used for purposes of IMI". Now, since it is not possible to resolve the question by recourse to the CIS, it is by force of the provision of Article 67, paragraph 2 of such code, in force at the date of the taxable event, necessary to apply the norms of the CIMI.
Consequently, Article 2 of the CIMI provides on the concept of property:
"1 - For the purposes of this Code, property is any fraction of land, encompassing waters, plantations, buildings and structures of any nature incorporated therein or erected thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or structures, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of land that constitutes an integral part of a diverse patrimony or does not have a patrimonial nature.
2 - Buildings or structures, even if movable by nature, are deemed to have a character of permanence when allocated to non-transitory purposes.
3 - The character of permanence is presumed when the buildings or structures are located in the same location for a period exceeding one year.
4 - For the purposes of this tax, each autonomous fraction, in the horizontal property regime, is deemed to constitute a property".
The concept of property in the context of IMI is, as we know, endowed with greater breadth compared to that set forth in Article 204, paragraph 2 of the Civil Code (CC) and encompasses three elements, more specifically, one of physical nature, the second of a legal character and the last of an economic nature, J. SILVÉRIO MATEUS/L. CORVELO DE FREITAS, The taxes on real property. The Stamp Duty, Engisco, 2005, p. 101 to 103 and JOSÉ MARTINS ALFARO, Municipal Property Tax Code – Commented and Annotated, Áreas Editora, 2004, p. 118 to 123. The first requires reference to a fraction of land, encompassing, in particular, buildings and structures incorporated therein with a character of permanence. The element of a legal character requires that the thing, movable or immovable, belongs to the patrimony of a natural or legal person. In the third place, the element of an economic nature requires that the thing has economic value.
With respect to the concept of urban property, Article 6 of the CIMI describes its various categories, being fundamental for the subsumption in each one of them, the nature of use, that is, the purpose to which it is allocated. And, nothing in the scope of Article 6, paragraph 1, letter a) of the CIMI prevents the classification of the parts of a property in vertical ownership, with floors or divisions susceptible of independent use, with residential use, as "residential property".
Relevant is, it is repeated, its use. And a different conclusion is not possible to reach by the interpretation of Article 2, paragraph 4 of the CIMI which elevates each autonomous fraction, in the horizontal property regime, to the category of property. In fact, in this latter norm it is not possible to discern any basis for discriminating between properties in horizontal ownership and properties in vertical ownership, with floors or divisions susceptible of independent use, as regards their subsumption as urban and residential properties, in accordance with the entire scope of item 28 of the TGIS. In other words, if the legislator did not treat properties in vertical ownership differently from those constituted in horizontal ownership, the interpreter should not do so[1].
On the contrary, the property registration and the determination of the VPT demonstrate the similarity of legislative treatment. Indeed, the parts endowed with economic independence must, each one of them, be the subject of separate property registration and, consequently, the respective VPT should likewise be recorded separately, cf. Article 2, paragraph 4, Article 7, paragraph 2, letter b) and Article 12, paragraph 3, all of the CIMI. This has a refraction in the context of assessment, in so far as there will be one for each floor or division subject to separate use.
Reverting such interpretation to the present proceedings, there are 12 floors of the building with independent residential use which, at the date of the taxable event, that is, 31 December 2015, was not constituted in horizontal property and, consequently, from the outset, there is no doubt that they should be classified as residential properties of an urban nature.
It is further important to elucidate the other textual segment of the item of the CIS in interpretation, that is, the "taxable property value used for purposes of IMI".
In this respect, as has already been described, the CIMI provides for the autonomization of the parts of urban property susceptible of independent use with respect to property registration and the specification of the respective VPT. This observation is equally valid with regard to the consequent assessment, as provided by Article 113, paragraph 1 and Article 119, paragraph 1, both of the latter code cited. Indeed, if the tax is assessed "… based on the taxable property values of the properties (our emphasis) and in relation to the taxpayers that appear in the property rolls (our emphasis)…" and the collection document must contain the "… specification of the properties, their parts susceptible of independent use, respective taxable property value and the amount of tax…", this means that, not only is the VPT for purposes of applying item 28.1 of the TGIS to be considered that which is the subject of separate property registration, but also nothing prevents the qualification as "residential property" of floors or divisions with independent use.
Now, if none of the floors with residential allocation exceeded the VPT of € 1,000,000.00, the norm of scope in question cannot be applicable to the case sub judice, under penalty of illegality. It is repeated that, relevant is, for determining the scope of such norm, which the parties dispute in its interpretation: i) that the floor or division susceptible of independent use have a VPT exceeding € 1,000,000.00 and ii) that it have residential allocation.
This is also the conclusion of case law of the administrative courts regarding the delimitation of the scope of item 28.1 of the TGIS when it observes that: "Where it is a matter of a property constituted in vertical ownership, the scope of Stamp Duty must be determined, not by the VPT resulting from the sum of the VPT of all divisions or floors susceptible of independent use (individualized in the property article), but by the VPT attributed to each of those floors or divisions allocated to residential use", in accordance with the Decision of the Supreme Administrative Court of 09/09/2015, rendered in the context of case number 047/15 and in which Counsellor FRANCISCO ROTHES was Rapporteur.
This interpretation is also reflected in the following: "I – Item 28 of the General Stamp Duty Table (TGIS) added by Article 4 of Law number 55–A/2012, of 29/10, does not apply to urban properties, with one property article but constituted by parts with allocation and independent use to which independent VPT were attributed, each of these of a value less than one million euros...", Decision of the Supreme Administrative Court of 04/05/2016, rendered in the context of case number 0166/16 and in which Counsellor ANA PAULA LOBO was Rapporteur.
Consequently, the assessments that are the subject of these proceedings suffer from the defect of breach of law and, as such, cannot subsist in the legal order, which is hereby declared.
The question of illegality by application of a norm that is materially unconstitutional is thus a matter of prejudiced jurisdiction.
Finally, the Claimant petitions the payment of compensatory interest by the Respondent on account of error attributable to the services.
In fact, Article 43, paragraph 1 of the LGT provides that: "Compensatory interest is due when it is determined, in an administrative claim or judicial challenge, that there was error attributable to the services as a result of which the tax debt is paid in an amount exceeding that legally due". In other words, there are three requirements for entitlement to such interest: i) the existence of an error in an act of tax assessment attributable to the services; ii) determination of such error in a process of administrative claim or judicial challenge and iii) payment of tax debt in an amount exceeding that legally due.
In this manner, it is immediately possible to formulate a question: is it permissible to determine the payment of compensatory interest in tax arbitral proceedings? The answer to this question is affirmative. Indeed, Article 24, paragraph 5 of RJAT provides that: "Payment of interest is due, regardless of its nature, in accordance with the terms provided in the General Tax Law and in the Code of Tax Procedure and Process".
Knowing the question, the illegality of the acts in question is attributable to the Respondent, given the lack of normative basis at the time of their enactment. Consequently, the request for payment of compensatory interest is well-founded, calculated at the legal rate, in accordance with the provision of Article 43, paragraph 4 of the LGT, between the date on which the undue payment was made and until full reimbursement.
6. DECISION
In these terms and with the reasoning described above, it is decided that the request for arbitral pronouncement is entirely well-founded, annulling the tax acts with all legal consequences, including the return of the tax paid by the Claimant and the payment of compensatory interest, from the date of undue payment until effective reimbursement.
7. VALUE OF THE DISPUTE
The value of the dispute is fixed at € 13,623.20 (corresponding to the sum of the assessments that are the subject of the pronouncement), in accordance with Article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by force of the provision in Article 29, paragraph 1, letter a) of RJAT and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).
8. COSTS
Costs to be borne by the Respondent, in the amount of € 918, cf. Article 22, paragraph 4 of RJAT and Table I attached to RCPAT, in so far as the request was entirely well-founded.
Notify.
Lisbon, 16 June 2017
The Arbitrator,
Francisco Nicolau Domingos
[1] See in this regard the arbitral decision of 29/10/2013, rendered in case number 50/2013 – T and in which Dr. MARIA DO ROSÁRIO ANJOS served as arbitrator.
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