CAAD 815/2014-T: Stamp Tax on Vertical Property – VPT Aggregation Under Verba 28.1 TGIS

ARBITRAL DECISION

REPORT

A, married, resident at Large…, No. …, … floor, … Lisbon, taxpayer identification number …, B, married, resident at Street …, No. …, …, Block …, …, … Lisbon, taxpayer identification number …, and C, divorced, resident at Street …, No. …, …, … Lisbon, taxpayer identification number … (hereinafter individually designated as Claimant A, Claimant B and Claimant C, respectively, and jointly as Claimants) hereby, pursuant to the combined provisions of articles 2, paragraph 1, subparagraph a), of the Legal Framework for Arbitration in Tax Matters (RJAT) and 102, paragraph 1, subparagraph e), of the Code of Tax Procedure and Process (CPPT), submit a request for an arbitral decision, in which the Tax and Customs Authority (hereinafter AT or Respondent) is summoned, with a view to the declaration of illegality and consequent annulment of the Stamp Tax assessments for the year 2012, issued in 2012 and in 2013, relating to fifteen units susceptible of independent use and intended for residential purposes, of the urban property located at Street …, Nos. …, …, … and …, running into Street …, Nos. … and …, in Lisbon, previously registered under article … of the parish of …, municipality of Lisbon, which corresponds to the current article … of the parish of …, of which they are co-owners in the proportion of 1/3 each, as well as of the decisions rejecting the hierarchical appeals submitted against those Stamp Tax assessments.

Cumulatively, the Claimants request the condemnation of the Respondent to pay indemnity interest at the legal rate, from the date of the unlawful payments until the date of their effective restitution.

The grounds for the requests for annulment of the Stamp Tax assessments for the year 2012 are as follows:

I. The erroneous consideration of the sum of the taxable property values (VPT) of all units susceptible of independent use with residential allocation, for the purposes of applying item 28.1 of the General Table of Stamp Tax (TGIS), embodying a defect of violation of law, determining the voidability of the tax acts identified in the request for an arbitral decision:

The AT assessed Stamp Tax (IS) on the fifteen floors or units of independent use with residential allocation, at the rate of 0.5%, in the year 2012, and at the rate of 1%, in the year 2013, considering the aggregate VPT of €2,235,456.75, which finds no support either in the letter or in the spirit of the norm contained in item 28.1 of the TGIS, in its original wording;

According to item 28.1 of the TGIS, the subjection to IS is determined by three cumulative requirements: (i) the ownership, usufruct or right of superficies of urban properties; (ii) residential allocation, and (iii) the VPT recorded in the cadastre being equal to or greater than €1,000,000.00;

With respect to the VPT equal to or greater than €1,000,000.00, it is important to determine whether it is the property as a whole that is subject to IS or whether it is each one of the units susceptible of independent use and with residential allocation;

Item 28.1 of the TGIS determines that the VPT relevant for the purposes of IS assessment corresponds to that which results from the rules provided in the Municipal Property Tax Code, in the following terms: "on the taxable property value used for purposes of the Municipal Property Tax";

Article 12, paragraph 3, of the Municipal Property Tax Code determines that: "Each floor or part of a property susceptible of independent use is considered separately in the property registration, which also discriminates the respective taxable property value";

In the case of a property with the characteristics described in the present proceedings, the subjection to IS of the floors or units with independent use should have been based not on the VPT of the property globally considered, but rather on the VPT attributed individually to each of those floors or units;

Moreover, the property consists of floors or units with residential allocation and commercial allocation, for which reason it is not legitimate for the AT to define it as being of residential allocation;

If the norms of the Stamp Tax Code and the Municipal Property Tax Code determine the taxation of independent realities (especially parts of the property susceptible of independent use), one cannot accept that the AT assesses the tax as if there existed a single reality;

None of the floors or units in question present a VPT equal to or greater than €1,000,000.00, for which reason the AT erred, for the reasons indicated, in the application of law, which taints the assessments in question with a defect of violation of formal law and which, pursuant to article 135 of the Administrative Code of Procedure, determines their voidability;

II. The interpretation contrary to the Constitution of the Republic (CRP) of item 28.1 of the TGIS, by violation of the principle of tax equality:

According to the interpretation adopted by the AT of the norm contained in item 28.1 of the TGIS, the criterion for determining objective subjection to IS on properties not held in horizontal property should be the global VPT of the floors and units susceptible of independent use and residential allocation and not the VPT of each one of those parts or floors;

Such interpretation violates the principle of tax equality provided for in articles 13 and 104, paragraph 3, of the CRP, by not subjecting to taxation properties held in horizontal property, composed of autonomous units, and subjecting to taxation properties in vertical property or full ownership, composed of floors with independent use and residential allocation;

It is of no avail to argue that the property in vertical property ownership is a single property and, for that reason, should be considered "luxury", while that which was constituted in horizontal property ownership corresponds to a multiplicity of properties/property (autonomous units), for from the point of view of the underlying materiality the properties are identical, the ordinary legislator not having made a distinction between them;

The interpretation given by the AT to the norm of item 28.1 of the TGIS is contrary to the principle of tax equality, tainting the IS assessments with the defect of violation of formal law, which determines their voidability;

III. The unconstitutionality of item 28.1 of the TGIS, when interpreted in the sense of legitimating subjection to IS of floors or units with independent use and with individual VPT less than €1,000,000.00:

The norm of item 28.1 of the TGIS, when interpreted in the sense of introducing an arbitrary distinction without criterion between properties held in vertical property ownership and properties held in horizontal property ownership, taxing floors susceptible of independent use and not taxing autonomous units, violates the principle of tax equality, enshrined in articles 13 and 104, paragraph 3, of the CRP;

The aforementioned principle of tax equality essentially requires the prohibition of any discrimination in the treatment of equal situations (equalizing dimension), as well as the admissibility of unequal treatment of unequal situations (differentiating dimension);

The norm of item 28.1 of the TGIS, in the AT's interpretation, makes subjection to IS depend on the civil-legal regime chosen by the owner of the property in question, who could, by constituting the property in horizontal property ownership, avoid taxation;

There does not exist, in fact, any fiscally relevant difference between a property held in vertical property ownership with an aggregate VPT of €1,000,000.00 and another with equal VPT, held in horizontal property ownership;

Thus, this tax proves to be extremely unequal in the distribution of sacrifices, violating the principles of justice, proportionality and tax equality;

IV. The material unconstitutionality of the regime provided for by Law No. 55-A/2012, of October 29:

In introducing taxation, under IS, of urban properties with residential allocation, with VPT equal to or greater than €1,000,000.00, it was intended to tax the "rich" property owners, being, in the terminology of Teixeira Ribeiro (Lessons of Public Finance, Coimbra Editor, Coimbra, 1997, p. 329), a "superimposed tax", "a tax on property, but aimed at income, income-product";

However, despite this tax applying to property and having to be funded by the income-product earned by the owner, the exact terms in which the taxation is effected render it an unconstitutional tax, by taxing in unequal manner the manifestations of tax capacity it aims to reach;

V. The violation of the principle of tax equality, tax capacity, private property and proportionality (articles 13, 62, 103, paragraph 1, and 104, paragraph 3, of the CRP):

Article 104, paragraph 3, of the CRP provides that "The taxation of property must contribute to equality among citizens";

The IS of item 28.1 of the TGIS does not truly tax rich property owners: if an undivided inheritance of 10 people has a property of €1,000,000.00, each co-owner has real property wealth of €100,000.00; if a real estate investment fund has a property of €10,000,000.00 that belongs to 1,000 investors, each invested €10,000.00; yet all will pay, through the inheritance or the fund, as if they were luxury property owners;

By electing as the tax fact the "luxury property" and not the "rich owner", the ordinary legislator does not materially comply, in a materially unconstitutional manner, with the constitutional command of relevant equality which concerns persons and not things;

This tax applies only to urban residential properties and, from 2014 onwards, to building land whose construction, authorized or planned, is for residential purposes, not applying to urban properties with other allocations, even if of equal VPT and, therefore, of equal economic value;

This tax taxes at a single rate properties with VPT equal to or greater than €1,000,000.00, creating no base exemption to only tax wealth exceeding that amount; in this manner, it does not tax property in the correct measure, according to a value judgment, in accordance with the principle of proportionality;

The absence of said base exemption creates a disproportionate, anomalous and disruptive taxation, leaving the owner of a property of €1,000,000.00, after the application of IS, in a much worse situation than the owner of a property of €999,999.99, not covered by taxation;

VI. The violation of the principle of fiscal legality, in the aspect of typicality, provided for in article 103, paragraph 2, of the CRP:

The prohibition of arbitrariness in the election of the fundamental elements of the tax type is given as settled by doctrine and case law and is generally justified by the need to respect the principle of equality in taxation (see SÉRGIO VASQUES, Manual of Tax Law, Almedina, Coimbra, 2011, pp. 247 to 251), assuming the function of determining that the ordinary legislator must establish in law the fundamental elements of the tax (article 103, paragraph 2, of the CRP);

The concept of property with residential allocation (one of the essential elements of objective subjection to IS) must be clarified by recourse to the norms of the tax legal system, especially under the Municipal Property Tax, being a concept that, although relatively vague, is determinable;

To argue that that concept is vague and indeterminate, and that it leaves the AT a margin of discretion sufficiently large for it to be able to tax the property in question will imply considering that the taxation of item 28 of the TGIS is materially unconstitutional for violating the principle of fiscal legality, in its aspect of typicality, inherent in article 103, paragraph 2, of the CRP;

VII. The violation of the principle of legal certainty and protection of confidence (inherent in article 2 of the CRP) and of the principle of non-retroactivity of tax law (article 103, paragraph 3, of the CRP):

The transitional regime established by article 6 of Law No. 55-A/2012, of October 29, clarifies that the assessment of IS, relating to item 28.1 of the TGIS, in 2012, obeys, among others, the following rules: (i) The tax fact occurs on October 31, 2012 – subparagraph a); (ii) The taxable property value to be used in the assessment of the tax corresponds to that which results from the rules provided in the Municipal Property Tax Code by reference to the year 2011 – subparagraph c); (iii) The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012 – subparagraph d); (iv) The tax should be paid, in a single installment, by taxpayers by December 20, 2012 (subparagraph e);

The legislator created a new tax that applies to the same tax fact and that taxes the owners of those properties in an amount equal to or greater than that of the Municipal Property Tax - at the rate of 0.3% to 0.5% provided for the Municipal Property Tax (cf. article 112, paragraph 1, subparagraph c), of its respective Code) came, in the year 2012, to add the rate of 0.5% of IS, which becomes 1% in the following years;

It was totally unforeseeable that the legislator would create this new tax; the political decision was announced on September 11, 2012, the Law was published on October 29, 2012, coming into force on October 30, with the deadline for voluntary payment ending on December 20 of that same year;

The principle of legal certainty and protection of confidence, established in article 2 of the CRP, prevents the ordinary legislator from creating a tax in this manner;

On the other hand, given that the tax fact of such tax is a complex fact, of successive formation over a year, and Law No. 55-A/2012, of October 29, having been applied to the whole of 2012 and not only to the period from its entry into force, we are faced with a case of third-degree retroactivity;

This tax being based on the presumption that the annual income-product of the owner of a property with VPT exceeding €1,000,000.00 allows for funding an IS of 0.5% of the VPT used for purposes of the Municipal Property Tax, the proportion of that value corresponding to the said period of 63 days should have been calculated, in accordance with article 12, paragraph 2, of the General Tax Law;

It is to be noted that, from the wording of the transitional norm, it appears that during the year 2012 two tax facts subject to this tax occurred: one on October 31, 2012 and another on December 31, 2012;

The circumstance that by reference to the year 2012 it was intended to tax twice 365 days of property ownership, usufruct or superficies, modeling the first assessment in elements of taxable income determined in 2011, reveal that the true intention of the ordinary legislator was to circumvent the principle of non-retroactivity of tax law enshrined in article 103, paragraph 3, of the CRP;

VIII. The illegality of the IS assessments issued in 2013, for lack of legal basis and because they are cumulative with the previous assessments of the same tax, relating to the same property and the same year, issued in 2012:

Without conceding in all that was referred to above, the assessments made in 2013 would always be illegal for lacking legal basis, as they were issued by reference to the year 2012, and were, consequently, cumulative with the previous assessments of the same tax and relating to the same property and the same year, made in 2012, under the provisions of paragraph 1 of article 6 of Law No. 55-A/2012;

Lacking legal basis, the IS assessments issued in 2013 (but relating to 2012) are illegal due to defect of violation of law, which renders them voidable pursuant to article 135 of the Administrative Code of Procedure, applicable subsidiarily under article 29, subparagraph d), RJAT.

The Claimants conclude by invoking their right to indemnity interest on the amounts paid by them, relating to the assessments challenged, from the date of voluntary payment of the unlawful tax until the issuance of the respective credit note, at the legal rate in force, a request which they base on the error imputable to the services of the AT, taking into account the illegalities previously identified.

Having been notified in accordance with the terms and for the purposes provided in article 17 of the RJAT, the AT submitted a response, in which it states that it sees no merit to the Claimants' arguments and defends that the assessment acts subject to the present request for an arbitral decision should be maintained, as they embody a correct interpretation of Item 28.1 of the TGIS, with the following grounds:

The present Claimants are co-owners, in the proportion of 1/3 each, of the urban property registered in the respective property cadastre of the parish of …, municipality of Lisbon, under article …, property which is held under the regime of full property ownership, also designated as vertical property;

The said property comprises 20 units or parts susceptible of independent use, 15 of which allocated to residential use and 5 allocated to commercial use, as appears from the respective property register;

The taxable property value was determined separately, pursuant to article 7, paragraph 2, subparagraph b), of the Municipal Property Tax Code (CIMI), with the taxable property value in its entirety in the amount of €2,720,194.57;

It was only the taxable property value of the 15 floors/parts with residential allocation, corresponding to a VPT of €2,235,456.75, which was taken into account in the assessments made, relating to the years 2012 and 2013;

It was on this value of €2,235,456.75 that the AT assessed for the year 2012, pursuant to the transitional regime contained in article 6, paragraph 1, subparagraph f), subdivision i), the stamp tax of item 28.1 of the General Table, at the rate of 0.5%, and for the year 2013, the stamp tax of item 28.1 of the General Table was assessed pursuant to articles 6, paragraph 2, and article 4 of said Law No. 55-A/2012, of October 29, at the rate of 1%;

From these stamp tax assessments resulted a global value for the year 2012 and, for the year 2013, of €33,531.84;

Subjection to stamp tax of item 28.1 of the General Table results from the combination of two facts, namely, residential allocation and the taxable property value of the urban property registered in the cadastre being equal to or greater than €1,000,000.00;

The situation of the Claimants' property subsumes itself, linearly, which is to say, literally, within the provision of the item in question, which has the following wording:

"28 Property, usufruct or right of superficies of urban properties whose taxable property value recorded in the cadastre, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the taxable property value used for purposes of the Municipal Property Tax:

28.1 Per property with residential allocation"

From the notion of property in article 2 of the CIMI, only autonomous units of property held in the regime of horizontal property ownership are regarded as properties - paragraph 4 of the cited article 2 of the CIMI. Therefore,

As the property of which they are co-owners is held in the regime of full property ownership, it does not possess autonomous units, to which tax law attributes the qualification of property;

Thus, the present Claimants, for purposes of the Municipal Property Tax and also of stamp tax, by virtue of the wording of the said item, are not co-owners of 20 autonomous units, but rather of a single property;

Having this fact as established, what the present Claimants seek is for the AT to consider, for the purposes of assessing the present tax, that there exists an analogy between the regime of full property ownership and that of horizontal property ownership, since there should be no discrimination in the legal-fiscal treatment of these two property ownership regimes, as it would be illegal;

Horizontal property ownership is a specific legal regime of property ownership provided for in article 1414 et seq. of the Civil Code, the method of constitution of which is provided for therein, as are the other rules regarding rights and obligations of condominium owners, and one must recognize in this provision the existence of a more evolved regime of property ownership;

To contend that the interpreter and applier of tax law apply, by analogy, to the regime of full property ownership the regime of horizontal property ownership, is what is abusive and illegal;

The interpreter of tax law cannot equate these regimes, in accordance with the rule according to which the concepts of other branches of law have the meaning in tax law that is given to them in those branches of law, or in the words of article 11, paragraph 2, of the LGT, on the interpretation of tax law: "Whenever tax norms employ terms characteristic of other branches of law, these should be interpreted in the same sense that they have there, unless otherwise directly derives from the law";

On the other hand, still bearing in mind 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, paragraph 1, of the LGT which thus refers to article 10 of the Civil Code on the application of analogy, determining that this will only be applicable in case of gaps in the law;

Now tax law contains no gap. The CIMI determines, to which the cited item refers, that in the regime of horizontal property ownership the units constitute properties. Not being the property submitted to this regime, legally the units are parts susceptible of independent use, without there being common parts;

Being the property submitted to the regime of full property ownership, but being physically constituted by parts susceptible of independent use, tax law attributed relevance to this materiality, valuing these parts individually, pursuant to article 12 and, consequently, pursuant to article 12, paragraph 3, of the CIMI, each floor or part of a property susceptible of independent use is considered separately in the property registration, but in the same cadastre, proceeding with the assessment of the Municipal Property Tax taking into account the taxable property value of each part;

The unity of the urban property in vertical property ownership composed of various floors or units is not, however, affected by the fact that all or some of those floors or units are susceptible of independent economic use;

The fact that the Municipal Property Tax was calculated based on the taxable property value of each part of property with independent economic use does not equally affect the application of item 28, paragraph 1, of the General Table;

This is what results from the determining fact for the application of that item of the General Table being the total taxable property value of the property and not separately that of each one of its parcels;

Any other interpretation would violate, indeed, 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, paragraph 2, of the Constitution of the Portuguese Republic (CRP);

A type of subjection in accordance with which the taxable property value of urban properties on which the application of item 28.1 of the General Table depends is the taxable property value of each floor or unit of independent use and not the global taxable property value of the urban property with residential allocation has certainly no expression in law;

It is, thus, unconstitutional, by offense of the principle of tax legality, the interpretation of item 28.1 of the General Table, in the sense that the taxable property value on which its subjection depends is determined globally and not floor by floor or unit by unit;

It is not apparent how, on the other hand, the taxation in question could have violated the principle of equality (…) horizontal property ownership and vertical property ownership are differentiated legal institutes;

The legislator may submit to a distinct legal-tax framework, hence discriminatory, properties in the regime of horizontal property ownership and vertical property ownership, in particular, benefiting the legally more evolved institute of horizontal property ownership, without that discrimination having to be considered necessarily arbitrary; discrimination that may be imposed by the necessity to impose coherence on the tax system;

The property registration of each part susceptible of independent use is not autonomous, per cadastre, but consists of a description in the cadastre of the property in its entirety - see the property register of this property which represents the owner's document containing the cadastral elements of the property;

These procedural norms of valuation, property registration and assessment of the parts susceptible of independent use do not permit one to affirm that there exists an equation of the property in the regime of full property ownership to the regime of horizontal property ownership;

The tax fact of the stamp tax of item 28.1, consisting in the property ownership of urban properties whose taxable property value recorded in the cadastre, pursuant to the CIMI, is equal to or greater than €1,000,000.00, the taxable property value relevant for the purposes of subjection to the tax is, thus, the total taxable property value of the urban property and not the taxable property value of each one of the parts which comprise it, even when susceptible of independent use;

And this interpretation of the norm of subjection to stamp tax results from the combination of the other norm of subjection to the Municipal Property Tax which is article 1, according to which the Municipal Property Tax applies to the taxable property value of urban properties, considering 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.

The request for constitution of the Arbitral Court was filed with the CAAD on December 15, 2014, having been notified to the AT on the following day.

The Claimants informed that they did not intend to exercise the faculty of designating an arbitrator, for which reason, pursuant to the provisions of paragraph 1 of article 6 of the RJAT, the undersigned was appointed arbitrator by His Excellency the President of the Deontological Board of the CAAD, which appointment she accepted within the legally provided term, without opposition from the Parties.

The Singular Arbitral Court was duly constituted on February 26, 2015 and is materially competent to appraise and decide the dispute subject of the present proceedings.

The Parties possess legal personality and capacity, are legitimate and are duly represented (articles 4 and 10, paragraph 2, of the RJAT and article 1 of Ordinance No. 112-A/2011, of March 22).

The proceedings do not suffer from nullities and no exceptions were invoked. Article 3, paragraph 1, of the RJAT, expressly admits "The cumulation of claims even if relating to different acts" and the joinder of claimants "when the success of the claims depends essentially on the appraisal of the same circumstances of fact and of the interpretation and application of the same principles or rules of law".

The Parties dispensed with the holding of the meeting referred to in article 18 of the RJAT, as well as the production of arguments, whether oral or written.

STATEMENT OF FACTS

2.1. Facts considered proven:

2.1.1. The Claimants are co-owners, in the proportion of 1/3 each, of the urban property previously registered under article … of the parish of the extinct …, municipality of Lisbon, which corresponds to the current article … of the parish of …, constituted by 20 floors or units susceptible of independent use, 15 of which allocated to residential use;

2.1.2. The sum of the VPT attributed to the floors or units susceptible of independent use and residential allocation is the amount of €2,235,456.75, being that the value indicated in each one of the collection notices of IS as "Taxable Property Value of the property – total subject to tax";

2.1.3. The VPT attributed to each floor or unit susceptible of separate lease and residential allocation, as appears from the collection notices issued, varies between €52,900.40 and €205,121.35;

2.1.4. In the name of each one of the Claimants were issued, for voluntary payment in a single installment, until December 20, 2012, the IS assessments for the year 2012 which appear in the collection notices identified in the table that follows, based on the VPT of each one of the units susceptible of independent use, their share proportion of 1/3 and the rate of 0.5%, in accordance with article 6, paragraph 1, subparagraph f), subdivision i), of Law No. 55-A/2012, of October 29:

[Table containing 2012 assessments - technical details preserved as marked in original]

2.1.5. In the name of each one of the Claimants were issued, for voluntary payment until April 30, 2013, July 31, 2013 and November 30, 2013, respectively, the IS assessments for the year 2012 which appear in the collection notices identified in the table that follows, based on the VPT of each one of the units susceptible of independent use, their share proportion of 1/3, as well as the rate of 1%, in accordance with article 6, paragraph 2, of Law No. 55-A/2012, of October 29:

[Table containing 2013 assessments - technical details preserved as marked in original]

2.1.6. According to the elements of proof attached to the request for an arbitral decision, the Claimants made the following payments:

2.1.7. Through official letter No. …, from the Financial Bureau of Lisbon – Administrative Justice Division, dated 15/09/2015, notification of the dispatch dismissing Hierarchical Appeal …2013…, rendered on 28/08/2014, was expedited to Claimant A, in which he questioned the legality of the IS assessments issued in his name in the year 2012; the notification was received by the taxpayer on 18/09/2014;

2.1.8. Through official letter No. …, from the Financial Bureau of Lisbon – Administrative Justice Division, dated 15/09/2015, notification of the dispatch dismissing Hierarchical Appeal …2013…, rendered on 28/08/2014, was expedited to Claimant B, in which he questioned the legality of the IS assessments issued in his name in the year 2012; the notification was received by the taxpayer on 17/09/2014;

2.1.9. Notification of the dispatch dismissing Hierarchical Appeal …2013…, rendered on 28/08/2014, in which Claimant C questioned the legality of the IS assessments issued in her name in the year 2012, was expedited under official letter No. …, from the Financial Bureau of Lisbon – Administrative Justice Division, dated 15/09/2015, received by her on 18/09/2014;

2.1.10. Hierarchical Appeal …2013…, submitted jointly by the Claimants and in which the legality of the IS assessments issued in 2013 was questioned, was dismissed by dispatch of 04/11/2013, the dismissal having been notified to Claimant A on 04/12/2014 and to Claimants B and C on 03/12/2014, through official letters Nos. …, … and …, respectively, from the Financial Bureau of Lisbon – Administrative Justice Division, of 01/09/2015.

2.2. Justification of the statement of facts proven:

The Court's conviction regarding the statement of facts given as proven resulted from the analysis of the documentary evidence attached to the request for an arbitral decision (copies of the property register of the identified property, of the notifications and proof of payment of the collection notices issued in the name of each one of the Claimants, as well as of the decisions of the Hierarchical Appeals and their respective notifications to the taxpayers), not contested by the Respondent.

2.3. Facts not proven

There are no facts relevant to the decision of the case that should be considered not proven.

STATEMENT OF LAW – REASONING

3.1. Order of appraisal of the defects

The principal question brought before the Court by the Claimants is whether subjection to Stamp Tax, pursuant to item No. 28 of the TGIS, of an urban property not held in horizontal property ownership, is determined by the Taxable Property Value (VPT) corresponding to each one of the parts of the property, economically independent and with residential allocation, as they contend, or whether it is determined by the global VPT of the property, which would correspond to the sum of all VPT of the floors or units of independent use and residential allocation which comprise it, as per the interpretation given by the AT to the said norm.

In defense of their position, the Claimants formulate, in a relation of subsidiarity, requests for annulment of the Stamp Tax assessments for the year 2012, issued in 2012 and in 2013, as well as of the decisions rejecting the hierarchical appeals submitted against those assessments.

According to the provisions of paragraph 1 of article 124 of the CPPT, applicable subsidiarily to the arbitral tax procedure, pursuant to article 29, paragraph 1, subparagraph a), of the RJAT, if there are no defects leading to the declaration of non-existence or nullity of the act(s) impugned, the tribunal should appraise the defects argued which determine their voidability, with paragraph 2, subparagraph b), of the same article providing that, as regards the latter, the order of their appraisal shall be that indicated by the party challenging, whenever a relation of subsidiarity is established between them, without prejudice to the defects whose success ensures the most stable or effective protection of the interests offended being known as a priority.

As it appears that, from the success of the defect of violation of law, due to error in the application of law resulting from the erroneous interpretation of the norms provided in item No. 28.1 of the TGIS and in article 12, paragraph 3, of the Municipal Property Tax Code, applicable under article 67, paragraph 2, of the Stamp Tax Code, effective protection of the offended interests will result, we shall proceed to its appraisal.

3.2. On the concept of urban property with residential allocation

In its initial wording, applicable to the situation under analysis, item 28 of the TGIS provided that the following situations were subject to stamp tax:

"28 — Property, usufruct or right of superficies of urban properties whose taxable property value recorded in the cadastre, pursuant to the Municipal Property Tax Code (CIMI), is equal to or superior to €1,000,000 — on the taxable property value used for purposes of the Municipal Property Tax:

28.1 — Per property with residential allocation — 1 %;

28.2 — Per 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 ordinance of the Minister of Finance — 7.5 %."

The cumulative requirements for application of the norm contained in Item 28.1 of the TGIS are that the property to be taxed is an urban property "with residential allocation", whose taxable property value, for purposes of the Municipal Property Tax, is equal to or superior to €1,000,000.00.

It has long been peacefully accepted by doctrine that tax norms are interpreted as any other legal norms, a solution which is today expressly contained in paragraph 1 of article 11 of the General Tax Law (LGT), by establishing that "1 - 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".

Among the elements of interpretation, that from which the applier of the norm must depart is, precisely, the grammatical element, that is, the text of the law, although it is important to note that, in determining the meaning and value of the norm, the interpreter cannot fail to consider the logical element or, in accordance with paragraph 1 of article 9 of the Civil Code, fail to "reconstruct (…) the legislative intent, giving special attention to 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".

The norm of subjection contained in item 28.1 of the TGIS uses the expression "property with residential allocation", the concept of which is not defined in the Code in which it is inserted, nor in any other tax legislation.

Being a polysemous expression, which may bear more than one meaning and, in order to determine its exact meaning and scope, in respect for the unity of the system, the interpreter should resort to the so-called "parallel passages", that is, there should be consideration of "legal provisions that regulate parallel normative problems or cognate institutes".

Such "parallel passages" will necessarily be found, in the case at hand, in the norms of the Municipal Property Tax Code, to which application subsidiary is referred, in bloc, by paragraph 2 of article 67 of the Stamp Tax Code, added by the same Law No. 55-A/2012, of October 29, by establishing that "2 - On matters not regulated in the present Code relating to item No. 28 of the General Table the provisions of the CIMI are applied, subsidiarily."

However, notwithstanding the express reference to the Municipal Property Tax Code, which the legislator wished to consecrate in paragraph 2 of article 67 of the Stamp Tax Code, it also does not give us the concept of "properties with residential allocation".

In fact, its article 6, inserted in Chapter I, under the heading "Subjection", does not use that expression when enumerating, in paragraph 1, the species of urban properties, which may be classified as: a) Residential; b) Commercial, industrial or service; c) Land for construction; d) Other, with paragraphs 2, 3 and 4 of the same article delineating what should be understood by each of those designations.

The species of urban property that best corresponds to the concept of "property with residential allocation" is that of residential properties, that is, buildings or constructions licensed for residential use or which, in the absence of a license, have residential use as their normal destination (residential purposes).

However, the urban property of which the Claimants are co-owners, integrating floors or units susceptible of independent use, some intended for commerce and others for residential use, cannot, globally, be considered an urban property of residential allocation, inasmuch as it has an allocation which may be framed in more than one of the classifications established by paragraph 1 of article 6 of the Municipal Property Tax Code.

Nor does it appear that the floors or units allocated to residential use which comprise it could be segregated from the whole, to, as a whole, be integrated into the notion of property with residential allocation provided for in the norm of subjection of item 28.1 of the TGIS.

3.3. On the distinction between floors or units susceptible of independent use and autonomous units, for tax purposes

Although the norm of paragraph 3 of article 12 of the CIMI provides that "Each floor or part of a property susceptible of independent use is considered separately in the property registration, which also discriminates the respective taxable property value", which is also discriminated in the collection document (see paragraph 1 of article 119 of the Municipal Property Tax Code), the AT contends that the VPT relevant for purposes of the norm of subjection of item 28.1 of the TGIS is the global taxable property value of the property and not the value of each one of the units of independent use.

And it does so by contending that, if the VPT relevant for application of that norm of subjection were that of each unit of independent use, one would be applying, by analogy, to properties in vertical property ownership the regime of horizontal property ownership, in which, pursuant to paragraph 4 of article 2 of the Municipal Property Tax Code, each autonomous unit is regarded as constituting a property.

It is to be noted that, in fact, from the formal point of view, the AT is correct in referring that a property held in horizontal property ownership is a legal-tax reality distinct from an urban property in "full property ownership" or "vertical property ownership".

However, if paragraph 4 of article 2 of the Municipal Property Tax Code establishes the legal fiction that each one of the autonomous units of a property held in horizontal property ownership embodies a property, the fact is that a part of independent use of an urban property not held in horizontal property ownership continues to be only that – a part of a property and not a property.

On the other hand, using the norm of item 28.1 of the TGIS, the expression "urban property with residential allocation", it does not appear legitimate that the AT therein seeks to include the floors or units of independent use of urban properties not held in horizontal property ownership which, as the AT itself recognizes, are not properties, and cannot be equated to the autonomous units of the regime of horizontal property ownership.

3.4. On the taxable property value of urban properties in full property ownership

With respect to the determination of the taxable property value of properties not held in horizontal property ownership, article 7, paragraph 2, of the Municipal Property Tax Code applies, but only as regards "urban properties with parts which may be framed in more than one of the classifications of paragraph 1 of the previous article", in which case, in accordance with its subparagraph b) "(…) each part is valued by application of the corresponding rules, the value of the property being the sum of the values of its parts".

And this is the only norm of the Municipal Property Tax Code which makes reference to the "[global] value of the property", without this, however, having any relevance at the level of assessment of the tax.

From the combination of the norms of paragraph 2 of article 7 and paragraph 1 of article 6, both of the Municipal Property Tax Code, it results that, if an urban property not held in horizontal property ownership integrates exclusively parts or units of residential allocation, the value of the property does not equal the sum of its parts.

3.5. On the VPT relevant for purposes of item 28.1 of the TGIS

As was referred to in the preceding point, the VPT of an urban property not held in horizontal property ownership, which integrates exclusively parts or units of residential allocation, does not equal the sum of the VPT attributed individually to each one of those parts or units.

Which is to say that each one of those parts is autonomous and that, not having been attributed a VPT equal to or superior to €1,000,000.00, it will be excluded from the subjection to Stamp Tax – item 28.1 of the TGIS.

Arrived at this point, it behooves to question the subjection to Stamp Tax of a part or unit of independent use, with residential allocation, of a property not held in horizontal property ownership, in which there are integrated parts or units of independent use, which may be framed in more than one of the classifications of paragraph 1 of article 6 of the Municipal Property Tax Code, for example, units intended for commerce, as is the case at hand.

Well, the answer must be negative, notwithstanding the provision of subparagraph b) of paragraph 2 of article 7 of the CIMI, according to which the value of the property is the sum of the values of its parts or units of independent use, which may be framed in more than one of the classifications of paragraph 1 of article 6 of the same Code.

It is that, here, we are not comparing, as the AT contends, two legally distinct realities, such as would be the parts or units of independent use of an urban property not held in horizontal property ownership, on the one hand, and the autonomous units of properties submitted to that regime, which, for purposes of the Municipal Property Tax, are themselves properties, on the other.

What is being compared here are realities in all respects identical, that is, parts or units of independent use and residential allocation, integrated in urban properties not held in horizontal property ownership.

And the answer to the question must be negative, for nothing would justify that the legislator intended to tax parts or units of independent use and residential allocation of an urban property not held in horizontal property ownership, integrated by other parts or units of independent use intended for other purposes and not tax parts or units of independent use and residential allocation of another urban property in full property ownership, integrated exclusively by parts or units of independent use, intended for residential use. Had the legislator intended to treat in unequal manner realities in all respects identical, it would have to be concluded that there was a flagrant violation of the principle of equality.

Not appearing to be that the legislative intent, one cannot accept that the AT formulate a norm of subjection ex novo, different from that which was created by the legislator, seeking to tax parts of properties, even though economically and functionally independent and, as such, separately registered in the cadastre, for the law is clear in subjecting to stamp tax of item 28.1 of the TGIS, urban properties with residential allocation, whose VPT, for purposes of the Municipal Property Tax, is superior to €1,000,000.00.

In fact, as the Claimants refer in their arguments and has already served as grounds for other arbitral decisions, notably that rendered in case No. 50/2013-T, "The ratio legis underlying the rule of item 28 of the TGIS, introduced by Law No. 55-A/2012 of October 29, in obedience to the provision of article 9 of the Civil Code, according to which the interpretation of the legal norm should not be limited to the letter of the law, but reconstruct from the texts and the remaining elements of interpretation the legislative intent, taking into account the unity of the legal system, the circumstances in which it was elaborated and the specific conditions of the time in which it is applied.

The legislator in introducing this legislative innovation considered as the determining element of tax capacity urban properties, with residential allocation, of high value, more precisely, of value equal to or superior to €1,000,000.00, on which a special rate of stamp tax began to apply, intending to introduce a principle of taxation on the wealth externalized in the property ownership, usufruct or right of superficies of urban properties of luxury with residential allocation. The criterion was the application of the new rate to urban properties with residential allocation, whose VPT is equal to or superior to €1,000,000.00.

Such logic appears to make sense when applied to "residential housing", whether it be "house", "autonomous unit" or "part of property with independent use" "autonomous unit", because it presumes above-average tax capacity and, to that extent, justifies the necessity of realizing an additional tax effort, it would make little sense to then disregard the determinations "unit by unit" when only through the sum of the VPT of the same, because held by the same individual, would the million euros threshold be exceeded.

This is concluded from the analysis of the discussion of Legislative Proposal No. 96/XII in the Assembly of the Republic, available for consultation in the Journal of the Assembly of the Republic, I series, No. 9/XII/2nd, of October 11, 2012."

We thus have that, beyond the grammatical and systematic elements of interpretation of the norm of subjection contained in item 28.1 of the TGIS, also the rational or teleological element, the ratio legis or the purpose intended by the legislator in elaborating that norm, points toward the direction that taxation should apply to urban properties and not to parts of urban properties, even though of independent use and with residential allocation.

For the reasons that precede, having established the defect of violation of law, due to error in the application of law, resulting from the erroneous interpretation of the norms provided in item No. 28.1 of the TGIS and in article 12, paragraph 3, of the Municipal Property Tax Code, applicable under article 67, paragraph 2, of the Stamp Tax Code, the impugned assessments cannot be maintained in the legal order.

3.6. On the request for indemnity interest

With respect to the request for payment of indemnity interest, it is apparent that the arbitral tax procedure was conceived as an alternative means to the process of judicial impugnation (see the legislative authorization granted to the Government by article 124, paragraph 2 (first part) of Law No. 3-B/2010, of April 28 – Budget Law of the State for 2010).

Thus, although article 2, paragraph 1, subparagraph a), of the RJAT uses the expression "declaration of illegality" as delimitating the competence of the arbitral courts operating in the CAAD, it should be understood that this competence includes the powers which in the judicial impugnation process are attributed to the tax courts, such as that of apprising the error imputable to the services.

On the other hand, subparagraph b) of paragraph 1 of article 24 of the RJAT provides that the arbitral decision on the merits of the claim of which no appeal or impugnation lies binds the tax administration from the end of the period provided for appeal or impugnation, the latter having, in the precise terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the execution of sentences of the tax courts, "to re-establish the situation that would exist if the tax act subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for the purpose".

Equally, article 100 of the LGT, applicable to the arbitral procedure by virtue of the provision of subparagraph a) of paragraph 1 of article 29 of the RJAT, establishes that "The tax administration is obliged, in case of total or partial success of complaints or appeals or judicial process in favor of the taxpayer, to the immediate and full re-establishment of the situation that would exist if the illegality had not been committed, including the payment of indemnity interest, in the terms and conditions provided in the law."

Providing paragraph 1 of article 43 of the LGT, that "Indemnity interest is due when it is determined, in a gracious complaint or judicial impugnation, that there was error imputable to the services from which results payment of the tax debt in an amount superior to that legally due."

The error imputable to the services may consist of error on the presuppositions of fact, which occurs whenever there is "a divergence between the reality and the matter of fact used as a presupposition in the practice of the act" or error on the presuppositions of law, when "in the practice of the act erroneous interpretation or application of the legal norms was made, as the norms of objective and subjective subjection (…)" and "is demonstrated when the gracious complaint or judicial impugnation of that same assessment is proceeded with and the error is not imputable to the taxpayer".

In the case at hand, it appears manifest that, the illegality of the acts of assessment of Stamp Tax declared, by having established the erroneous application of the norm of objective subjection contained in item 28.1 of the TGIS, which justifies their annulment, it must be recognized that the Claimants have the right to indemnity interest on the amounts unlawfully paid, from the date of the respective payment, as is established in paragraph 5 of article 61 of the CPPT, inasmuch as such illegality is exclusively imputable to the Tax Administration, which practiced those tax acts without the necessary legal support.

3.7. Questions of prejudiced knowledge

In the judgment, the judge must pronounce himself on all questions which he must appraise, refraining from pronouncing himself on questions on which he should not know (final segment of paragraph 1 of article 125 of the CPPT), and the questions on which the powers of cognition of the court are exercised are, in accordance with paragraph 2 of article 608 of the CPC, applicable subsidiarily to the arbitral tax procedure, by reference of article 29, paragraph 1, subparagraph e), of the RJAT, "the questions which the parties have submitted to the court's appraisal, excepting those whose decision is prejudiced by the solution given to others (…)".

In light of the solution given to the questions relating to the determination of the VPT relevant for application of the norm of subjection contained in item 28.1 of the TGIS and to the payment of indemnity interest in favor of the Claimants, the knowledge of the remaining questions is prejudiced, namely those of the unconstitutionality of the said norm, for the same is not susceptible of the interpretation which, in this case, was made by the AT.

DECISION

On the basis of the factual and legal grounds set out above and, pursuant to article 2 of the RJAT, it is decided as follows, rendering the present request for an arbitral decision wholly successful:

4.1. To declare the illegality of the Stamp Tax assessments impugned, due to error in the legal presuppositions, determining their annulment;

4.2. To determine the annulment of the decisions rejecting the hierarchical appeals submitted against the assessment acts now impugned;

4.3. To condemn the AT to the restitution of the amounts unlawfully paid by the Claimants, accrued with indemnity interest, from the dates of the unlawful payments until the date of the issuance of the respective credit notes.

PROCESS VALUE: In harmony with the provisions of article 306, paragraphs 1 and 2, of the CPC, 97-A, paragraph 1, subparagraph a), of the CPPT and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the process is assigned the value of €33,531.84 (thirty-three thousand five hundred and thirty-one euros and eighty-four cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I annexed thereto, in the amount of €1,836.00 (one thousand eight hundred and thirty-six euros), at the charge of the Tax and Customs Authority.

Lisbon, May 15, 2015.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, pursuant to paragraph 5 of article 131 of the CPC, applicable by reference to subparagraph e) of paragraph 1 of article 29 of Decree-Law 10/2011, of January 20.

The wording of this decision is governed by the spelling agreement of 1990.

[1] MACHADO, J. Baptista, "Introduction to Law and Legitimating Discourse", Almedina, Coimbra, 1995, p. 183.

[2] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented", Volume I, Áreas Publisher, 5th Edition, 2006, p. 714.

[3] Ibid.

[4] CAMPOS, Diogo Leite de, RODRIGUES, Benjamim Silva, SOUSA, Jorge Lopes de, "General Tax Law – Annotated and Commented", Writing Meeting, 4th Edition, p. 342.