Process: 20/2016-T

Date: June 1, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses the application of Stamp Tax under Clause 28.1 of the General Stamp Tax Table (TGIS) to vertical property ownership structures. The case involved a residential building with 14 independently usable divisions, each registered separately with individual taxable patrimonial values (VPT) ranging from €51,250 to €84,110, totaling €1,036,220. The Tax Authority assessed stamp tax of €10,362.20 (1% rate) based on the aggregated VPT. The applicant contested this, arguing that since no individual division reached the minimum threshold for Clause 28.1 incidence, the tax should not apply. The applicant distinguished vertical property from horizontal property (condominium ownership), claiming each separately registered division should be evaluated independently. The Tax Authority raised a preliminary objection challenging the arbitral tribunal's jurisdiction, arguing that tacit rejection of ex officio revision requests constitutes an administrative act outside the scope of judicial review proceedings under Article 97(1)(a) CPPT and Article 2 RJAT. On the merits, the Authority defended that vertical property constitutes a single property unit despite having independently usable parts, and the relevant VPT for tax incidence purposes is the total property value, not individual divisions. The Authority emphasized that vertical property divisions cannot be legally equated to autonomous condominium units since they must belong to a single owner. The case raises critical questions about jurisdictional boundaries of tax arbitration, the proper tax treatment of vertical versus horizontal property structures, and whether differential treatment based on property configuration violates constitutional equality principles under Portuguese tax law.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1

The Head of the Estate of A…, NIF …, domiciled at …, …, … sq., …-… …, came, under Article 2, no. 1, letter a) of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and Ordinance no. 112-A/2011, of 22 March, to request the establishment of an arbitral tribunal.

1.2

The Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.

1.3

The Deontological Council of the Administrative Arbitration Centre (CAAD) appointed the undersigned to form the Sole Arbitral Tribunal, notifying the parties accordingly, and the Tribunal was constituted on 08 April 2016.

1.4

The request for arbitral decision concerns the tacit rejection of the request for official review relating to fourteen stamp tax assessments for 2013, in the total amount of 10,362.20€, all issued on 06 May 2014, which are better identified in the Applicant's request and in the documents attached thereto, to which reference is made herein.

1.5

The Applicant invokes the illegality of the assessment acts, contesting the application of the new item 28.1 of the TGIS to urban properties not constituted in condominium ownership, but which include divisions capable of independent use, in which the minimum threshold of incidence established by law is reached by the sum of the TPA of the separate (or autonomous) registry entries corresponding to those various divisions, but not by any one of them individually considered. The Applicant submits that by reason of the fact that the property, although not constituted in condominium ownership, is constituted by parts capable of independent use, the TPA relevant to assess whether the requirement upon which the incidence of that item depends is fulfilled is not met, since each of the parts of the property capable of independent use has a separate entry in the corresponding registry and, therefore, individualized TPA below the said minimum limit.

The Applicant therefore argues that it is not the owner of a property with a TPA equal to or greater than said minimum amount, but rather the owner of a property in vertical ownership in which the TPA exceeding that value is only achieved by the sum of the TPA of the divisions capable of independent use for residential purposes, without any of them, considered individually, reaching that minimum threshold of tax relevance. For that reason, according to the Applicant, the assessments in question are vitiated by breach of law, which renders them voidable.

The Applicant further alleges that an interpretation of the norm in a different sense would call into question the principle of equality.

1.6

The TAX AND CUSTOMS AUTHORITY replied, defending itself by way of exception and by way of opposition.

By way of exception, the TA invokes the incompetence of the Arbitral Tribunal, on the grounds that, in its view, if the act challenged constitutes an act of tacit rejection, this means that the TA did not assess the legality of the assessments, and therefore what constitutes the immediate object of the present proceedings is solely the decision of tacit rejection and not the assessment of the stamp tax assessments (item 28.1 of the TGIS).

Therefore, it continues, what is at issue is an administrative act in tax matters which, by not assessing or discussing the legality of the assessment act, cannot be challenged through judicial review proceedings, under the terms provided in letter a) of no. 1 of Article 97 of the CPPT and Article 2 of the RJAT, which is to say that it does not fall within the scope of the material competence of the Arbitral Tribunals, and therefore an exception as to lack of competence ratione materiae of the Arbitral Tribunal to hear the request is verified, under the terms of Article 16, nos. 1 and 2 of the Code of Tax Procedural and Process Law (CPPT) applicable by virtue of Article 29, no. 1, letters a) and c) of the RJAT.

By way of opposition, the Respondent defended itself, arguing for the maintenance of the assessments, emphasizing, in summary, that total or vertical property ownership corresponds to a property, this being the reality to be considered to determine whether the minimum value contained in the rule of incidence is met. For the Respondent, the TPA relevant for purposes of tax incidence is the TPA of the urban property and not the TPA of each one of the parts that compose it, even if these are capable of independent use, provided that they are dedicated to residential purposes. In support of this thesis it also emphasizes that the unity of the property is not affected, and its distinct parts cannot be legally equated to the autonomous units of a property constituted in condominium ownership, particularly because their ownership must necessarily be attributed to a single owner (or more than one, but in cases of co-ownership).

It adds that a different understanding (i.e., that the TPA relevant to the rule of incidence would correspond to the TPA of each floor or division capable of independent use) would be unconstitutional, due to violation of the principle of tax legality (inherent in Article 103, no. 2 of the CRP), by distinguishing where the legislator did not distinguish.

For the Respondent, the legislator could have intended to favor a legally more evolved regime (condominium ownership), subjecting it to a different tax legal framework, and therefore discriminatory; nevertheless, such discrimination cannot necessarily be considered arbitrary. Therefore, the Respondent concludes that the request should be judged unfounded.

1.7

With regard to the exception raised by the Respondent, the Applicant replied, maintaining that the appropriate procedural remedy to react contentiously against the silent act attributed to the director-general who did not decide the request for official review of a tax assessment act is judicial review and not a special administrative action.

1.8

Notified of the Tribunal's intention to dispense with the meeting of the arbitral tribunal provided for in Article 18 of the RJAT, as well as the arguments, the parties did not object.

2. CLARIFICATION OF THE LEGAL FRAMEWORK

The Tribunal was regularly constituted.

The parties have legal personality and capacity, appear to be entitled, and are regularly represented.

The proceedings do not suffer from any defects that would invalidate them.

The question of the material competence of the Arbitral Tribunal is raised, the examination of which is postponed to the legal issues – issues to be decided – on the basis that it is essential that a decision be rendered beforehand on the factual issues.

3. FACTUAL MATTERS

With relevance to the decision on the merits, the Tribunal considers the following factual situation to be established:

  1. In the year 2013, the undivided estate of A… included the urban property in vertical ownership, located at … and … no. …, parish of …, municipality of …;

  2. This property corresponds to a residential building, in full ownership, not constituted in condominium ownership, composed of 14 divisions with independent use, all for residential purposes, registered in the urban property matrix of the respective parish under the entries …-U-… – 1st D, …-U-… - 1st E, …-U-… - 2nd D, …-U-… - 2nd E, …-U-…-3rd D, …-U-…-3rd E, …-U-…-4th D, …-U-…-4th E, …-U-…-CVD, …-U-…-CVE, …-U-…-R/CD, …-U-…-R/CE, …-U-…-SVCD and …-U-…-CVCE;

  3. The taxable patrimonial value of each of those divisions TPA, determined under the Municipal Property Tax Code (CIMI), varies between a minimum of 51,250.00€ and a maximum of 84,110.00€ and totals, in all, 1,036,220.00€;

  4. The assessments in question result from the application of the stamp tax provided for in item no. 28.1 of the General Table of Stamp Tax (TGIS) annexed to the Stamp Tax Code (CIS) as amended by Article 4 of Law no. 55-A/2012, of 29 October, at the rate of 1% on the taxable patrimonial value of 1,036,220.00€ corresponding to the set of independent divisions for residential purposes of the said property with reference to the year 2013.

  5. On 23 June 2015, the Applicant filed a request for official review of the 14 stamp tax assessments for 2013, under the terms and for the purposes of Article 78, no. 1 of the General Tax Law;

  6. Until the date on which the request for arbitral decision was filed, the Applicant had not been notified of any decision regarding the request for official review.

Facts Not Established

No other facts with relevance to the assessment of the merits of the case were alleged by the parties that were not established.

Justification of the Decision on Factual Matters

The conviction regarding the facts established was based on the allegations of the Applicant and the Respondent, not contradicted by the opposing party, supported by documentary evidence filed by both the Applicant and the Respondent, whose authenticity and correspondence to reality were also not questioned.

4. LEGAL MATTERS – ISSUES TO BE DECIDED

The essential issues to be decided are:

  1. Is the Arbitral Tribunal incompetent to rule on the illegality of an act of tacit rejection of a request for official review of a tax assessment act?

  2. With reference to properties not constituted in a condominium ownership regime, composed of various floors and divisions with independent use, some of which with residential designation, is the TPA relevant as a criterion for the incidence of the tax the one corresponding to the sum of the taxable patrimonial value attributed to the different parts or floors (aggregate TPA) or, rather, the TPA attributed to each one of the parts or residential floors?

  3. Constitutionality:

a) The application of the new item 28.1 of the TGIS to urban properties not constituted in condominium ownership, but which include divisions capable of independent use, in which the minimum threshold of incidence established by law is reached by the sum of the TPA of the separate (or autonomous) registry entries corresponding to those various divisions, but not by any one of them individually considered, which the Tax Authority contends, is unconstitutional due to violation of the principle of equality?

b) The opposite interpretation, which the Applicant contends, is unconstitutional due to violation of the principle of tax legality?

It is necessary to decide:

1) On the Exception:

Questions relating to competence are subject to priority examination, as results from the provisions of Article 13 of the Code of Administrative Court Proceedings, subsidiarily applicable by virtue of the provisions of Article 29, no. 1, letter c) of the RJAT.

The competence of arbitral tribunals functioning in the CAAD is, in the first place, limited to the matters indicated in Article 2, no. 1, of Decree-Law no. 10/2011, of 20 January (RJAT) – also limited by the terms in which the Tax Administration was bound to that jurisdiction by Ordinance no. 112-A/2011, of 22 March – according to which it includes the assessment of the following claims:

a) The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account;

b) The declaration of illegality of acts of determination of the taxable base when it does not give rise to the assessment of any tax, of acts of determination of the taxable income and of acts of determination of patrimonial values (as amended by Law no. 64-B/2011, of 30 December).

Beyond the direct assessment of the legality of acts of this type, the competence of arbitral tribunals functioning in the CAAD also includes the power to assess acts of second or third level that concern the assessment of the legality of acts of those types, namely acts deciding gracious complaints and hierarchical appeals, as results from the express references made in Article 10, no. 1, letter a) of the RJAT to no. 2 of Article 102 of the CPPT (which refers to judicial review of decisions on gracious complaints) and to the "decision of hierarchical appeal".

The fact that letter a) of no. 1 of Article 10 of the RJAT makes reference to nos. 1 and 2 of Article 102 of the CPPT, in which the various types of acts giving rise to the period for judicial review are indicated, makes it clear that all types of acts capable of being challenged through judicial review proceedings will be included within the jurisdiction of arbitral tribunals functioning in the CAAD, covered by those nos. 1 and 2, provided they concern one of the types indicated in that Article 2 of the RJAT.

Moreover, this interpretation in the sense of the identity of the fields of application of judicial review proceedings and of arbitral proceedings is the one that is in harmony with the aforementioned legislative authorization on which the Government based itself to approve the RJAT, granted by Article 124 of Law no. 3-B/2010, of 28 April, in which the intention is revealed that tax arbitral proceedings constitute "an alternative procedural remedy to judicial review proceedings and to an action for recognition of a right or legitimate interest in tax matters" (no. 2).

Restricting the competence of arbitral tribunals functioning in the CAAD to the field of application of judicial review proceedings, only requests that involve the assessment of the legality of an assessment act are included within this competence.

The legislative concern to exclude from the competences of arbitral tribunals functioning in the CAAD the assessment of the legality of administrative acts that do not involve the assessment of the legality of assessment acts, beyond resulting, from the outset, from the generic guideline of creating an alternative remedy to judicial review proceedings and to an action for recognition of a right or legitimate interest, results clearly from letter a) of no. 4 of Article 124 of Law no. 3-B/2010, of 28 April, in which are indicated among the possible objects of tax arbitral proceedings "administrative acts that involve the assessment of the legality of assessment acts", since this specification can only be justified by a legislative intention to exclude from the possible objects of arbitral proceedings the assessment of the legality of acts that do not involve the assessment of the legality of assessment acts.

As the Applicant well argues and as better explained in the arbitral decisions of 22-01-2016, delivered by the Arbitral Tribunal constituted in case no. 320/2015-T, and of 20-07-2015, in case no. 793/2014-T, acts which – even if tacitly – decide gracious complaints, hierarchical appeals or, as in the case at hand, requests for review of a tax act, constitute acts of second and third level in that they involve the assessment of legality of first level acts, that is to say, assessment acts. As such, within the scope of the competence of arbitral tribunals falls the assessment of those acts.

Given the right of appeal or challenge of the rejection, expressed or tacit, and total or partial, of complaints, appeals or requests for review or amendment of the assessment, under the terms of Article 95, no. 2 letter d) of the LGT, the assessment raised is thus included, by the terms set forth, in the request for establishment of the arbitral tribunal under the terms of letter a) of no. 1 of Article 10 of the RJAT, which is competent to assess it, provided there is a presumption of tacit rejection, under the terms of letter d) of no. 1 of Article 102 of the CPPT.

Having been no pronouncement by the tax administration after four months on the request for official review directed to it, this is considered to be tacitly rejected, under the terms and for the purposes of nos. 1 and 5 of Article 57 of the LGT. This act of rejection, because it concerned a request for official review of tax assessment acts, is therefore fully appealable before a tax arbitral tribunal.

This is also the understanding of the Plenary of the Tax Contentious Section of the STA, which, in Decision of 03.06.2015, delivered in case 0793/14, corresponding to an appeal of a decision delivered by an Arbitral Tribunal in the CAAD, standardizes case law to the effect that "in judicial review subsequent to a decision of the TA which concerns a gracious complaint or a request for official review of a tax act, the judicial organs can, and must, be acquainted with all substantive illegalities that affect the tax act in question, whether or not such illegalities were raised in the gracious phase of the dispute".

Therefore, the exception as to lack of competence invoked by the Respondent is judged unfounded, and the Tribunal is competent to assess the request.

2) In properties not constituted in a condominium ownership regime, composed of various floors and divisions with independent use, some of which with residential designation, what is the TPA relevant as a criterion for the incidence of stamp tax for purposes of application of item 28.1 of the TGIS?

The second issue to be decided corresponds to the application, in situations of so-called vertical ownership, of the new taxation in stamp tax on urban properties with residential designation and TPA equal to or greater than one million euros. This new taxation was introduced in 2012 to strengthen budgetary control measures on the revenue side, in a context of financial necessity.

On this question of the determination of the TPA (minimum) relevant for the application of item 28.1 of the TGIS in cases of vertical ownership, have already pronounced themselves, among others, the decisions of the CAAD in case numbers 50/2013-T, 132/2013, 181/2013-T, 183/2013-T, 272/2013-T, 280/2013-T, 26/2014-T, 30/2014-T, 88/2014-T, 177/2014-T, 206/2014-T and 349/2015-T.

In all of them the question was, just as in these proceedings, whether the TPA relevant to the rule of incidence (28.1 of the TGIS) is the TPA corresponding to each one of the divisions capable of independent use separately considered in the registry or whether, on the contrary, the TPA relevant should correspond to the sum of all those divisions capable of independent use, but forming part of the same property and which are dedicated to residential purposes.

And the answer, in those decisions, was always for the first option, with which we agree.

It is important to bear in mind that each floor or part of property capable of independent use is considered separately in the property registration of the total property, which also discriminates the taxable patrimonial value of those (no. 2 of Article 12 of the CIMI), and that the IMI is levied individually in relation to each floor or part of property capable of independent use (Article 119, no. 1 of the CIMI).

And if that is so in IMI, it should also be so in Stamp Tax, particularly because the CIS refers to the CIMI.

As referred to in the decision taken in case 206/2014-T: "Given that the CIS refers to the CIMI, it must be concluded that the registration in the property matrix of properties in vertical ownership, composed of different parts, floors or divisions with independent use, obeys the same registration rules as condominium properties. Being the IMI and the Stamp Tax levied individually in relation to each one of the parts, the legal criterion to define the incidence of the new tax will have to be the same. Consequently, there will be incidence of item 28.1 of the TGIS (only) if any of those parts, floors or divisions with independent use presents a TPA, at least, equal to the amount provided for in the rule of incidence.

As well explained in the decision delivered by the Arbitral Tribunal in case 349/2015-T, "Thus, property will be the independent area, considered separate and autonomously in the registry, being subject to stamp tax if two requirements are met: being intended for residential purposes and having a TPA equal to or greater than one million euros, criterion for assessing residential properties "of luxury". Otherwise, a reality not provided for by the legislator would be created: that of, so to speak, a "residential property", possibly inserted within a larger property, possibly with various purposes, in which the TPA of that, spurious to the property registrations, would consist in the fiction of a TPA given by the addition of the autonomous TPA of each division (independent and with residential purpose) considered in the property registration. That is, where the legislator considered two realities, the interpreter would now, without support in the legislative text, have to fiction a third reality, hybrid, midway between the urban property and its independent divisions to which the legislator of the IMI, and of the stamp tax by reference to the CIMI, understood to give tax relevance.

Also in the decision delivered in case 272/2013-T (CAAD) it is stated that "considering that the registration in the property matrix of properties in vertical ownership, composed of different parts, floors or divisions with independent use, under the terms of the CIMI, obeys the same registration rules as properties constituted in condominium ownership, with the respective IMI, as well as the new Stamp Tax, being levied individually in relation to each one of the parts, it offers no doubt that the legal criterion to define the incidence of the new tax must be the same. Moreover, it is said, the position of the TA "finds no legal support and is contrary to the criterion that applies in the context of the CIMI and, by reference, in the context of Stamp Tax", reason for which "the adoption of the criterion defended by the TA violates the principles of legality and tax equality, as well as that of the prevalence of material truth over legal-formal reality".

And in the same sense it is referred to in the arbitral decision of case 30/2014-T to find in the doctrine of the TA a "non-conformity with the literal element of the final part of the rule of incidence (item 28 of the TGIS) which states that the tax incides on 'the taxable patrimonial value used for purposes of IMI' and therefore should not incide on the sum of taxable patrimonial values of properties, parts of properties or floors, not having legal support the operation of addition of taxable patrimonial values of floors or parts of property capable of independent use, with residential purposes, separated from the TPA of the others with different purposes, in order to reach the threshold of eligible taxation of 1,000,000.00 euros or more".

As also referred to in that arbitral decision, what happens with respect to urban properties with residential designation, in vertical ownership, with floors or divisions capable of independent use, is that the TA proceeds, in the operations of assessment of the stamp tax, to the adaptation of the rules of the CIMI (adding the taxable patrimonial values of the same property, without considering those that correspond to parts of the property with non-residential purposes, thus giving rise to a new and hybrid TPA). Indeed, that "adaptation" corresponds to "summing the TPA of each floor or independent division intended for residential purposes (separated from the TPA of floors or divisions intended for other purposes), creating a new legal reality, without legal support, that is a total TPA of urban properties in vertical ownership, with residential designation", which offends "against the literal element of the rule of incidence".

Thus, "in urban properties with residential designation, in vertical ownership, with floors or divisions capable of independent use", should be considered the taxable patrimonial value "that results exclusively from no. 3 of Article 12 of the CIMI. Both for IMI and for this stamp tax".

Concretely, as concluded in the decision delivered in case 26/2014-T of the CAAD, "for purposes of application of item 28 of the TGIS to properties in vertical ownership, the same rules of the CIMI that apply to properties in condominium ownership are applied, and in the same sense the TPA for purposes of application of item is the individual TPA of each independent residential unit, and in the present case none of the units exceeds the criterion of incidence of 1,000,000.00€", the same occurring in the case of the present proceedings.

Starting from the same position, the arbitral decision delivered in case 349/2015-T concludes that "as clearly results from the decisions cited, the literal interpretation of the new item of the TGIS cannot but be different from that sustained by the TA, indeed, the opposite one, given the clear and indisputable reference made with respect to the new item of the TGIS to the rules of the CIMI, and the interpreter of the norm cannot "create" a new concept of property in order to obtain a hybrid TPA, not recognized in the registry and without any support in the text of the law."

And it did so invoking also the criterion of the economic substance of the tax facts: "the expression 'each urban property' used in no. 7 of Article 23, by identity of reasons, encompasses not only urban properties in condominium ownership, but also floors, divisions or parts of urban properties in vertical ownership, provided they are intended for residential purposes, always starting, in any case, from a single tax base for all legal purposes: the taxable patrimonial value used for purposes of IMI (...). The economic reality of the holding of independent parts, e.g. capable of independent use or of autonomous rental, just as the autonomous units in the case of condominium ownership, and therefore capable of allowing the use or the obtaining of income in a similar manner and thus externalizing, for that reason, equal tax capacity (as would externalize the sum of the TPA of various autonomous units of the same property in condominium ownership or of various properties which in their entirety exceeded the value of one million euros, without that having been considered by the legislator as an externalization of tax capacity relevant for purposes of stamp tax)."

Furthermore, as referred to in the Decision delivered in case 26/2014-T of the CAAD, there is no discernible censure of the legislator against vertical ownership. Indeed, "it will be said, not without reasonableness, that the legislator, for purposes of taxation in the context of IMI, opted to confer autonomy, independence, to each one of the parts or to each one of the floors of a single property, provided that some and others show themselves to be of independent use, to the point of providing for the individualized registration in the registry of each one of those independent parts and of imposing on taxation in the context of IMI an also autonomous collection. Despite the legal existence of a single property, it is the legislator itself that not only recommends but imposes the autonomous consideration of each one of the independent parts, for purposes of taxation of property".

Indeed, as decided in cases 26/2014-T and 272/2014-T and 349/2015-T, "the legislator is indifferent to one or another form of structuring the ownership of urban properties in the CIMI, it would not be understood that now it intended to favor one to the detriment of the other, namely by considering one form of structuring more advanced than the other. The current legal regime does not impose the obligation to establish condominium ownership, reason for which the discrimination effected by the TA translates into an arbitrary and illegal discrimination, since the TA cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality provided for in Article 103, no. 2 of the CRP, and also the principles of justice, equality and tax proportionality."

And the fact is that also nothing leads the interpreter to the conclusion that the concrete legislator of the new item of the TGIS, contrary to the legislator of the IMI, which moreover remains unchanged, intended to discriminate vertical ownership in the face of condominium ownership. As well recalled in the Decision delivered in the aforementioned case 26/2014-T of the CAAD, also referred to in the aforementioned decision of case 349/2015-T "at the time of presentation and discussion, in Parliament, of draft law no. 96/XII (2nd), the State Secretary for Fiscal Affairs expressly stated: 'The Government proposes the creation of a special tax on residential urban properties of higher value. It is the first time in Portugal that a special taxation on high-value properties intended for housing has been created. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will incide on houses valued at 1 million euros or more' (cf. DAR I Series no. 9/XII -2, of 11 October, page 32). Now, as emphasized in that Decision, 'the State Secretary for Fiscal Affairs presents this draft law referring without reservation to the expression "houses"… valued at 1 million euros or more', so 'it results with meridian clarity that item 28.1 of the TGIS cannot be interpreted in the sense that it encompasses each one of the floors, divisions or parts capable of independent use when only from the respective sum results a TPA exceeding that provided for in the same item'.

Being, therefore, clear, as referred to in decision 272/2014-T, that for the legislator only that amount of one million euros, provided that it is dedicated "to a residence (house, autonomous unit or floor with independent use) translates a tax capacity above average and, as such, capable of determining a special contribution to guarantee fair distribution of the tax burden".

And if that is so, we will then have to attend to the concept of "house" as a physical reality that enables a residential purpose, a unit capable of independent use, including its rental, since it is in that economic reality that we will find the externalization of the tax capacity associated with "luxury residences" which the legislator considered relevant. Moreover, if that were not the case, the legislator would proceed to a discrimination that would not be justified, since as already seen there is no censure of vertical ownership in the system when compared with condominium ownership. Moreover, that distinction would collide with a necessary equity between identical externalizations of the same tax capacity.

Now, the tax capacities externalized by the ownership of a property composed of a set of autonomous units in condominium ownership or by a set of divisions with independent use in a vertical ownership regime, cannot but be considered identical, if not indeed, possibly, lower in the case of the second hypothesis. That is to say, a property certainly does not have a higher market value because it is organized as vertical ownership. It is worth the same (allowing equal benefit by its use or equal income through its rental, as referred to above), or will even have a lower value, since the alternatives for transferability will possibly be fewer. And we know that the TPA intends to be an approximation, precisely, to the market value of properties and will therefore be the measure and limit of the tax capacity relevant to the new item of the TGIS. (cf. the decision we have been citing, delivered in case 349/2015-T).

Thus, the interpretation advocated by the TA, finding no hermeneutic justification, as seen so far, would still lead to a manifest inequality between owners of properties in condominium ownership and in vertical ownership (and we have also seen that there is no discernible penalizing intention against the latter, even if it were admitted that such would be constitutionally admissible).

In that same sense, as well emphasized in the decision of case 272/2014-T of the CAAD, the "existence of a property in vertical ownership or condominium ownership cannot be, by itself, an indicator of tax capacity. On the contrary, it follows from the law that one and the other should receive the same tax treatment in compliance with the principles of justice, tax equality and material truth".

Concluding, "the material truth is the one that imposes itself as the determining criterion of tax capacity and not the mere legal-formal reality of the property, since the establishment of condominium ownership implies merely a legal alteration of the property and does not even impose a new evaluation", and that fact "does not appear coherent with the decision of the TA to tax the residential parts of a property in vertical ownership, according to the total TPA of the property and not to that which is effectively attributed to each part." Thus, "the TA cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of tax legality … and also the principles of justice, equality and tax proportionality" (cf. the decision delivered in case 26/2014-T of the CAAD).

In conclusion, on the terms set forth, the tax acts in question suffer from the defect of breach of law, due to error in the legal and factual premises, since no part of the property possesses a TPA valued at or greater than the threshold resulting from the applied norm, which renders said tax acts voidable.

3) Constitutionality:

As to the third and last issue to be decided, the conclusion to which we have arrived above leaves prejudged the analysis of the unconstitutionality of the norm, whether on the basis of a violation of the principle of equality or on the basis of the principle of legality (grounds which would lead to opposite conclusions).

This is because the interpretation advocated results, precisely, from the text of the law, and not from an application divergent from its immediate normative command, through mediate and subsequent intervention of any constitutional principle, or through innovative intervention of the interpreter.

The illegality of the acts results from the norm invoked not being applicable to the situation in question, since none of the assessments report to the minimum threshold required by the said item no. 28, and should thus be voided on that basis, which constitutes a conclusion prior to the analysis of the constitutionality of the norm.

And, on the other hand, it corresponds to the option of the legislator, not to that of the interpreter, who would substitute himself for the legislator with a different interpretation, and therefore the observance of the principle of legality is also not at issue.

None of the parties raised any question that corresponds to what the Constitutional Court has been, in its jurisprudence and in a consistent manner, considering as constituting a question of normative constitutionality.

In fact, according to the settled jurisprudence of the Constitutional Court, in order to be able to consider that a question of constitutionality is at issue, it is not sufficient to state that the interpretation of a given legal provision in a sense contrary to that advocated by the interested party violates the Constitution.

It is necessary that the question of constitutionality of the norm be discernible as autonomous in relation to the theme of its interpretation and application to the facts of the case.

Which clearly is not verified in this case.

In fact, neither the Applicant nor the Respondent raised a question of unconstitutionality of the norm in question, which would require examination, rather they limited themselves, both, even if in opposite direction, to arguing that an interpretation different from that which they advocate would be contrary to the principle of equality, to one, and of legality, to the other.

Therefore, it is understood that no question of unconstitutionality of the norm in question has been raised which it is necessary for the Tribunal to examine.

5. DECISION

On these terms and with the justification above, it is decided:

To judge unfounded the exception of incompetence of the Arbitral Tribunal raised by the Respondent.

To judge entirely well-founded the request of the Applicant and, in consequence, to void the assessment acts in question, on the basis of breach of law, resulting from error in the premises.

The case value is fixed at 10,362.20€ (ten thousand, three hundred and sixty-two euros and twenty cents), in accordance with the provisions of Articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, letter a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at 918.00€ (nine hundred and eighteen euros) under Article 22, no. 4 of the RJAT and Table I attached to the RCPAT, to be borne by the Respondent, in accordance with the provisions of Articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT and 527 of the CPC.

Let it be notified.

Lisbon, 01 June 2016

The Arbitrator,

(Eva Dias Costa)

Text prepared by computer, under the terms of Article 131, no. 5 of the Code of Civil Procedure, applicable by virtue of the reference in Article 29, no. 1, letter e) of the RJAT.

Frequently Asked Questions

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What is the Stamp Tax (Imposto do Selo) liability under Clause 28.1 of the TGIS for properties not constituted in horizontal ownership?
Under Clause 28.1 of the TGIS, properties not constituted in horizontal ownership (condominium) but in vertical ownership are subject to stamp tax when their total taxable patrimonial value (VPT) exceeds the statutory minimum threshold. The Tax Authority's position is that vertical property constitutes a single property unit for tax purposes, regardless of having independently usable divisions with separate registry entries. Therefore, the VPT of all divisions is aggregated to determine if the minimum threshold is met. If the aggregated VPT exceeds the threshold, the 1% stamp tax applies to the entire property value, even though no individual division may reach the threshold independently. This interpretation treats the building as one taxable unit, distinct from horizontal property where autonomous units can have different owners.
How is the taxable value (VPT) calculated for vertical property buildings with independently usable divisions under Portuguese tax law?
For vertical property buildings with independently usable divisions, Portuguese tax law calculates the taxable value (VPT) by aggregating the patrimonial values of all divisions that comprise the property. According to the Tax Authority's interpretation, even though each division has a separate matrix entry with an individual VPT, the property remains a single legal unit for Stamp Tax purposes under Clause 28.1 TGIS. The individual VPTs of all residential divisions are summed to determine whether the minimum threshold for tax incidence is met. This approach differs from horizontal property (condominium ownership) where each autonomous fraction is independently assessed. The rationale is that vertical property ownership necessarily vests in a single owner or co-owners, maintaining the unity of the property despite the physical separation into independently usable parts.
Does the CAAD arbitral tribunal have jurisdiction to review tacit refusals of ex officio revision requests for Stamp Tax assessments?
The Tax Authority challenged the CAAD arbitral tribunal's jurisdiction, arguing that tacit refusal of ex officio revision requests falls outside the tribunal's material competence. The Authority contends that when tacit rejection occurs, the Tax Authority has not assessed the legality of the underlying assessments. Therefore, the immediate object of proceedings is the tacit rejection decision itself—an administrative act in tax matters that does not assess the legality of assessment acts. Under Article 97(1)(a) CPPT and Article 2 RJAT, such administrative acts cannot be challenged through judicial review proceedings and thus fall outside arbitral tribunal competence. The applicant countered that judicial review is the appropriate remedy for challenging tacit refusals by the director-general regarding ex officio revision of tax assessment acts. This jurisdictional question requires resolution before addressing substantive tax issues.
Can the individual VPT of separate matrix entries be aggregated to meet the minimum threshold for Stamp Tax incidence under Clause 28.1 TGIS?
According to the Tax Authority's position, individual VPT values of separate matrix entries can and must be aggregated to determine whether the minimum threshold for Stamp Tax incidence under Clause 28.1 TGIS is met in vertical property cases. The Authority argues that vertical property constitutes a single property unit despite having multiple independently usable divisions with separate registry entries. The relevant VPT for assessing the statutory minimum is the total property value, not each division's individual value. This aggregation approach ensures that the entire building's value is considered as one taxable unit. The applicant disputes this interpretation, arguing that separate registry entries with individual VPT values below the threshold should not trigger taxation, as each part should be evaluated independently like autonomous condominium units. The case fundamentally turns on whether vertical property should be treated as a unified whole or as separate taxable units.
Does taxing vertical property owners based on aggregated VPT values violate the constitutional principle of equality in Portuguese tax law?
The applicant argues that taxing vertical property owners based on aggregated VPT values while potentially treating condominium ownership differently violates the constitutional principle of equality. However, the Tax Authority contends that differential treatment is not necessarily unconstitutional or arbitrary. The Authority notes that the legislature may have intentionally favored the more legally evolved condominium ownership regime by subjecting it to different tax treatment. Furthermore, the Authority argues that treating vertical property as a single unit for aggregation purposes reflects legal reality—vertical property ownership necessarily vests in one owner (or co-owners), whereas condominium units can have different owners. The Authority also suggests that interpreting the law to treat individual divisions separately would itself violate the principle of tax legality under Article 103(2) of the Portuguese Constitution by distinguishing where the legislature did not distinguish. This raises complex constitutional questions about permissible legislative distinctions in tax law.