Process: 262/2016-T

Date: November 2, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

The CAAD arbitral tribunal in Process 262/2016-T examined the application of Stamp Tax under item 28.1 of the General Table of Stamp Duty (TGIS) to vertical property buildings with independently valued units. The case involved A..., S.A.'s challenge to five Stamp Duty assessment acts for 2015, disputing whether properties not constituted in horizontal property (condominium) ownership but containing independent units should be taxed based on aggregated or individual taxable patrimonial values (VPT). The claimant argued that since the vertical property comprised six separately registered units with individual VPT registrations, each below the minimum threshold for Stamp Tax incidence under item 28.1 TGIS, the tax should not apply. The company contended that aggregating the VPT values of independent units to meet the statutory threshold violated principles of fiscal legality, contributory capacity, equality in taxation, proportionality, and justice under the Portuguese Constitution (Articles 13, 103, 104, and 266 CRP). The Tax and Customs Authority defended the assessments by exception and objection. By exception, it challenged the arbitral tribunal's material competence, arguing the dispute concerned collection notes rather than assessment acts, which falls outside CAAD's jurisdiction. By objection, the Authority maintained that vertical property constitutes a single property unit for tax purposes, requiring the VPT to be calculated for the entire building rather than individual floors or units. The Authority argued that treating separately registered units within vertical property as equivalent to autonomous units in horizontal property ownership would violate the constitutional principle of fiscal legality by creating distinctions not established by the legislator. This dispute highlights fundamental questions about Stamp Tax assessment methodology for complex property structures and CAAD's jurisdictional authority.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1 A..., S.A., a legal entity..., with registered office at Rua de ..., ... and ..., in Lisbon, came, pursuant to article 2, no. 1, paragraph 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 TAX AND CUSTOMS AUTHORITY is the Respondent in the proceedings.

1.3 The Deontological Council of the Administrative Arbitration Centre (CAAD) appointed the undersigned to form the Singular Arbitral Tribunal, having notified the parties accordingly, and the Tribunal was constituted on 14 July 2016.

1.4 The request for arbitral pronouncement has as its object "the acts of assessment of Stamp Duty relating to the year 2015 identified in the collection documents no. 2016..., no. 2016..., no. 2016..., no. 2016... and no. 2016... all executed on 05 April 2016 by the Finance Office of Lisbon-...", which are better identified in the Claimant's request and in the documents attached thereto, to which reference is made here.

1.5 The Claimant invokes the illegality of the assessment acts, contesting the application of the new item 28.1 of the General Table of Stamp Duty (TGIS) to urban properties not constituted in condominium ownership, but which include units susceptible to independent use, in which the minimum incidence value fixed by law is reached by the sum of the TVP (Taxable Patrimonial Value) of the separate (or autonomous) property registrations corresponding to those various units, but not by any one of them individually considered.

It contends that by the fact that the property, although not constituted in condominium ownership, is constituted by parts susceptible to independent use, the TVP relevant for assessing the fulfilment of the requirement upon which the incidence of the aforementioned item depends is not fulfilled, since each of the parts of the property susceptible to independent use has a separate registration in the corresponding property roll and, therefore, an individualized TVP lower than the aforementioned minimum limit.

The Claimant maintains, therefore, that it is not the owner of a property with a TVP equal to or greater than the aforementioned minimum amount, but rather the owner of a property in vertical condominium in which the TVP greater than this value is only achieved by the sum of the TVP of the units susceptible to independent use allocated to housing, without any of them, considered individually, reaching this minimum amount of tax relevance.

For this reason, according to the Claimant, the assessments in dispute are subject to the defect of violation of law, which makes them voidable.

The Claimant alleges that an interpretation contrary to what it proposes would result in "a shocking and intolerable violation of the principles of fiscal legality, contributory capacity, equality in the taxation of patrimony, proportionality and justice enshrined in articles 13, 103, nos. 1 and 2, 104, no. 3 and 266, no. 2" of the CRP (Constitution of the Portuguese Republic).

It concludes by requesting the annulment of the assessment acts in dispute and the condemnation of the Respondent to refund the amounts paid by the Claimant, as well as compensatory interest.

1.6 By petition of 21.09.2016, the Claimant attached to the case file the collection documents relating to the second instalment of the disputed tax as well as proof of its payment.

1.7 The TAX AND CUSTOMS AUTHORITY presented its Response on 30.09.2016, defending itself by exception and by objection.

By exception, the Tax Authority invokes the incompetence of the Arbitral Tribunal, in so far as it contends that the Respondent "does not dispute the tax assessment act, but rather the payment of two instalments of the assessment act contained in the collection note", a matter which "does not appear, in any way, in the set of the norm which delimits the competence of tax arbitral tribunals".

It further invokes by exception the unimpugnable nature of the stamp tax collection notes which, in its view, are the object of the request for arbitral pronouncement.

By objection, the Respondent defended itself by maintaining the assessments, emphasizing, in summary, that total property, or vertical property, corresponds to a property, being this the reality to be considered for ascertaining the verification of the minimum value contained in the incidence norm.

For the Respondent, the TVP relevant for the purposes of tax incidence is, therefore, the TVP of the urban property and not the TVP of each one of the parts that comprise it, even though these may be susceptible to independent use, given that they are allocated to housing. 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.

It adds that a different understanding (i.e., that the TVP relevant to the incidence norm would correspond to the TVP of each floor or unit susceptible to independent use) would be unconstitutional, by violation of the principle of fiscal legality (inherent in art. 103, no. 2 of the CRP), by differentiating where the legislator did not distinguish.

1.8 The Respondent did not attach the administrative file to the proceedings, having, in the response presented, requested dispensation thereof.

1.9 On 04.10.2016, the Tribunal issued a ruling noting the intention to dispense with the holding of the arbitral tribunal meeting provided for in article 18 of the RJAT, and granting to the Claimant a period of 10 days to simultaneously respond to the exception and submit arguments, and to the Respondent, an equal period to submit arguments counted from the date on which it was notified of those submitted by the Claimant.

1.10 On 14.10.2016, the Claimant submitted arguments, in which, responding to the matter of exception, it argues that it clearly follows from its request that the disputed acts are the acts of assessment of stamp duty and not the collection notes which it attached, and therefore it concludes that the exceptions are unfounded and, furthermore, reiterates the content of its request.

1.11 In the arguments presented on 28.10.2016 the Respondent insists that the disputed acts are the collection notes and that, therefore, the invoked exceptions should be judged as well-founded and the Tax Authority absolved of the request and concludes by reiterating that there can be no analogy with the condominium ownership regime, and that any other interpretation would violate the principle of legality and would therefore be unconstitutional.

2. SANCTION

The Tribunal was duly constituted.

The parties have legal personality and capacity, show themselves to be entitled and are duly represented.

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

The question of the material competence of the Arbitral Tribunal is at issue, the consideration of which is deferred to the matter of law – questions to be decided, as it is understood that it is essential that a prior decision be rendered regarding the matter of fact.

3. MATTER OF FACT

With relevance for the decision on the merits, the Tribunal considers the following facts to be proven:

1) The Claimant is the owner of the urban property in vertical condominium located at Rua de ..., ... and ..., in Lisbon, registered in the property roll under article ... of the parish of ...;

2) The property is composed of 6 floors or units susceptible to independent use, identified as "RC", "RC56", "S. 58", "1st56", "2nd+S", "2nd58" on the ground floor and on the first, second, third and fourth floors;

3) The property registration identifies separately each one of those units, and the respective TVP is also discriminated in relation to each one of them;

4) All those units have residential allocation, with the exception of the one identified as "RC", which is intended for "covered and unfenced parking";

5) The taxable value of each one of those units, determined under the Municipal Property Tax Code (CIMI) varies between 70,060.00€ and 343,960.00€, being all, therefore, individually considered, less than 1,000,000.00€, but the value of all the units considered together totals 1,668,590.00€;

6) The assessments in question result from the application of the stamp duty provided for in item no. 28.1 of the General Table of Stamp Duty (TGIS) annexed to the Stamp Duty Code (CIS) in the wording given to it by art. 4 of Law no. 55-A/2012, of 29 October, at the rate of 1% to the taxable patrimonial value of five of the units susceptible to independent use that have residential allocation of the aforementioned property with reference to the year 2015, having been considered as the basis for the application of the norm the total value of 1,598,530.00€;

7) The claimant paid the first and second instalment of the assessments in dispute.

Facts not proven

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

Reasoning of the Decision on the Matter of Fact

The conviction regarding the facts given as proven was based on the allegations of the Claimant and Respondent not contradicted by the opposing party, supported by the documentary evidence attached by the Claimant, whose authenticity and correspondence to reality were also not questioned.

4. MATTER OF LAW – QUESTIONS TO BE DECIDED

The essential questions to be decided are:

1) Is the object of the request for arbitral pronouncement the collection notes for the first and second instalments of the stamp duty assessment resulting from the application of item 28.1 of the TGIS or is it, on the contrary, the act of assessment of that tax and, if the collection notes are:

a) Is the Arbitral Tribunal incompetent to pronounce itself on the illegality of these collection acts;

b) Are the collection acts unimpugnable acts?

2) With reference to properties not constituted under a condominium ownership regime, comprised of various floors and units with independent use, some of which with residential allocation, is the TVP relevant as a criterion for tax incidence the one corresponding to the sum of the taxable patrimonial value attributed to the different parts or floors (global TVP) or, rather, the TVP attributed to each one of the parts or residential floors?

3) Constitutionality:

a) Is the application of the new item 28.1 of the TGIS to urban properties not constituted in condominium ownership, but which include units susceptible to independent use, in which the minimum incidence value fixed by law is reached by the sum of the TVP of the separate (or autonomous) property registrations corresponding to those various units, but not by any one of them individually considered, which the Tax Authority advocates, unconstitutional by violation of the principles of fiscal legality, contributory capacity, equality in the taxation of patrimony, proportionality and justice enshrined in articles 13, 103, nos. 1 and 2, 104, no. 3 and 266, no. 2"?

b) Is the contrary interpretation, which the Claimant advocates, unconstitutional, by violation of the principle of legality in tax matters?

It is necessary to decide:

1) On the exceptions:

Questions relating to competence are matters of priority consideration, as results from the provision in article 13 of the Code of Procedure in Administrative Courts, subsidiarily applicable, by virtue of the provision in article 29, no. 1, paragraph c), of the RJAT.

The competence of the arbitral tribunals operating in the CAAD is, first and foremost, 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 comprises the consideration 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 taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable matter and of acts of determination of patrimonial values (as amended by Law no. 64-B/2011, of 30 December).

Beyond the direct consideration of the legality of acts of this type, the competence of the arbitral tribunals operating in the CAAD also includes competence to consider acts of second or third degree which have as their object the consideration of the legality of acts of those types, namely acts that decide gracious complaints and hierarchical appeals, as results from the express references made in article 10, no. 1, paragraph a), of the RJAT to no. 2 of article 102 of the Code of Procedure in Administrative Courts (which refers to the judicial challenge of decisions on gracious complaints) and to the "decision of the hierarchical appeal".

The fact that paragraph a) of no. 1 of art. 10 of the RJAT makes reference to nos. 1 and 2 of art. 102 of the Code of Procedure in Administrative Courts, in which the various types of acts which give rise to the judicial challenge period are indicated, makes it clear that all types of acts capable of being challenged through judicial challenge proceedings, covered by those nos. 1 and 2, will be encompassed within the jurisdiction of the arbitral tribunals operating in the CAAD, provided they have as their object one of the types indicated in that art. 2 of the RJAT.

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

Restricting the competence of the arbitral tribunals operating in the CAAD to the field of application of the judicial challenge process, only claims that involve the consideration of the legality of an assessment act are included in this competence.

The legislative concern to exclude from the competence of the arbitral tribunals operating in the CAAD the consideration of the legality of administrative acts that do not involve the consideration of the legality of assessment acts, beyond resulting, from the outset, from the generic directive of creating an alternative means to the judicial challenge process and to the action for recognition of a right or legitimate interest, results clearly from paragraph a) of no. 4 of art. 124 of Law no. 3-B/2010, of 28 April, in which it is indicated among the possible objects of the tax arbitral process "the administrative acts which involve the consideration of the legality of assessment acts", because this specification can only be justified by a legislative intention to exclude from the possible objects of the arbitral process the consideration of the legality of acts that do not involve the consideration of the legality of assessment acts.

However, contrary to what the Respondent alleges, the Claimant did not make requests for arbitral pronouncement relating to "each one of the instalments individually (sic)". On the contrary, it is clear throughout all the submissions by the Claimant and from the final formulation of its request that the Claimant's request is for annulment of the act of assessment of Stamp Duty resulting from the application of item no. 28.1 of the TGIS to the floors or units susceptible to independent use of the property there better identified (and in the matter given as proven) with residential allocation.

Therefore, without need for other considerations, the exceptions adduced by the Respondent are judged to be unfounded.

2) In properties not constituted under a condominium ownership regime, comprised of various floors and units with independent use, some of which with residential allocation, what is the TVP relevant as a criterion for the incidence of stamp duty for the purposes of application of item 28.1 of the TGIS?

The second question to be decided corresponds to the application, in situations of the so-called vertical property, of the new taxation in Stamp Duty falling on urban properties with residential allocation and TVP 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 TVP (minimum) relevant for the application of item 28.1 of the TGIS in cases of vertical property, 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 have already pronounced themselves.

In all of them the question lay, as in these proceedings, in ascertaining whether the TVP relevant to the incidence norm (28.1 of the TGIS) is the TVP corresponding to each one of the units susceptible to independent use separately considered in the property roll or whether, on the contrary, the TVP relevant should correspond to the sum of all those units susceptible to independent use, but comprising a single property and which are allocated to housing.

And the answer, in those decisions, was always for the first option, with which we agreed and have already maintained in previous decisions.

It is important to bear in mind that each floor or part of a property susceptible to 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 art. 12 of the CIMI), and the Municipal Property Tax is assessed individually in relation to each floor or part of a property susceptible to independent use (art. 119, no. 1 of the CIMI), as also happened in the case in question.

And, if that is the case with the Municipal Property Tax, it should also be the case with Stamp Duty, especially since, as the Respondent well notes, the Stamp Duty Code refers to the CIMI.

As the decision taken in case 206/2014-T alerts: "Given that the Stamp Duty Code refers to the CIMI, it must be concluded that the registration in the property roll of immovable property in vertical condominium, comprised of different parts, floors or units with independent use, follows the same registration rules as horizontal condominium". Since the Municipal Property Tax and Stamp Duty "are assessed individually in relation to each one of the parts", the "legal criterion for defining the incidence of the new tax will also 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 units with independent use presents a TVP, at least, equal to the amount provided in the incidence norm.

As well explained in the decision rendered by the Arbitral Tribunal in case 349/2015-T, "Thus, the property will be the independent area, considered separately and autonomously in the property roll, being subject to Stamp Duty if two requirements are met: being intended for residential purposes and having a TVP equal to or greater than one million euros, a criterion for assessing high-value residential properties. Otherwise, a reality not foreseen 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 TVP thereof, spurious to the property registrations, would consist of the fiction of a TVP given by the addition of the autonomous TVP of each unit (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 fictionalize a third reality, hybrid, midway between the urban property and its independent units to which the legislator of the Municipal Property Tax, and of Stamp Duty by reference to the CIMI, understood to give tax relevance.

Also in the decision rendered in case 272/2013-T (CAAD) it is stated that "considering that the registration in the property roll of immovable property in vertical condominium, comprised of different parts, floors or units with independent use, in accordance with the CIMI, follows the same registration rules as properties constituted in condominium ownership, with the respective Municipal Property Tax, as well as the new Stamp Duty, being assessed individually in relation to each one of the parts, it offers no doubt that the legal criterion for defining the incidence of the new tax must be the same". In fact, it is said, the Tax Authority's position "finds no legal support and is contrary to the criterion resulting from the application in the Municipal Property Tax Code and, by reference, in Stamp Duty", which is why "the adoption of the criterion defended by the Tax Authority violates the principles of legality and fiscal equality, as well as that of the prevalence of material truth over legal-formal reality".

And in the same sense it is stated in the arbitral decision in case 30/2014-T to find in the doctrine of the Tax Authority a "non-conformity with the literal element of the final part of the incidence norm (item 28 of the TGIS) which states that the tax falls on "the taxable patrimonial value used for the purpose of Municipal Property Tax" and therefore should not fall on the sum of taxable patrimonial values of properties, parts of properties or floors, having no legal support the operation of adding taxable patrimonial values of floors or parts of properties susceptible to independent use, of residential allocation, separated from the TVP of the others with different purposes, so as to reach the eligible taxation threshold of 1,000,000.00 euros or more".

As also stated in that arbitral decision, what happens with respect to urban properties with residential allocation, in vertical condominium, with floors or units susceptible to independent use, is that the Tax Authority proceeds, in Stamp Duty assessment operations, to the adaptation of the rules of the Municipal Property Tax Code (adding the taxable patrimonial values of a single property, without considering those corresponding to parts of the property with non-residential purpose, thus giving rise to a new and hybrid TVP). In fact, that "adaptation" corresponds to "summing the TVP of each floor or independent unit allocated to residential purposes (separated from the TVP of floors or units intended for other purposes), creating a new legal reality, without legal support, which is a global TVP of urban properties in vertical condominium, with residential allocation", which goes "against the literal element of the incidence norm".

Thus, "in urban properties with residential allocation, in vertical condominium, with floors or units susceptible to independent use", the taxable patrimonial value should be considered "which results exclusively from no. 3 of article 12 of the CIMI. Both for the Municipal Property Tax and for this Stamp Duty".

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

Starting from the same position, the arbitral decision rendered in case 349/2015-T concludes that "as clearly follows from the decisions cited, that the literal interpretation of the new item of the TGIS cannot but be different from that sustained by the Tax Authority, indeed, the opposite, given the clear and undisputed 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 to thus obtain a hybrid TVP, not recognized in the property roll and without any support in the text of the law."

And did so by also invoking the criterion of the economic substance of the tax facts: "the expression "each urban property" used in no. 7 of article 23, for identical reasons, encompasses not only urban properties in condominium ownership, but also floors, units or parts of urban properties in vertical condominium, provided they are allocated to residential purposes, always starting, in any of the cases, from a single tax base for all legal purposes: the taxable patrimonial value used for the purposes of Municipal Property Tax (...). The economic reality of the holding of independent parts, e.g. susceptible to independent use or autonomous lease, just as the autonomous units in the case of condominium ownership, and therefore capable of allowing use or the obtaining of income in a similar manner and thus externalizing, thereby, equal contributory capacity (as would be externalized by the sum of the TVP of various autonomous units of the same property in condominium ownership or of several properties which together would exceed the value of one million euros, without such having been considered by the legislator as externalization of contributory capacity relevant for the purposes of Stamp Duty)."

Furthermore, as stated in the Decision rendered in case 26/2014-T of the CAAD, there is no sign of any censure by the legislator of vertical property. In fact, "it may be said, not unreasonably, that the legislator, for the purposes of taxation under the Municipal Property Tax, chose to confer autonomy, independence, to each one of the parts or to each one of the floors of a single property, provided that one and the others show themselves to be of independent use, to the point of providing for individualized registration in the property roll of each one of those independent parts and of imposing on taxation under the Municipal Property Tax an assessment that is also autonomous. Despite the legal existence of a single property, it is the legislator himself who not only recommends but imposes the autonomous consideration of each one of the independent parts, for the purposes of taxation of patrimony".

In fact, as decided in cases 26/2014-T and 272/2013-T and 349/2015-T, "the legislator is indifferent to one or another form of structuring the ownership of urban properties in the Municipal Property Tax Code, it would not be understood that he now intended to favour 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 constitute condominium ownership", which is why "the discrimination operated by the Tax Authority translates to arbitrary and illegal discrimination", because "the Tax Authority cannot distinguish where the legislator himself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality provided in article 103, no. 2 of the CRP, and also the principles of justice, equality and proportionality in taxation."

And the fact is that nothing induces the interpreter to the conclusion that the specific legislator of the new item of the TGIS, contrary to the legislator of the Municipal Property Tax, which in fact remains unchanged, intended to discriminate vertical property against horizontal. As well recalled in the Decision rendered in the aforementioned case 26/2014-T of the CAAD, also referred to in the aforementioned decision in case 349/2015-T "when presenting and discussing, in Parliament, bill no. 96/XII (2nd), the Secretary of State for Tax Affairs expressly stated: "The Government proposes the creation of a special rate on high-value residential urban properties. It is the first time in Portugal that a special taxation on high-value properties intended for housing is created. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros" (see DAR I Series no. 9/XII -2, of 11 October, page 32). Now, as emphasized in that Decision, "the Secretary of State for Tax Affairs presents this bill referring without hesitation to the expression "houses"… of a value equal to or greater than 1 million euros", whereby "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, units or parts susceptible to independent use when only from their sum results a TVP greater than that provided for by the same item".

Being, therefore, clear, as stated in the aforementioned decision 272/2013-T, that for the legislator only that amount of one million euros, provided it is allocated to "a dwelling (house, autonomous unit or floor with independent use) translates a contributory capacity above the average and, as such, capable of determining a special contribution to ensure fair distribution of the tax burden".

And if that is so, we would then have to consider the concept of "house" as a physical reality that makes possible a residential purpose, a unit susceptible to independent use, including its lease, because it is in that economic reality that we will find the externalization of the contributory capacity associated with "luxury homes" that the legislator considered relevant. Moreover, if that were not the case, the legislator would proceed to a discrimination that would not be justified, because as we have already seen there is no censure in the system of vertical property when compared with horizontal. Moreover, that distinction would clash with a necessary equity between identical externalizations of the same contributory capacity.

Now, the contributory capacities externalized by the ownership of a property composed of a set of autonomous units in condominium ownership or by a set of units of independent use under vertical property, cannot but be considered identical, if not even, possibly, lower in the case of the second hypothesis. That is, a property does not surely have a greater market value by being organized as vertical property. It is worth the same (allowing equal benefit from its use or equal income via its lease, as mentioned above), or will even have a lower value, since the alternatives for transferability will possibly be fewer. And we know that the TVP intends to be an approximation, precisely, to the market value of properties and will therefore be the measure and the limit of the contributory capacity relevant to the new item of the TGIS. (see the decision we cited, rendered in case 349/2015-T).

Thus, the interpretation advocated by the Tax Authority, finding no hermeneutical justification, as we have seen so far, would further lead to a manifest inequality between owners of properties in condominium ownership and in vertical condominium (and we have also seen that there is no discernible penalizing intention toward these, even if it were admitted that such were constitutionally permissible).

In that same sense, as well stated in the decision in case 272/2013-T of the CAAD, the "existence of a property in vertical or condominium ownership cannot, in itself, be an indicator of contributory capacity. On the contrary, it follows from the law that both should receive the same tax treatment in obedience to the principles of justice, fiscal equality and material truth".

Concluding, "material truth is what imposes itself as the determining criterion of contributory capacity and not the mere legal-formal reality of the property, given that the constitution of condominium ownership implies a mere legal alteration of the property not even imposing a new assessment", and that fact "does not appear coherent with the decision of the Tax Authority to tax the residential parts of a property in vertical condominium, on the basis of the global TVP of the property and not of what is effectively attributed to each part." Thus, "the Tax Authority cannot distinguish where the legislator himself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality ... and also the principles of justice, equality and proportionality in taxation" (see the decision rendered in case 26/2014-T of the CAAD).

In the case in question we find reinforcement of this idea in the very conduct of the tax administration, which did not assess tax with respect to the floor or unit susceptible to independent use that does not have residential allocation, the one identified as "RC" intended for parking, having considered as the total value of the property which served as the basis for the application of item 28.1 the sum of the values individually considered of each one of those units, totalling 1,598,530.00€, and not the total patrimonial value of the property contained in the property roll, which is 1,668,590.00€.

In conclusion, along the lines set out, the tax acts in dispute are subject to the defect of violation of law, due to error in the legal and factual premises, since no part of the property has a TVP of a value equal to or greater than the threshold resulting from the norm applied, which makes said tax acts voidable.

3) Constitutionality:

As to the third and last question to be decided, the conclusion we reached above makes moot the analysis of unconstitutionality of the norm, whether based on a violation of the principle of equality and contributory capacity, or also based on the principle of legality (grounds that 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, by the mediate and subsequent intervention of any constitutional principle, or by 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 relates to the minimum threshold required by the aforementioned item no. 28, and should therefore be annulled 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, whereby 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, in its jurisprudence and consistently, considered as constituting a question of normative constitutionality.

In truth, 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 what is advocated by the interested party violates the Constitution.

It is necessary that the autonomization of the question of constitutionality of the norm relative to the issue of its interpretation and application to the facts of the case be discernible.

Which clearly does not occur in this case.

In truth, neither the Claimant nor the Respondent raised a question of unconstitutionality of the norm in dispute that it fell to the Tribunal to consider, but rather limited themselves, one and the other, even though in opposite senses, to argue that an interpretation different from the one they adopt would be contrary to the principle of equality, to one, and of legality, to the other.

Whereby it is understood that no question of unconstitutionality of the norm in dispute was raised that falls to the Tribunal to consider.

5. DECISION

On these grounds and with the reasoning above, it is decided:

To judge unfounded the exceptions of incompetence of the Arbitral Tribunal and of the unimpugnable nature of the acts which are the object of the request for arbitral pronouncement raised by the Respondent.

To judge completely well-founded the request of the Claimant and, in consequence, to annul the assessment acts in dispute, on the ground of violation of law, resulting from error in the premises.

To condemn the Respondent to refund to the Claimant the sums paid by it by virtue of the annulled assessment acts, plus compensatory interest calculated in accordance with article 43 of the General Tax Law from the dates of the payments of such sums until effective and complete refund.

The value of the case is set at 15,985.30€ (fifteen thousand, nine hundred and eighty-five euros and thirty cents), in accordance with the provisions in articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the Code of Procedure in Administrative Courts and 306 of the Code of Civil Procedure.

The amount of costs is set at 918.00€ (nine hundred and eighteen euros) under article 22, no. 4 of the RJAT and Table I annexed to the RCPAT, charged to the Respondent, in accordance with the provisions in articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT and 527 of the Code of Civil Procedure.

Let it be notified.

Lisbon, 2 November 2016

The Arbitrator,

(Eva Dias Costa)

Text prepared by computer, pursuant to article 131, no. 5 of the Code of Civil Procedure, applicable by reference to article 29, no. 1, paragraph e) of the RJAT.

Frequently Asked Questions

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Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable to vertical property buildings with independently valued units?
The central dispute concerns whether Stamp Tax under item 28.1 TGIS applies to vertical property not constituted in horizontal property ownership but containing independently valued units. The claimant argued that separately registered units with individual VPT values below the statutory threshold should not be aggregated for tax purposes. The Tax Authority contended that vertical property constitutes a single property unit, requiring the entire building's VPT to be considered for assessing the minimum incidence threshold, regardless of separate registrations for independent units with residential allocation.
How is the taxable patrimonial value (VPT) threshold determined for properties not constituted in horizontal property regime?
For properties not constituted in horizontal property regime, the determination of the VPT threshold presents interpretive challenges. The claimant maintained that each independently registered unit with separate VPT registration should be assessed individually against the item 28.1 TGIS threshold. However, the Tax Authority argued that the relevant VPT is that of the entire urban property as a unified whole, not individual values of component parts. The Authority emphasized that the legal unity of vertical property is not affected by separate registrations for floors or divisions susceptible to independent use, distinguishing this from autonomous units in horizontal property regimes.
Can the Tax Authority aggregate individual VPT values of independent units to meet the minimum Stamp Tax incidence threshold?
According to the Tax Authority's position, aggregation is legally required for vertical property. The Authority maintained that the minimum incidence value in item 28.1 TGIS is met when the entire property's VPT reaches the statutory threshold, calculated by summing the VPT of separate property registrations corresponding to independent units. The claimant contested this methodology, arguing that aggregating individual VPT values of units that individually fall below the threshold artificially creates tax liability where none exists, violating principles of fiscal legality and equality. The dispute fundamentally concerns whether property unity or registration autonomy determines the tax base.
What constitutional principles apply to Stamp Tax assessment on vertical property under Portuguese tax law?
The constitutional framework governing Stamp Tax assessment includes multiple principles from the Portuguese Constitution. The claimant invoked Articles 13 (equality), 103(1)-(2) (tax legality and contributory capacity), 104(3) (equality in patrimony taxation), and 266(2) (proportionality and justice), arguing that aggregating VPT values to reach the threshold creates shocking and intolerable disparities. Conversely, the Tax Authority argued that treating vertical property differently from unified property would itself violate the fiscal legality principle under Article 103(2) CRP by creating distinctions not established by the legislator, rendering such interpretation unconstitutional.
What is the CAAD arbitral tribunal's competence to review Stamp Tax liquidation acts under Verba 28.1 TGIS?
The Tax Authority challenged CAAD's material competence by exception, contending that the dispute concerned collection notes rather than assessment acts, placing the matter outside arbitral jurisdiction under the RJAT (Decree-Law 10/2011). The Authority also invoked the unimpeachable nature of Stamp Tax collection notes. The claimant responded that its request clearly challenged the assessment acts themselves, not the collection instruments, as evidenced by the petition's explicit identification of liquidation acts. The tribunal deferred resolution of this jurisdictional question to the legal merits section, recognizing that prior factual determinations were necessary for proper competence determination.