Stamp Tax on Properties Under €1M: CAAD Ruling 824/2014-T Annuls Assessment Under Clause 28.1 TGIS

ARBITRAL DECISION

Claimant: A…, S.A.

Respondent: TAX AND CUSTOMS AUTHORITY (hereinafter "AT" and "Respondent")

 1. Report

A..., S.A., with tax identification number …, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to annulment of the tax assessment acts relating to item no. 28.1 of the General Stamp Duty Table (TGIS), in the global amount of €3,933.75, which is broken down in the following collection notices: 2012 …, 2013 … and 2013 ….

In summary, the Claimant bases the illegality of the assessments and consequent annulment of the tax acts on the following defects:


	Defect of violation of the provisions of article 1 of the CIS, in conjunction with Item 28 of the TGIS, inasmuch as it was not the legislator's intention to tax storeys or divisions with independent use of properties in full or vertical ownership by the sum of the TVPs of the fractions or divisions with independent use allocated to housing, when each storey/division with independent use has, individually, a TVP lower than €1,000,000.00;

	Duplicate collection of the tax;


Furthermore petitioning for the annulment of the tax acts, consequent reimbursement of the Stamp Duty paid, as well as payment of compensatory interest.

 

The Tax and Customs Authority, for its part, defended that there exists no illegality inasmuch as the independent use areas relating to the same article do not constitute urban real property within the meaning of no. 4 of article 2 of the CIMI, and therefore the TVPs of all such areas or storeys of independent use cannot fail to be added together, concluding for the lack of merit of the annulment request formulated by the Claimant.

Equally, when the Response was filed, the Respondent came to disagree with the Claimant's positioning, on the basis that it had proceeded, prior to the entry of the present case into the CAAD, to the annulment of the collection documents no. 2013 … and 2013 … and reimbursement to the Claimant of the amounts relating to them and consequently, requested that the subject matter of the case would relate only to the collection notice no. 2012 … and, thus the value of the cause would be the value of said collection notice.

In a pleading subsequent to the filing of the Response by the Respondent AT, the Claimant came to clarify that the amount of €1,748.34 had indeed been the subject of reimbursement, and that, due to the large number of properties of which the Claimant is the owner, it was not possible for it, in a timely manner, to make the allocation of the reversal in question, being understood from the pleading in question the intention to reduce the subject matter of the request for the remaining collection notice, in the amount of €1,311.25.

The sole arbitrator was appointed and designated on 10.02.2015.

In accordance with the provisions of article 11 no. 1 paragraph c) of the RJAT, the sole arbitral tribunal was constituted on 25.02.2015.

By arbitral order and after having granted the parties a time period to pronounce themselves regarding the holding of the first arbitral hearing, as well as regarding the allegations, this Arbitral Tribunal came to dispense with both procedural formalities.

 

2. Preliminary Matters

The sole arbitral tribunal is materially competent, in accordance with the provisions of articles 2, no. 1, al. a) of the Legal Regime for Arbitration in Tax Matters.

The parties have judicial personality and capacity and have standing in accordance with article 4 and no. 2 of article 10 of the Legal Regime for Arbitration in Tax Matters (RJAT), and article 1 of Decree-Law no. 112-A/2011, of 22 March.

The process is not subject to any nullity and the request is timely.

 Thus are gathered the necessary conditions for the pronouncement of the arbitral decision.

 

  3. Findings of Fact

3. 1. Established Facts:

Having analyzed the documentary evidence produced and the positions of the parties, the following facts are considered established and relevant for the decision of the case:


	The Claimant is the owner, for tax purposes, of the urban real property registered in the urban property roll of the parish of …, under article …-…, located at …, lot 922, Ground floor, municipality of Lisbon, with the Tax Patrimonial Value of €262,250.00, classified in the property record as a storey or division of independent use;

	The identified urban real property is held under a regime of full/vertical ownership and is inserted in a building with storeys or divisions susceptible to independent use intended for housing, as per the property record attached to the case file;

	With respect to article …-…, the Respondent AT issued the Stamp Duty collection notices, relating to item 28.1 of the TGIS which are now identified as 2012 …, 2013 … and 2013 …;

	Article … of the current parish of … is composed of 23 storeys or divisions of independent use and allocated to housing;

	The tax patrimonial value of the article of urban real property … of the parish of …, municipality of Lisbon, reaches or exceeds the amount of €1,000,000.00, only when the TVPs relating to the storeys or divisions susceptible to independent use and with housing allocation that make up this same article registration are added together;

	No storey or division susceptible to independent use with housing allocation of article … has a tax patrimonial value equal to or greater than €1,000,000.00;

	The collection notices indicated in 3. were notified to the Claimant;

	The Claimant paid the totality of the amounts contained in the collection notices referred to in 3;

	The Respondent came to annul the collection notices 2013 … and 2013 …, proceeding on 31.10.2014 to the reversal of the amount paid by the Claimant, cf. pages 46 and 47 of the PA;

	The Respondent proceeded to the annulment of the 3rd installment of the 2012 Stamp Duty, as is evidenced on pages 44 and 45 of the P.A. attached by the Respondent to the case file;

	On 21.05.2014 a request for official review was filed at the Tax Service of Lisbon-8, presented by the Claimant, based on the failure to decide on the request made;

	On 17.12.2014 the Claimant presented, via electronic platform, the request for constitution of an arbitral tribunal, having paid on that date the initial court fee due;

	On 19.12.2014 the request for constitution and pronouncement by Arbitral Tribunal was accepted with respect to the tax assessment acts evidenced through the collection notices no. 2012 …, 2013 … and 2013 …;


No other facts relevant to the decision of the case have been established.

 

3.2. Basis for the Established Findings of Fact:

With respect to the established facts, the arbitrator's conviction was based on the documentary evidence attached to the case file, as well as on the acceptance by the parties of the factual matters brought before the case.

 

4. Legal Matters:

4.1. Subject Matter and Scope of the Present Process

Having been raised by the Respondent a question relating to the subject matter of the request formulated by the Claimant and on which the Respondent had an opportunity to contradict in writing, it is important to establish the subject matter of the case.

The Respondent argues that, prior to the presentation of the request for constitution and pronouncement by Arbitral Tribunal, it proceeded to the annulment of the tax assessment acts evidenced through the collection notices no. 2013 … and 2013 … and proceeded to the respective reimbursement of the amount paid by the Claimant for this purpose.

In rebuttal, the Respondent came to recognize the fact that such amount - €1,748.34 (sum of both identified collection notices) - had indeed been the subject of reimbursement, being inferred from the tenor of such pleading a reduction of the subject matter of the request, inasmuch as only in this way would it make sense that the Claimant would urge (as it did there) that the value of the cause be limited to €1,311.25 relating to the collection notice which was not the subject of annulment.

Thus, in view of the provisions of article 265 of the CPC, applicable ex vi al. e) of no. 1 of article 29 of the RJAT, the request is considered validly reduced, which is limited to the assessment of Stamp Duty, evidenced through collection notice no. 2012 …

In this course, it will only be incumbent upon the present arbitral instance to decide on the legality in concreto of the assessment of Stamp Duty evidenced through collection notice no. 2012 …, in the amount of €1,311.25, as well as on the request for compensatory interest that underlies it.

Therefore, the request for arbitral pronouncement has as its subject matter the declaration of illegality of the Stamp Duty assessment acts, under the provisions of item 28.1 of the TGIS, embodied in collection notice no. 2012 … , in the total amount of €1,311.25.

Additionally, the Claimant petitions for reimbursement of the tax paid as allegedly undue and payment of compensatory interest.

 

4.2. Of the Alleged Illegality of the Stamp Duty Assessments, Item 28.1 of the TGIS

In summary, the issue at hand is to determine whether the interpretation made by the Tax and Customs Authority of using, as a legal criterion for the purposes of subjection to Item 28.1 of the TGIS, the sum of the TVPs of all storeys or divisions of independent use with housing allocation relating to the same article of registration is consistent with the applicable legal framework.

In this regard, it is important to consider that the tax act in question occurred during the validity of the wording conferred by Law no. 55-A/2012, of 29 October, whereby the current wording given to it by article 194 of Law no. 83-C/2013, of 31 December (State Budget for 2014) is not applicable here, since it only came into force on 1 January 2014.

And it is without losing sight of the legislative context of this innovation in the area of taxation under Stamp Duty that the question relating to the assessment of the scope of the tax rule contained in article 28.1 of the TGIS should also be considered.

Let us then examine, first and foremost, the legal framework of the Stamp Duty assessment in question:

Law no. 55-A/2012, of 29 October, added item 28.1 to the General Table of Stamp Duty (TGIS), with the following wording:

28 – Ownership, usufruct or right of superficies of urban real property whose tax patrimonial value contained in the register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value used for the purposes of IMI:

28.1 – Per property with housing allocation – 1% (…);"

For its part, article 67, no. 2 of the Stamp Duty Code, added by the said Law, provides that "to matters not regulated in this code relating to item 28 of the General Table, the CIMI shall be subsidiarily applied."

The rule of incidence refers to urban real properties, whose basic concept of real property derives from the provisions of article 2 of the CIMI, with the determination of TVP following the tenor of the provisions of article 38 et seq. of the same code.

In accordance with that legal provision:

"1 - For the purposes of this Code, real property is any fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or built thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances aforesaid, endowed with economic autonomy in relation to the land where they are located, even if situated in a fraction of territory that constitutes an integral part of a different asset or does not have a patrimonial nature." (emphasis ours)

It being that article 6 of the CIMI clarifies that:

"1 - Urban real properties are divided into:


	Residential; 


2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal purpose each of these uses." (emphasis ours)

The legislator's concept regarding real properties and the subsequent division into urban is, for tax purposes, undoubtedly a criterion based on economic value and functional autonomy by reason of purpose.

That is to say, one is dealing with a concept of substantive or material root and not with a concept of legal-formalistic contour, as the Respondent AT seems to intend.

Now, in the case at issue, the Respondent AT does not even call into question that the storeys or divisions with independent use and with housing allocation relating to the article of registration …-… do not display those same characteristics (functional autonomy and economic value) highlighted by the legislator, nor could it do so inasmuch as it is the AT itself that found correct and caused to be registered such same information in the respective property records of the article of registration to which the storey or divisions susceptible to independent use relates.

Furthermore, precisely because such storey or divisions display such characteristics of autonomy, whether in functional terms or in terms of economic value, it is understood that the legislator provided for the assignment of tax patrimonial values to each of those storeys, areas or divisions susceptible to independent use.

What contradicts the thesis of the AT according to which, not being expressly contained in no. 4 of article 2 of the CIMI the storeys or divisions susceptible to independent use, the legislator had intended to exclude such figure from the concept of real property.

Therefore, being indisputable the housing allocation and equally the functional autonomy and economic value, furthermore fiscally translated in the TVP of those same independent areas or divisions, characteristics that are transposed in the respective property records of the article of registration under the designation of storeys or divisions susceptible to independent use, we cannot fail to conclude that on the material and substantive level those same storeys or divisions are encompassed by the notion of real property contained in no. 1 of article 2 of the CIMI and of urban real property contained in al. a) of no. 1 and no. 2 of article 6, both of the CIMI.

The introduction into the tax legal order of the present Item 28.1 of the TGIS had as a relevant and determining factor the incidence on urban real properties with housing allocation of high value, also usually designated as luxury dwellings, more precisely, of value equal to or greater than €1,000,000.00, on which Stamp Duty now applies.

The legislator thus intended to introduce a principle of taxation on wealth externalized in the ownership, usufruct or right of superficies over any and all urban real property with housing allocation, with the legislative criterion applying such stamp duty on urban real properties with housing allocation, whose TVP is equal to or greater than €1,000,000.00.

Such conclusion may be drawn from the analysis of the discussion of bill no. 96/XII in the Parliament, available for consultation in the Parliamentary Record, I series, no. 9/XII/2, of 11 October 2012.

The justification of the measure designated as a "special tax on urban residential properties of the highest value" is based on the invocation of the principles of social equity and tax justice, calling upon the holders of properties of high value intended for housing to contribute in a more intense way, by applying the new special tax on "houses with value equal to or greater than 1 million euros."

In this way, it seems clear that the legislator understood that houses displaying certain characteristics assessed quantitatively through the TVP should determine a special contribution to ensure fair apportionment of tax burden.

But no less evident, it reflects a line of legislative choice that intended to burden specifically urban real properties with housing allocation in the high segment, premium or also commonly called luxury.

It should be noted that, regardless of more or less subjective conceptions about the concept of luxury dwellings, high segment, or expressions of equivalent meaning, it is certain that the tax patrimonial value has, since the 2003 reform of taxation on assets, been measured on the basis of objective elements, such as area, location, level of comfort, among others.

Which means to say that and regardless of the political-ideological considerations that may be made on such political choice, the legislator had a concrete and defined objective: to subject to Stamp Duty taxation urban real properties with housing allocation of the highest value, which in practice translated into the fixing of a threshold measurable through the TVP: value equal to or greater than €1,000,000.00.

Furthermore, the legislator ensured through various coefficients (mitigating and aggravating) the objectivity in the assessment of that same TVP.

Now, the storey or division susceptible to independent use in question here and which was the subject of the assessment that is the object of the present request for arbitral pronouncement, does not, individually, reach the value of €1,000,000.00, and each of those storeys or independent divisions of that article represent in the tax system a urban real property per se, which is why the AT erred as to the prerequisites by making subject to item 28.1 of the TGIS by disregarding that each of those same areas or divisions represents in accordance with the IMI Code and consequently in the field of Stamp Duty, an urban real property, which is why those areas or divisions relating to the same article of registration could not be the object of addition for the calculation of the TVP of that article of registration.

What the same means to say, having in consideration the ratio legis that has just been stated, that the storeys or divisions susceptible to independent use do not meet the prerequisite relating to taxation within the field of the tax rule provided for in item 28.1 of the TGIS, which is why, also in light of what has been set forth, one cannot fail to conclude that the AT's interpretation is legally nonconformable in subjecting to Item 28.1 of the TGIS the storeys or divisions susceptible to independent use, inasmuch as they do not individually reach the minimum quantitative criterion for such subjection, and equally, in concreto and specifically, this occurs with article …-… of the parish of …, municipality of Lisbon, whose Tax Patrimonial Value stands at €262,250.00.

Thus, with respect to the collection notice issued and notified to the Claimant and the assessment underlying it, one cannot fail to make a judgment of censure and, consequently, to determine the annulment of the tax acts that are the subject of the present case.

 

4.3. Moot Questions: Duplicate Collection

As the sole arbitral tribunal accepted the understanding that item 28.1 of the TGIS is inapplicable to the case at hand, the examination of the remaining defects alleged and of which the arbitrally impugned assessment may be subject is rendered moot as procedurally pointless.

Thus the examination of the question relating to duplicate collection is rendered moot.

 

4.4. Regarding Reimbursement to the Claimant of the Stamp Duty Paid, Increased by Payment of Compensatory Interest:

In light of all that has been set forth and concluded above in section 4.2, a judgment of illegality that fell upon the tax act that is the subject of the present arbitral pronouncement, it is imperative to reconstitute the tax situation of the Claimant, which is why the Respondent AT cannot fail to effect the reversal of the amounts paid as Stamp Duty Item 28.1 of the TGIS that is the subject of the present case, and it is important to note and evaluate the request also formulated by the Claimant to the effect that it be paid compensatory interest.

In accordance with no. 1 of article 43 of the LGT, "Compensatory interest is due when it is determined, in an amicable reclamation or judicial challenge, that there was an error attributable to the services that resulted in payment of the tax debt in an amount greater than legally due."

Article 2 of that article of the LGT further provides that "It shall be considered that there is also an error attributable to the services in cases where, even though the assessment is made on the basis of the taxpayer's declaration, the taxpayer followed, in its completion, the generic guidance of the tax administration, duly published."

 Now, in the specific case, the legitimacy of the aforesaid request for payment of compensatory interest in favor of the Claimant is unequivocally evident, since the assessments sub judice are shown to be affected by illegality, embodying the issuance of the tax act an error attributable to the services, which is why compensatory interest cannot fail to be considered due from the day following payment of the amount unjustly owed until the date of issuance of the respective credit note, in accordance with what is provided for in article 43 of the LGT and article 61 of the Code of Tax Procedure and Process.

 Therefore, the Claimant is a creditor of the Respondent AT in the amount corresponding to the Stamp Duty unjustly paid, in the amount of €1,311.25, increased by the respective compensatory interest accrued and to accrue to be calculated until the issuance of the respective credit note.

 

4.5. Regarding the Value of the Case:

In light of what emerges regarding the subject matter of the present case, it is also important to make the correction of the value of the present case, in accordance with the jointly provided in articles 296, 306 and 308 of the CPC, subsidiarily applicable ex vi al. e) of no. 1 of article 29 of the RJAT, also considering the fact that the Respondent disagrees with the value set in the request for arbitral pronouncement presented by the Claimant.

Through an autonomous pleading and subsequent to the Response, the Claimant came to accept the value of the process upheld by the Respondent.

Thus, it is verified that, both Claimant and Respondent, are in agreement as to the value of the process - €1,311.25 – which is why, being such positioning confirmed by the elements flowing from the case file and on which we have set forth above, the value of the process should be corrected from the €3,933.75 initially indicated in the petition by the Claimant to €1,311.25, the value of the tax act now subject to arbitral pronouncement.

5. DECISION:

In these terms and with the justification set forth above, this arbitral tribunal decides:


	To judge the request for declaration of illegality of the tax assessment act in Stamp Duty, to which corresponds the collection notice no. 2012 …. and relating to the real property identified by the article of urban registration contained in 1., to be well-founded, due to defect of violation of law regarding the rule contained in item 28.1 of the TGIS, due to error as to the legal prerequisites and consequent reimbursement by the Respondent of the amounts paid by the Claimant regarding the tax act which by the present decision is annulled (€1,311.25);

	To judge the request for payment of compensatory interest to be borne by the Respondent in favor of the Claimant, as a result of the well-founded nature of the decision of point 1, from the date of unjust payment until the date of issuance of the credit note, in accordance with what is provided for in article 43 of the LGT and in article 61 of the Code of Tax Procedure and Process;

	To fix the value of the case at €1,311.25;


Value of the case: €1,311.25 – articles 97-A of the CPPT, 12 of the RJAT (Decree-Law 10/2011), 3-2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs in accordance with Table I of the RCPTA, calculated based on the aforesaid value of the case, to be borne by the Respondent - articles 4-1 of the RCPTA and 6-2/a) and 22-4 of the RJAT.

Let this arbitral decision be notified to the parties and, in due course, let the case be filed.

Lisbon, 21 August 2015.

The sole arbitrator

(Luís Ricardo Farinha Sequeira)

 

 

 

 

 

 

 

 

Text produced by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference of article 29, no. 1, paragraph e) of the Arbitration Regime in Tax Matters, with blank lines and revised by me.