Process: 199/2014-T

Date: September 30, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 199/2014-T addresses a fundamental dispute regarding the application of Stamp Tax under Verba 28.1 of the General Table (TGIS) to properties held in total ownership (propriedade total) comprising multiple independent housing units. The claimants, co-owners of a building with 39 units (35 allocated to housing), challenged individual Stamp Tax assessments on each fraction, arguing that none individually exceeded the €1,000,000 Tax Patrimonial Value (VPT) threshold required by Verba 28.1. The core legal issue concerns whether the VPT threshold should be assessed per independent unit or aggregated for the entire property. The claimants contended that the Municipal Property Tax Code (CIMI) treats each independent unit separately in land registry (Article 12(3)) and for Municipal Property Tax (IMI) purposes (Article 7(2)(b)), regardless of whether the property is held in horizontal or total ownership. They argued that applying different criteria violates the constitutional principle of equality (Article 13 CRP), as owners of identical buildings in horizontal ownership regimes would escape taxation when individual fractions fall below €1,000,000. The Tax Authority defended its position by emphasizing that under CIMI Article 2(4), only fractions in horizontal ownership qualify as separate properties. In total ownership, the claimants own a single property, not autonomous fractions. The Authority argued that horizontal and total ownership represent distinct civil law regimes that cannot be equated for tax purposes, citing Article 11(2) of the General Tax Law requiring legal concepts to retain their original meaning. This arbitration case presents critical implications for high-value residential property taxation, establishing precedent on whether ownership structure alone justifies differential tax treatment when underlying property characteristics remain identical.

Full Decision

ENGLISH TRANSLATION

Claimants: A, B and C

Respondent: AT - Tax and Customs Authority

I - REPORT

A, taxpayer no. ..., resident in …;

B, taxpayer no. ..., resident in …; and

C, taxpayer no. ..., resident in …, head of the estate of D, taxpayer no. ...,

Presented, on 27-02-2014, pursuant to the provisions of article 10º of the Legal Framework for Arbitration in Tax Matters (RJAT), a request for arbitral decision, in which the AT - Tax and Customs Authority is respondent, with a view to:

  • Annulment of the assessments of Stamp Tax (IS) on the parts susceptible of autonomous use allocated to "housing" comprising the property in full ownership registered in the land register of the parish of ... under article ..., relating to the year 2012 (copies of which were attached to the initial pleading as "document 1", "document 2" and "document 3");

  • Recognition of the Claimants' right to reimbursement of the amount paid relating to the contested assessments, plus compensatory interest.

The Claimants allege, in essence, the following:

  • The property of which the Claimants are co-owners and to which the assessments in question applied is held in full ownership and comprises 39 flats and divisions susceptible of independent use, of which 35 are allocated to "housing";

  • The Claimants consider that said assessments are vitiated by violation of ordinary law, specifically by error in the prerequisites for the application of item 28 of the General Table of Stamp Tax (TGIS), and by violation of constitutional law, by breach of the principle of equality;

  • The fact that tax was assessed individually on each fraction with independent use reveals that the Tax Administration considers that the value requirement established in item 28 of the TGIS should be assessed by reference to the sum of the TPVs of all flats and independent divisions;

  • The Claimants consider that the Respondent commits an error of interpretation of law by assessing the TPV in this manner for purposes of applying item 28 of the TGIS;

  • In fact, item 28 of the TGIS covers ownership, usufruct or surface right of urban properties whose tax patrimonial value appearing in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000. And number 1 of that item adds "per property with housing allocation – 1%".

  • Therefore, for there to be subjection to item no. 28 two requirements must be met: (i) being an urban property with housing allocation and (ii) having a TPV equal to or greater than €1,000,000.00;

  • The fractions which are the subject of the IS assessments all have housing allocation;

  • As to the method of determining the TPV relevant for purposes of the rule, recourse must be had to the Municipal Property Tax Code (CIMI), in light of the reference made by no. 2 of article 67º of the IS Code;

  • In accordance with article 12º, no. 3 of the CIMI, each flat or independent part is considered separately in the land registry registration, which also discriminates its respective individual TPV;

  • On the other hand, article 7º, no. 2, paragraph b) of the CIMI determines that "annual MUI assessments are made by reference to each flat susceptible of independent use and not by reference to the whole property";

  • The CIMI makes no distinction between properties in horizontal ownership and properties in full ownership;

  • Thus, considering that registration in the property register of properties in full ownership composed of different parts, flats or divisions with independent use in accordance with the CIMI follows the same registration rules as properties composed in horizontal ownership, and given that the respective MUI, as well as the new IS, by reference, are assessed individually in relation to each of the parts, it leaves no doubt that the legal criterion for defining the incidence of the new tax must be the same;

  • Wherefore the incidence of item 28 of the TGIS only takes place if any of the parts, flats or divisions with independent use of property in horizontal or full ownership with housing allocation presents a TPV equal to or greater than €1,000,000.00;

  • Resorting to the teleological element of interpretation, it must also be concluded that the legislator did not intend to tax the whole of a property that was not composed in horizontal ownership;

  • It is clear that the legislator understood that the value of 1,000,000 euros, when attributed to a dwelling (house, autonomous fraction or flat / division with independent use) reflects above-average contributory capacity justifying the need for an additional contributory effort;

  • Thus, it will only make sense to apply such item when any of the parts, flats or divisions with independent use of properties in horizontal or full ownership with housing allocation possesses a TPV equal to or greater than €1,000,000.00;

  • In the present case, none of the flats / divisions which were the subject of the contested assessments have a TPV equal to or greater than €1,000,000.00, wherefore the assessments are illegal by violation of item 28.1 of the TGIS;

  • The Respondent's position, reflected in the contested assessments, produces incomprehensible results from a legal point of view, as it leads to a citizen who owns a property held in full ownership intended for housing composed of autonomous units that individually have a TPV below €1,000,000.00, but in which the sum of all TPVs is equal to or greater than €1,000,000.00 being taxed under the new item 28.1 of the TGIS (as occurred in the present case), whereas another citizen who owns a property with the same characteristics, but which has been constituted in horizontal ownership, composed of autonomous units that individually have a TPV below €1,000,000.00, but in which the sum of all TPVs is equal to or greater than €1,000,000.00 is not taxed under the new item 28.1 of the TGIS, generating distinctions in treatment ostensibly violating the principle of equality (article 13º of the CRP);

  • For the reasons exposed, the contested assessments should be considered – because they relate to flats / divisions with independent use with TPV below €1,000,000.00 – to be vitiated by violation of law due to error in the prerequisites for applying item 28.1 of the TGIS and violation of constitutional law, more specifically of the principle of equality provided for in article 13º of the CRP, and should, consequently, be annulled.

In its response to the request for arbitral decision presented by the Claimants, Respondent AT - Tax and Customs Authority argues for the dismissal of the request, alleging, in summary, the following:

  • The situation of the Claimants' property is subsumed, linearly, which is to say literally, in the provision of item 28.1 of the TGIS;

  • From the notion of property in article 2º, no. 4 of the CIMI it results that only fractions of property in the regime of horizontal ownership are deemed to be properties;

  • Being the property of which the Claimants are owners in the regime of full ownership, it does not possess the same autonomous fractions, which could have the qualification of properties;

  • The Claimants are not owners of 35 autonomous fractions, but of a single property;

  • Horizontal ownership and full vertical ownership have different regimes in civil law, such differentiation having been transposed to tax law;

  • It is not permissible for an interpreter of law to equate these regimes, in accordance with the rule that legal concepts have in tax law the meaning they have in the branches of law from which they originate (in accordance with article 11º, no. 2 of the General Tax Law);

  • It is not, therefore, admissible an interpretation according to which, for purposes of applying item 28.1 of the TGIS, parts of property susceptible of independent use of properties in full vertical ownership could be treated as if they were autonomous fractions of properties in horizontal ownership regime;

  • Being a property in the regime of full vertical ownership, each part susceptible is considered separately in the land registry registration, but in the same register, proceeding with the assessment of MUI taking into account the tax patrimonial value of each part;

  • The fact that MUI is calculated in function of the tax patrimonial value of each part of the property with independent economic use does not affect the unity of the property;

  • Therefore, the value that is relevant for the application of item 28.1 of the TGIS can only be the total value of the property, which results from the sum of its parts with independent economic use;

As to the question of violation of the principle of equality, the Respondent alleges:

  • Horizontal ownership and vertical ownership are differentiated legal institutions;

  • The legislator may subject to a distinct, and therefore discriminatory, legal regime properties in the regime of horizontal ownership and properties in the regime of vertical ownership, especially by benefiting the legally more advanced institution of horizontal ownership, without such discrimination being necessarily considered arbitrary.

II – PROCEDURAL MATTERS

This singular Arbitral Tribunal was constituted on 05.05.2014, the arbitrator having been designated by the Deontological Council of the Administrative Arbitration Center, with the respective legal and regulatory formalities complied with (articles 11º, no. 1, paragraphs a) and b) of the RJAT and 6º and 7º of the Deontological Code of the Administrative Arbitration Center), and is competent ratione materiae, in conformity with article 2º of the RJAT.

The parties have legal personality and capacity, are legitimate and are regularly represented.

The joinder of claimants is admissible, as its legal prerequisites are verified, established in article 12º, no. 2 of the Code of Procedure in Administrative and Tax Courts, applicable by virtue of article 29º, no. 1, paragraph a) of the RJAT.

The holding of the meeting provided for in article 18º of the RJAT was dispensed with, with the agreement of the parties, as it was considered unnecessary.

The parties dispensed with the presentation of written pleadings.

There are no exceptions nor preliminary issues of which it is necessary to determine, wherefore nothing prevents the determination of the merits of the case.

III – ISSUES TO BE DECIDED

The following are the issues to be decided by the Tribunal:

  • The applicability of item 28.1 of the TGIS to urban properties in full vertical ownership formed by parts susceptible of independent use considered as a whole, with the consequence that the tax patrimonial value to be taken into account for purposes of the incidence of the tax will be, in case of an affirmative answer, the tax patrimonial value of the property;

  • The constitutionality of the norm of incidence contained in item 28.1 of the TGIS, if interpreted in the sense of covering urban properties in full ownership composed by parts susceptible of independent use and assessed separately, in light of the constitutional principle of equality;

IV – REASONING

A - FACTS ESTABLISHED AS RELEVANT

Based on the documents attached by the Claimants and which form part of the administrative file, the following are considered established as facts considered relevant for the decision:

  • The Claimants are co-owners of an urban property registered in the land register of the parish of ... under article no. ...;

  • The property in question is described as property in full vertical ownership (total), being composed of 39 fractions susceptible of independent use;

  • Of the 39 fractions susceptible of independent use, 35 are allocated to housing;

  • The Claimants were notified of 35 assessments of Stamp Tax relating to item 28.1 of the TGIS, relating to the 35 fractions with housing allocation (Documents 1, 2 and 3 attached to the initial pleading);

  • The 35 assessments are based on the total tax patrimonial value of the property, which amounts to 3,224,480.00 euros;

  • This value includes the tax patrimonial values of two fractions allocated to parking, one fraction allocated to commerce and one fraction allocated to services;

  • The sum of the tax patrimonial values of the fractions susceptible of independent use is less than 1,000,000 euros;

  • The Claimants proceeded to make the respective payment (Documents 1, 2 and 3 attached to the initial pleading).

There are no facts established as not proven with relevance for the decision.

B - LEGAL REASONING

1. Issue of the applicability of item 28.1 of the TGIS to urban properties in full ownership, considered as a whole, when formed by parts considered separately in the land registry registration

The following is the text of item 28 of the General Table of Stamp Tax:

"28. Ownership, usufruct or surface right of urban properties whose tax patrimonial value appearing in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax patrimonial value used for purposes of MUI:

28.1 Per property with housing allocation – 1%"

The Claimants contend that the incidence of item 28 of the TGIS only takes place if any of the parts, flats or divisions with independent use of property in horizontal or full ownership with housing allocation presents a TPV equal to or greater than 1,000,000 euros.

Their interpretive thesis is based, on one hand, on an alleged parity of treatment, which would exist within the scope of the CIMI, between properties in horizontal ownership and properties in full ownership composed of parts susceptible of independent use and, on the other hand, on the teleological element of interpretation, since, through item 28.1 of the TGIS, the legislator intended to tax dwellings of value greater than 1,000,000 euros.

On this point, we believe that the Claimants' thesis is not to be accepted, inasmuch as there is no parity of treatment, within the scope of the CIMI, between properties in full vertical ownership (also designated full ownership) composed of parts susceptible of independent use, on one hand, and properties in horizontal ownership, on the other.

In fact, article 2º, no. 4 of the CIMI expressly determines that, "for purposes of this tax, each autonomous fraction, in the horizontal ownership regime, is deemed to constitute a property". Therefore, there is no doubt whatsoever that, for purposes of CIMI and, consequently, for purposes of IS, fractions of properties constituted in horizontal ownership are deemed to be properties.

Such qualification implies that not only are the autonomous fractions of properties in horizontal ownership assessed separately, but the tax is assessed separately on each fraction, such assessment being based, solely, on the value of the autonomous fraction.

As regards the parts susceptible of independent use integrated in properties in the full ownership regime, there is no corresponding rule in the CIMI to that of article 2º, no. 4.

It is true that the MUI Code determines (article 12º, no. 3) that parts of property susceptible of permanent independent use are considered separately in the land registry registration, with their own tax patrimonial value.

But on the other hand article 7º, no. 2, paragraph b) of the same Code says that, in the case of property formed by economically independent parts, each part is assessed by application of the corresponding rules, with the value of the property being the sum of the values of its parts.

Therefore, while fractions of properties in horizontal ownership have the character of properties for purposes of MUI, this is not the case with the parts which compose properties in full ownership.

And there can be no doubt that, the parts susceptible of independent use not being considered as properties, and MUI being assessed on the tax patrimonial value of properties (article 1º of the CIMI), MUI is not assessed on the parts susceptible of independent use of properties in full ownership, but rather on the property in which those parts are integrated.

It is true that the tax administration issues a document of assessment of MUI for each part which composes the property in full ownership, creating thereby the appearance that MUI is assessed on the parts susceptible of independent use. But this procedure has no direct support in law. It is an administrative practice, perhaps questionable. For there is no doubt that, in the case of full vertical ownership, there exists a single property and, consequently, a single assessment act and a single tax obligation.

In the present case, the tax administration considered that there exists, also, a single property, and took as the base value for the assessment the tax patrimonial value of the property. It then issued separate assessment documents for the different parts with housing allocation.

But, unlike what occurs in relation to MUI, in this case tax was not assessed on the totality of the value of the property, as the value of the parts not allocated to housing was excluded.

This exclusion of the parts not allocated to housing is in irreconcilable contradiction with the consideration of the property as a whole for purposes of IS. The IS of item 28.1 of the TGIS being assessed on ownership of properties, and it being concluded that the parts which form the property in full vertical ownership are not properties, IS is not assessed on the parts, but on the whole. In this case, however, IS was not assessed on the whole, but only on the part allocated to housing. Now, it is not clear that any legal basis exists for this procedure.

In any case, it is not defensible that item 28.1 of the TGIS should be applied to parts of property susceptible of independent use, because these parts do not have the character of properties for purposes of MUI, as has already been demonstrated.

Being thus, we do not consider it possible, for purposes of interpretation of item 28.1 of the TGIS, to start from the existence of an equality of treatment between properties in horizontal ownership and properties in full ownership with parts considered separately in the land registry registration, based on a parallel with the equality of treatment between the same realities within the scope of MUI, since this latter equality does not exist.

And being thus, it is necessary to interpret the term "property" contained in item 28.1 of the TGIS, in order to determine whether it applies to properties in full vertical ownership composed of parts susceptible of independent use.

On this question, and in the exact terms in which it is posed here, the decision rendered in process no. 14/2014, in which we were arbitrator, pronounced itself. Because we see no reason to depart from the solution adopted there, we limit ourselves to transcribing what was stated there.

"Accordingly, it is necessary to depart from article 1º, no. 6 of the IS Code, according to which, for purposes of this tax, 'the concept of property is that defined in the Municipal Property Tax Code'.

Article 2º, no. 1 of the CIMI, in turn, defines property as 'any portion of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with the character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value'.

Being urban properties classified as 'residential', 'commercial, industrial or for services', 'land for construction' and 'others', this classification combined with the definition contained in article 2º, no. 1, it is concluded that residential properties are necessarily buildings or constructions incorporated or situated on a portion of territory.

Despite this definition, according to no. 4 of article 2º, autonomous fractions in the horizontal ownership regime are deemed to be properties for purposes of the tax, but the same cannot be said of parts of properties in full ownership considered separately in the land registry registration, as they neither fall within the definition of article 2º, no. 1 nor are they expressly considered as such.

The parts of properties in full ownership considered separately in the land registry registration are not, therefore, properties for purposes of MUI, not being so, also, consequently, for purposes of Stamp Tax. And being thus, the tax fact of IS cannot be other than the ownership of the property considered in its entirety, as this is a property, in the sense of article 2º, no. 1 of the CIMI".

It is therefore necessary to conclude that the situation of ownership of a property in the regime of full ownership composed of parts susceptible of independent use is subsumed literally in the provision of item 28.1 of the TGIS.

The request for annulment of the contested assessments founded on error in the prerequisites of law, specified in the inapplicability of item 28.1 of the TGIS to properties in full ownership with parts considered separately in the land registry registration, is therefore unfounded.

2. Issue of the constitutionality of the norm of incidence contained in item 28.1 of the TGIS, when interpreted in the sense of covering urban properties in full ownership considered as a whole, when formed by parts considered separately in the land registry registration, in light of the constitutional principle of equality

The Claimants raise the issue of violation of the constitutional principle of equality by item 28.1 of the TGIS, when interpreted in the sense of covering urban properties in full ownership composed of parts considered separately in the land registry registration.

This same issue was also the subject of a ruling in the arbitral decision referred to, which we now reproduce.

"The principle of equality, enshrined in article 13º of the CRP postulates that equal treatment be given to what is essentially equal and that different treatment be given to what is essentially different (judgment of the Constitutional Court no. 437/2006).

However, in order to assess equality or difference between two different realities, from a tax point of view, a parameter is necessary – 'the criterion that must serve as the basis for comparison' – which is given by contributory capacity (judgment of the Constitutional Court no. 197/2013).

Contributory capacity constitutes, therefore – along with other aspects or functions of the principle, see judgment of the Constitutional Court no. 197/2013 – the criterion through which different taxpayers must be compared, for purposes of determining whether they should receive identical or different tax treatment.

In this manner, the principle of contributory capacity (in one of its aspects) gives concrete form to the principle of fiscal or tax equality (judgment of the Constitutional Court no. 84/2003), presupposing equal tax treatment in relation to persons with the same contributory capacity and unequal tax treatment in relation to persons with different contributory capacity.

As a consequence of the principle of contributory capacity, taxpayers with the same capacity to spend should pay the same taxes and taxpayers with different capacity to spend should pay different taxes (judgment of the Constitutional Court no. 197/2013).

It is this dimension of the principle of contributory capacity, as prohibiting unequal tax treatment of persons with the same contributory capacity and equal tax treatment of persons with different contributory capacity, that is particularly relevant to the present case.

At issue, more specifically, is the difference in treatment given, by the IS Code in item 28.1 of the TGIS, to properties in horizontal ownership and to properties in full ownership, composed of parts considered separately in the land registry registration.

We saw earlier that the autonomous fractions of properties in horizontal ownership are considered properties for purposes of MUI (article 2º, no. 4 of the CIMI), and are so [for purposes of Stamp Tax], by force of article 1º, no. 6 of the IS Code.

Being thus, the IS of item 28.1, in the case of properties in horizontal ownership, can only be applied if the tax patrimonial value of the autonomous fraction is equal to or greater than 1,000,000 euros. On the other hand, the value resulting from the sum of the tax patrimonial values of the various residential fractions cannot be taken into account for purposes of applying the tax.

Even if a single person is owner of all the fractions of a property in horizontal ownership, and the sum of the tax patrimonial values of the residential fractions of the property is equal to or greater than 1,000,000 euros, such owner will not be subject to IS on that patrimony.

Now, between the two situations described – residential property in horizontal ownership and residential property in full ownership composed of parts susceptible of independent use and considered separately in the land registry registration – there is no substantial difference, the difference being only formal. Formal difference that does not affect, in any way, the contributory capacity of the respective owners.

In fact, ownership of a residential property in full ownership, composed of parts susceptible of independent use and considered separately in the land registry registration, with a tax patrimonial value equal to or greater than 1,000,000 euros, reveals no special contributory capacity that ownership of several residential autonomous fractions, in which the sum of the tax patrimonial values is equal to or greater than 1,000,000 euros, also does not reveal.

(…)

Another understanding, which seeks to disregard the substantial economic identity between the situations of properties in horizontal ownership and of properties in full ownership composed of parts susceptible of independent use and considered separately in the land registry registration, and to attend only to the formal difference between both situations, would result in a violation of the principle of substance over form, which would have as consequence a violation of the constitutional principle of contributory capacity".

Just as in the decision transcribed, also in the present case it must be concluded, in light of what is exposed, that the request for annulment of the contested assessments founded on violation of the constitutional principle of (tax) equality is well-founded by the norm of incidence contained in item 28.1 of the General Table of Stamp Tax, when interpreted in the sense that it includes residential urban properties in full ownership composed of parts susceptible of independent use and considered separately in the land registry registration.

V. RIGHT TO COMPENSATORY INTEREST

Given the illegality of the contested assessment acts, for the reasons exposed, and given that the Respondent paid in full the assessed tax, the Respondent has the right, in conformity with articles 24º, no. 1, paragraph b) of the RJAT and 100º of the General Tax Law, to reimbursement of the tax wrongfully paid, in the amount of 54,555.92 euros.

As regards compensatory interest, article 43º of the General Tax Law stipulates that "compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services as a result of which the tax debt was paid in an amount greater than that legally due".

As to the existence, in the present case, of error attributable to the services, this error is considered verified, according to uniform case law of the Supreme Administrative Court (see, in this sense, the judgments of the Supreme Administrative Court of 22-05-2002, Proc. no. 457/02; of 31.10.2001, Proc. no. 26167; of 2.12.2009, Proc. no. 0892/09) whenever they proceed with a gracious claim or challenge of the assessment (in the same sense, the decision in arbitral process 218/2013-T).

Accordingly, the Claimants have the right to be indemnified through the receipt of compensatory interest, calculated in accordance with article 43º, no. 1 of the General Tax Law and article 61º, numbers 2, 3 and 5, on the amounts paid relating to the annulled assessments.

VI. DECISION

For the reasons exposed, the present Tribunal decides:

  • To annul all Stamp Tax assessment acts contested by the Respondent.

  • To declare the Tax and Customs Authority obligated, in accordance with paragraph b) of no. 1 of article 24º of the RJAT, to restore the situation that would exist if the annulled assessment acts had not been taken, adopting the acts and operations necessary to this effect, through the restitution of the amounts of tax wrongfully paid and the payment of the corresponding compensatory interest.

Case Value: The case value is fixed at 32,244.80 euros.

Costs: Pursuant to article 22º, no. 4 of the RJAT, the amount of costs is fixed at 1,836.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Register and notify this arbitral decision to the parties.

Lisbon, Administrative Arbitration Center, 30 September 2014.

The Sole Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

How is the VPT threshold of €1,000,000 under Verba 28 of the TGIS applied to properties held in total ownership with multiple independent units?
Under Verba 28.1 of the TGIS, the €1,000,000 VPT threshold application to properties in total ownership with multiple independent units depends on whether the property is assessed as a single unit or divided into autonomous fractions. The Tax Authority's position maintains that properties held in total ownership constitute a single property under CIMI Article 2(4), requiring aggregation of all unit values to determine if the €1,000,000 threshold is met. Conversely, taxpayers argue that CIMI treats each independent unit separately for land registry and IMI assessment purposes (Articles 12(3) and 7(2)(b)), regardless of ownership structure. Under this interpretation, the threshold applies individually to each housing unit, and tax is only due when a single unit's VPT reaches €1,000,000. The dispute centers on whether the ownership regime (total versus horizontal) should determine the assessment methodology, with significant implications for multi-unit property owners whose aggregate value exceeds the threshold but individual units do not.
Can the Portuguese Tax Authority levy Stamp Tax individually on each housing fraction of a building registered as total ownership (propriedade total)?
The Portuguese Tax Authority's authority to levy Stamp Tax individually on each housing fraction of a building registered as total ownership is precisely the contested issue in this arbitration. The AT applied individual assessments to 35 housing units within a single property held in total ownership, treating each independent unit as a separate taxable object under Verba 28.1 TGIS. However, this approach is challenged as legally erroneous because CIMI Article 2(4) establishes that only fractions in horizontal ownership regimes constitute separate properties for tax purposes. In total ownership, the entire building constitutes one indivisible property, even when composed of independent units. The claimants argue that if tax is assessed individually on each fraction, the same VPT threshold criteria applicable to horizontal ownership should apply, meaning each unit must independently exceed €1,000,000. The Tax Authority cannot logically assess tax individually while simultaneously aggregating values to meet the threshold, as this creates an internally inconsistent interpretation that disadvantages total ownership structures compared to functionally identical horizontal ownership arrangements.
Does the principle of equality require that properties in total ownership be taxed the same as properties in horizontal ownership under Verba 28.1 of the TGIS?
The principle of equality (Article 13 of the Portuguese Constitution) is central to challenging differential treatment between total and horizontal ownership under Verba 28.1 TGIS. The claimants argue that constitutional equality is violated when identical properties—same number of units, same individual VPTs, same aggregate value—face different tax outcomes solely based on ownership structure. Specifically, a building in total ownership with 35 units valued below €1,000,000 each but exceeding €1,000,000 collectively faces Stamp Tax, while an identical building in horizontal ownership escapes taxation because each autonomous fraction is assessed separately. This distinction lacks material justification, as the ownership regime is a formal legal classification that doesn't reflect different economic capacity or property value. The principle of equality in tax law requires that taxpayers in objectively similar situations bear equivalent tax burdens. When the underlying property characteristics are identical and only the civil law ownership structure differs, imposing tax on one and exempting the other constitutes arbitrary discrimination. The Tax Authority must demonstrate that horizontal versus total ownership represents a constitutionally legitimate criterion for differentiation, particularly when CIMI itself applies similar assessment methodologies to both regimes for land registry and IMI purposes.
What is the legal procedure to challenge Stamp Tax assessments on high-value residential properties through tax arbitration at CAAD?
Challenging Stamp Tax assessments on high-value residential properties through CAAD (Centro de Arbitragem Administrativa) arbitration follows the Legal Framework for Arbitration in Tax Matters (RJAT). Taxpayers must submit an arbitration request under Article 10 RJAT within the legal deadline (typically 90 days from notification of the contested assessment or tacit deferral of an administrative claim). The request must identify the contested acts (specific Stamp Tax liquidations), state the relief sought (annulment of assessments and reimbursement with compensatory interest), and present legal grounds (violation of substantive tax law and/or constitutional principles). In Process 199/2014-T, the claimants challenged 2012 Stamp Tax assessments on 35 housing fractions, alleging error in applying Verba 28.1 TGIS prerequisites and violation of the equality principle. The arbitration request must attach relevant documentation, including copies of the contested assessments, property registration details, and evidence supporting the VPT claims. The CAAD arbitration offers advantages over judicial review, including faster resolution, specialized tax arbitrators, and flexible procedures. Taxpayers should clearly articulate both the legal error (misinterpretation of CIMI and TGIS provisions) and constitutional violations to maximize prospects for favorable decisions and establish binding precedent for similar cases.
Are taxpayers entitled to a refund with compensatory interest when Stamp Tax liquidations on independent fractions of a total ownership building are annulled?
Taxpayers are entitled to a refund with compensatory interest when Stamp Tax liquidations are annulled through arbitration or judicial review. Under Portuguese tax law, when tax assessments are declared illegal and annulled, the Tax Authority must reimburse amounts paid, plus compensatory interest calculated from the payment date until reimbursement. Compensatory interest compensates taxpayers for the financial loss resulting from premature payment of illegally assessed taxes, recognizing that the State improperly retained funds to which it had no legal entitlement. The interest rate and calculation methodology are established by law and apply automatically upon annulment—taxpayers need not prove actual damages. In cases involving Stamp Tax on independent fractions of total ownership buildings, if the arbitral tribunal concludes that assessments violate Verba 28.1 TGIS or constitutional principles, annulment triggers automatic reimbursement obligations. The claimants in Process 199/2014-T explicitly requested recognition of their right to reimbursement plus compensatory interest, which is standard practice in tax arbitration. The reimbursement includes the principal tax amount paid and all legally applicable interest, providing full restitution. Taxpayers should ensure their arbitration or judicial petitions expressly request compensatory interest, although courts typically grant it automatically when annulling tax assessments, as it constitutes a statutory right rather than discretionary relief.