Process: 306/2015-T

Date: November 12, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 306/2015-T addressed the application of Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) to urban properties held under vertical property (propriedade vertical) regime. The claimant, a usufructuary of a residential building in Lisbon comprising 12 independent housing units across 6 floors, challenged stamp tax assessments totaling €3,920.58 for 2012. The central dispute concerned valuation methodology: whether stamp tax should be calculated based on each independent unit's individual tax patrimonial value (VPT) or the aggregate sum of all units. The Tax Authority summed the individual VPTs, resulting in a total exceeding €1,000,000, triggering stamp tax liability under Verba 28.1 TGIS. The claimant argued this interpretation was illegal and unconstitutional, contending that properties in vertical ownership should be assessed like horizontal property condominiums, where each autonomous unit is registered and valued separately under CIMI Articles 7(2)(b) and 12(3). She maintained that no legal provision mandates adding individual unit values to determine total property VPT for stamp tax purposes. The claimant further alleged violation of the tax equality principle, asserting identical treatment should apply regardless of whether properties are held under vertical or horizontal ownership regimes when both contain independent residential fractions. The arbitration proceeded under the Legal Regime of Tax Arbitration (RJAT - Decree-Law 10/2011) before CAAD's singular arbitral tribunal. The case raised fundamental questions about the interpretation of stamp tax provisions for multi-unit buildings, the distinction between vertical and horizontal property regimes for tax purposes, and whether aggregating unit values for stamp tax calculation complies with constitutional equality principles and proper statutory interpretation of CIMI valuation rules.

Full Decision

CLAIMANT: a…

RESPONDENT: Tax and Customs Authority

Arbitral Decision

I REPORT

The Parties and the Constitution of the Arbitral Tribunal

  1. a.., TIN…, resident at …, no. … – …º, …-…, Lisbon, hereinafter referred to as the "Claimant", submitted a request for the constitution of a singular Arbitral Tribunal, pursuant to the provisions of article 95 of the General Tax Law, article 99, paragraph a) of the Code of Tax Procedure and Process, article 10 and paragraph a), no. 1, of article 2, of the Legal Regime of Tax Arbitration (RJAT), approved by Decree-Law no. 10/2011, of 20 January, and of articles 1 and 2 of Portaria no. 112 – A/2011, of 22 March, to examine the dispute opposing her to the Tax and Customs Authority, hereinafter referred to as the "Respondent" or "AT", with a view to the declaration of illegality, with the consequent annulment, of the acts of assessment of stamp duty tax, item 28 of the General Table of Stamp Duty Tax (TGIS), in the amount of €3,920.58, relating to the year 2012 and to the urban property constituted under the regime of full ownership, dedicated to residential use, composed of 12 units, registered in the urban property register under no. … of the parish of …, Lisbon, of which she is usufructuary. (See Document 1 attached to the arbitral request)

  2. The request for constitution of the Arbitral Tribunal, submitted on 14 May 2015, was accepted by His Excellency the President of CAAD on 18.05.2015 and automatically notified to the Tax and Customs Authority.

The Claimant opted not to designate an arbitrator, whereupon, pursuant to the provisions of no. 1, article 6 of the RJAT, the undersigned was designated by the Deontological Council of the Centre for Administrative Arbitration as arbitrator of the singular Arbitral Tribunal. The appointment was accepted and the parties were notified of the acceptance on 13.07.2015, in accordance with the terms provided for in paragraphs a) and b), no. 1, article 11 of the RJAT, in conjunction with the provisions of articles 6 and 7 of the Deontological Code.

Therefore, in accordance with the provisions set forth in paragraph c), no. 1, article 11, of Decree-Law no. 10/2011, of 20 January, as amended by article 228, of Law no. 66-B/2012, of 31 December, the singular Arbitral Tribunal was constituted on 28.07.2015.

The Respondent "AT" was notified on 5.08.2015 to submit a reply within the legal period, in accordance with the provisions of nos. 1 and 2, article 17, of the RJAT. On 29 September the AT submitted its Reply and, simultaneously, a request for the dispensation of the holding of the meeting provided for in article 18 of the RJAT, given that there were no exceptions nor evidence to be produced in the proceedings, the matter being solely one of law, thus being able to proceed to the final decision.

On 5 October 2015 an arbitral order was issued for the Claimant to pronounce itself on the possibility of dispensation of the holding of the meeting provided for in article 18 of the RJAT. The Claimant pronounced itself favourably to the proposal to dispense with the meeting, whereupon, on 19 October 2014, an arbitral order was issued dispensing with the holding of the meeting of article 18 of the RJAT and fixing a date for issuing the final decision by 16 November 2015.

Procedural Requirements

  1. The Arbitral Tribunal is regularly constituted and is materially competent, pursuant to article 2, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.

The Parties have legal personality and capacity, are legitimate and are legally represented (See Articles 4 and 10, no. 2, of DL no. 10/2011 and article 1, of Portaria no. 112/2011, of 22 March).

The proceedings do not suffer from nullities that would invalidate it and no exceptions were raised that would prevent judgment on the merits of the case, wherefore the Tribunal is in a position to issue the arbitral decision.

C) OF THE REQUEST FORMULATED BY THE CLAIMANT

  1. The Claimant formulates the present request for arbitral pronouncement seeking the declaration of illegality and unconstitutionality of the acts of assessment of stamp duty tax impugned and their consequent annulment, relating to the year 2012, in the overall amount of €3,920.58, with reference to the urban property located at Rua …, no. …, in the parish of …, in Lisbon, registered in the urban property register of the same parish, described in the urban property register under article …, as evidenced by the property record booklet attached by the Claimant as document no. 3, in annex to the arbitral request, which is hereby considered to be fully reproduced.

She bases her request on the illegality of the tax assessments, alleging in summary the following:

The Claimant has the usufruct of the above-described property, located at Rua …, no. …, …, Lisbon, which is constituted in vertical ownership, with 6 storeys and 12 storeys or units with independent use, dedicated to residential purposes;

This property, composed of various storeys, with units or fractions capable of independent use, is not constituted under the regime of horizontal ownership;

The tax patrimonial value (VPT), attributed in accordance with the provisions of the Code of Municipal Property Tax (CIMI), for each of the independent units does not exceed the value of €1,000,000.00;

However, according to the criteria used by the AT, underlying the assessment of stamp duty tax impugned, the VPT of each of the independent units above described is that corresponding to the sum of the individual values attributed to each of the independent units, which, considering the VPT attributed by the valuation carried out in 2013, results in the determination of a total VPT of the property exceeding €1,000,000.00.

  1. The legal basis of the request for arbitral pronouncement is founded, summarily, on the allegation that the VPT of the independent units forming parts of properties in vertical ownership are determined in accordance with the provisions of article 7, no. 2, paragraph b) of the CIMI, that is, separately. With respect to a property in full ownership, each storey or unit capable of independent use is considered, in accordance with no. 3, article 12 of the CIMI, separately in the property registration, which also distinguishes the respective VPT, there being no legal provision that makes the tax patrimonial value of the property in full ownership, with several storeys and independent units, correspond to the sum of its parts. "It being certain that the property registration of such property is drawn up just as the registration of properties constituted in full or vertical ownership because in both cases there exist fractions or parts or storeys capable of autonomous use"

The Claimant therefore understands that the mentioned acts of assessment of stamp duty tax are illegal and unconstitutional and the provision contained in item 28 of the TGIS with the interpretative meaning attributed to it by the AT, that is, determining its incidence by the total VPT of the property, summing the values attributed to its independent units, is illegal because such reading of the provision contained in Item 28 of the TGIS does not legitimate the impugned assessment (based on the sum of the parts) but also because, if such understanding were accepted, this would constitute a violation of the principle of tax equality, and therefore would be unconstitutional.

She concludes by petitioning for the declaration of illegality and consequent annulment of the impugned assessment acts, as well as the reimbursement of the amounts unduly paid, for suffering from the defect of violation of law due to error in the legal prerequisites and offense of the principle of equality before the tax law, and further for the non-existence of the taxable fact, plus compensatory interest to be calculated from the date of payment until the date of reimbursement.

D) – THE RESPONDENT'S REPLY

  1. The Respondent alleges in its reply, in summary, that the Claimant's position is not correct, solely and only because the understanding that the AT upholds for the application in the specific case of the provision of Item 28 of the TGIS is that in properties in full ownership the Value relevant for the determination of incidence is that corresponding to the sum of the VPT of each fraction, unit or storey capable of independent use. In short, it understands that for purposes of Stamp Duty Tax (IS) the property in its entirety is relevant, since the units capable of independent use are not considered as property, but only autonomous fractions under the horizontal ownership regime, as provided for in no. 4 of article 2 of the CIMI.

The entry into force of the horizontal ownership regime (Civil Code of 1966), and its express reference in the delimitation of the concept of "property" provided for in article 2, no. 4 of the CIMI determine the relevance of such figure, in tax matters. What expressly results from the law is that the legislator wished to tax with item 28.1 of the TGIS properties as a single legal-tax reality. The constitution of horizontal ownership determines the division/partition of full ownership and the independence or autonomy of each of the fractions which compose it, whereas a property in full ownership constitutes, for all purposes, a single legal-tax reality. The reason for the property registration of each storey capable of independent use is another, which the AT sets out in article 21 of the Reply, concluding that the autonomy of the parts in the property in vertical ownership is justified because "the fact that the property is or is not leased, which continues to have relevance for purposes of determining tax patrimonial value, whether for IMI or for IMT."

It understands, in summary, that there is no violation of the principle of equality nor any other illegality or unconstitutionality that would justify the arbitral request, wherefore the defects of lack of incidence and unconstitutionality should be judged unfounded, maintaining in the legal order the impugned assessments, as they constitute a correct application of the law to the facts. It further concludes for the unfoundedness of the request for compensatory interest.

II. ISSUES TO BE DECIDED

  1. Having regard to the positions of the Parties assumed in the arguments presented to the Tribunal, the essential issue to be decided is to determine, with reference to properties in full or vertical ownership (not constituted under the horizontal ownership regime) composed of various storeys and units with independent use, with residential dedication, how the VPT relevant to determining the incidence of stamp duty tax is determined, as provided for in item 28.

The practical question that arises is therefore to determine whether the VPT relevant as the criterion of incidence of stamp duty tax is that corresponding to the sum of the VPT attributed to the different parts or storeys (total VPT) or rather the VPT attributed to each of the parts or residential storeys.

III. FACTUAL BASIS

Proven Facts

  1. As a matter of fact relevant to the decision to be issued, the Tribunal takes as established the following facts:

8.1. The Claimant is usufructuary of the urban property located at street …, no. …, parish of …, Lisbon, described in accordance with the certificate attached to the proceedings in annex to the arbitral request as documents nos. 3 and 4, which are hereby considered to be fully reproduced;

8.2. It is an urban property, in vertical ownership, composed of six storeys and 12 storeys with units of independent use, with residential dedication.

8.3. The urban property in question in the proceedings comprises a total of twelve units with independent use, the VPT individually attributed to each unit or fraction being between the value of €54,289.00 (minimum VPT attributed to the units of the 4th Right and 4th Left) and €109,730.00 (maximum VPT attributed to the unit of G/FL Left), following the valuation and updating of the value carried out by the AT on 4/02/2013;

8.4. The VPT corresponding to the sum of all the parts or independent units, following the above-mentioned valuation, amounts to €1,176,160.00, but none of its parts or independent units has a value exceeding €1,000,000.00;

8.5. The above-mentioned AT valuation was carried out for each independent fraction, with autonomous treatment, with separate valuation forms, with VPT assigned autonomously by independent fraction, which were notified to the Claimant autonomously for purposes of complaint regarding the fixed unit VPT, as evidenced by the property record booklet attached as doc. 3, in annex to the arbitral request;

8.6 In accordance with the procedure described the AT assessed IMI for each independent fraction, issuing autonomous collection notices;

8.7 In accordance with the content of document no. 5 attached in annex to the arbitral request, the VPT of each of the fractions or independent units was, in 2012, between the minimum value of €2,688.75 (4th Left) and €85,357.47 (1st Left), and the total VPT corresponding to the sum of all VPT of the different independent fractions was €258,225.33, thus did not exceed the total value of €1,000,000.00 at that time.

8.8 On the total VPT of this property, resulting from the value attributed by the valuation carried out on 4 February 2013, the assessments of stamp duty tax set out in the proceedings as document no. 4 in annex to the arbitral request were issued, in a total amount of € 3,920.58, corresponding to the 1st instalment, assessed to be paid in April 2013, having as the reference year the year 2012, as stated in document no. 4 attached in annex to the arbitral request;

8.9 The Claimant proceeded to pay all amounts of Stamp Duty Tax contained in the impugned assessments, as evidenced by the supporting documents attached to the proceedings with document no. 4 in annex to the arbitral request.

8.10 The Claimant submitted, timely, a Request for Administrative Reconsideration, which proceeded with the no. … 2013 …, seeking the illegality and annulment of the assessments in question in the proceedings, which had an unfavourable decision; this was followed by an Hierarchical Appeal, with no. … 2013…, which was likewise considered unfounded, maintaining the issued assessments.

LEGAL BASIS FOR THE PROVEN FACTS

  1. The conviction regarding the facts taken as proven was based on the documentary evidence attached to the proceedings by the Claimant (docs. nos. 1 to 5 attached to the arbitral request), to which is added the mutual acceptance of the parties regarding the same and its confirmation through the analysis of the PA attached to the proceedings by the Respondent.

No other facts with relevance to the arbitral decision were proven.

IV – LEGAL BASIS

  1. Having established the factual matter, it is important to address the legal question, set forth in the proceedings, corresponding, in summary, to the questions of illegality and unconstitutionality raised by the Claimant in the present arbitral request.

From the argumentative framework presented by the procedural parties it is concluded that for the AT, the criterion for determining the incidence of stamp duty tax, provided for in item 28.1 of the TGIS, of properties in vertical ownership with storeys and units with independent use with residential dedication, corresponds to the sum of their respective VPT attributed to the parts or units, in accordance with the provisions of the CIMI. It was this understanding that led to the tax assessments here impugned.

Furthermore, for the AT it appears legitimate to assess stamp duty tax, relating to the year 2012, but determined on the basis of VPT resulting from the valuation that occurred only in 2013.

  1. For the Claimant, such understandings are completely illegal, since the subjection to stamp duty tax contained in item no. 28 of the TGIS is determined by the combination of two requirements, residential dedication and VPT in the property register equal to or exceeding €1,000,000.00. In the case of a property in vertical ownership, with the characteristics of the one described in these proceedings the subjection to stamp duty tax is determined not by the total VPT of the property but by the VPT attributed to each of those storeys or units. But furthermore, because according to the Claimant, even if another understanding were to apply, the truth is that in the concrete case, as it relates to the year 2012, there does not even exist a taxable fact that would legitimate the issuance of the impugned assessments, by virtue of the provision of article 6 of Law no. 55-A/2012, of 29/10, which introduced Item 28 of the TGIS and fixed the transitional regime for the year 2012.

It is incumbent to decide.

  1. The essential issue to be decided is to determine, with reference to properties not constituted under the horizontal ownership regime, composed of various storeys and units with independent use, with residential dedication, what VPT is relevant for purposes of incidence of stamp duty tax.

The answer to this question requires an analysis of the applicable legal framework and the guiding principles in order to determine which interpretation is in conformity with the Law and the Constitution, with the caution that is required in assessing a prerequisite for tax incidence, by virtue of the principle of tax legality resulting from article 103, no. 2 of the CRP.

  1. On this matter, in particular, there is already considerable arbitral jurisprudence, stemming from various decisions in which the core issue is the same, addressing the scope of the provision of the rule of incidence of items 28 and 28-1 of the TGIS, all in the sense of considering that for properties under the full or vertical ownership regime the reference value for purposes of incidence of stamp duty tax, Item 28 of the TGIS, must be the value corresponding to each part or independent unit, in the same terms as provided for purposes of IMI. – (In this sense see Arbitral Decision no. 30/2014-T, of 20/06/2014 and Arbitral Decisions no. 48/2013-T, 49/2013-T, 50/2013-T of 29/10/2013; also in the same sense, see Arbitral Decisions issued in proceedings nos. 132/2013, 181/2013, 183/2013-T, 248/2013-T and 280/2013-T, among others)

In the same sense the Supreme Administrative Court has recently pronounced itself, in a Judgment issued in proceedings no. 047/15, of 09.09.2015, where the Rapporteur was His Excellency Judge Counsellor Francisco Rothes, in which it was decided that:

"I - With respect to properties in vertical ownership, for purposes of incidence of Stamp Duty Tax (Item 28.1 of the TGIS, as amended by Law no. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential dedication and VPT in the property register equal to or exceeding € 1,000,000.

II - Where it is a property constituted in vertical ownership, the incidence of stamp duty tax must be determined not by the VPT resulting from the sum of the VPT of all units or storeys capable of independent use (individualized in the property article), but by the VPT attributed to each of those storeys or units intended for residential use." (see Judgment cited, available at www.dgsi.pt)

  1. Notwithstanding the foregoing, the Respondent AT has continued to maintain the understanding set forth in these proceedings, advocating for an interpretation based on formal-legal concepts, particularly as regards the concept of property for purposes of incidence of stamp duty tax, as provided for in item 28 of the TGIS.

On the fundamental question at issue it may be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretative task requires something more, that is, from the text of the rule it is necessary to discover the underlying ratio legis, "a task of interconnection and assessment that escapes the literal domain".

In this regard, the question centres on the interpretation of the rule of incidence, as it is expressed in the legal provision of items 28 and 28.1 of the TGIS, referring to "the ownership, usufruct or right of superficies of urban properties, with residential dedication (28.1) whose tax patrimonial value in the property register, in accordance with the CIMI, is equal to or exceeding 1,000,000.00 euros – on the tax patrimonial value used for purposes of IMI".

Now, it seems that such legal provision does not embrace the understanding upheld by the AT, persistently and repeatedly, according to which as regards "residential properties" in vertical ownership, with storeys or units capable of independent use, the VPT upon which the stamp duty tax rate should be applied must be the total VPT, corresponding to the sum of the VPT individually attributed to each fraction, part or independent unit. Such understanding is from the outset contradicted by the very letter of the law, when it unequivocally refers to the application of the principles in force in the context of IMI, which means that incidence for purposes of stamp duty tax – Items 28 and 28.1 – should be applied to each storey or unit capable of independent use (similar to what happens with properties under the horizontal ownership regime), as occurs for purposes of IMI.

As follows:

  1. A proper reading of the scope of the provision of the rule of incidence of items 28 and 28.1 of the TGIS, in light of what no. 7 of article 23 of the Stamp Duty Tax Code allows to be concluded regarding the determination of taxable matter and consequent tax assessment operation which states: "In the case of tax owed for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI."

Furthermore, no. 3 of article 11 of the LGT provides: "if doubt persists as to the meaning of the rules of incidence to be applied, regard must be had to the economic substance of the taxable facts".

In the case at hand, regard must be had to the "economic substance of the taxable facts" to properly implement the "necessary adaptations of the rules contained in the CIMI", for the appropriate examination of the matter of law in dispute.

In light of this, the delimitation of the scope of the rule of incidence of this new tax should follow the orientation of the letter and spirit of the law. In the first instance, regard must therefore be had to what is expressly provided for in items 28 and 28-1 of the TGIS, with the "necessary adaptations of the rules contained in the CIMI", as results from the provision of no. 7, article 23 of the Stamp Duty Tax Code.

  1. It is important therefore to bear in mind that the subjection to stamp duty tax of properties with residential dedication resulted from the addition of item 28 of the TGIS, effected by article 4 of Law 55-A/2012, of 29/10, which typified the following taxable facts:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value in the property register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or exceeding € 1,000,000.00 – on the tax patrimonial value for purposes of IMI:

28-1 – For property with residential dedication – 1%

28.2 – For property, when the taxpayers are not natural persons and are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in the official list approved by order of the Minister of Finance – 7.5%."

  1. Law 55-A/2012 says nothing regarding the qualification of the concepts in question, namely as regards the concept of "property with residential dedication." But article 67, no. 2 of the Stamp Duty Tax Code, added by the referred Law, provides that "to matters not regulated in this code relating to item 28 of the General Table the CIMI applies subsidiarily."

The rule of incidence refers therefore to urban properties, the concept of which is that which results from article 2 of the CIMI, with the determination of the VPT following the terms provided for in article 38 and following of the same code. Consulting the CIMI it is verified that its article 6 merely indicates the different types of urban properties, among which it mentions residential ones (see paragraph a) of no. 1), clarifying in no. 2 of the same article that "residential, commercial, industrial or for services are buildings or structures licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes."

From the legal provisions referred to we can conclude that, in the legislator's view, what matters is not the legal-formal precision of the concrete situation of the property but rather its normal use, the purpose which it effectively serves.

We further conclude that for the legislator the situation of the property in vertical or horizontal ownership did not matter, since no reference or distinction is made between them. An identical conclusion is drawn from the referral that the legislator introduced in the context of stamp duty tax to the CIMI.

Now, this tax establishes as criterion for properties in vertical ownership the attribution of a VPT to each of the parts or independent units. What matters is therefore the material truth underlying its existence as an urban property and its use, that is, "with residential dedication".

  1. In light of this, the question of determining the value relevant to the incidence of stamp duty tax on properties in vertical ownership must be resolved, as occurs in these proceedings, which the AT considers by the value of the sums of the VPT of all the parts or units and, in this way, easily exceed the reference value, that is, one million euros.

Well, this criterion of convenience adopted by the AT does not appear to be acceptable, nor in conformity with the principle of tax legality.

Using the criterion that the law itself introduced in article 67, no. 2 of the Stamp Duty Tax Code, "to matters not regulated in this code relating to item 28 of the General Table the CIMI applies subsidiarily."

From the provision of no. 4 of article 2 of the CIMI, it results that: "For purposes of this tax, each autonomous fraction, under the horizontal ownership regime, is considered as constituting a property."

Furthermore adding no. 3 of article 12 of the CIMI: "Each storey or part of property capable of independent use is considered separately in the property registration which also determines the respective tax patrimonial value".

  1. Thus, considering that the registration in the property register of properties in vertical ownership, constituted by different parts, storeys or units with independent use, in accordance with the CIMI, follows the same registration rules of properties constituted under horizontal ownership, with their respective IMI, as well as the new stamp duty tax, being assessed individually in relation to each of the parts, it is without any doubt that the legal criterion for defining the incidence of the new tax must be the same.

Whereby, if the legal criterion in the context of IMI requires the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties under horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new stamp duty tax contained in item 28 of the TGIS.

It is the legislator itself who in the letter of the law tells us this is the criterion when it makes an unequivocal referral to the CIMI for purposes of application of the aforementioned item 28 of stamp duty tax.

The AT cannot therefore consider as the reference value for the incidence of the new tax the total value of the property (total VPT), when the legislator itself established a different rule in the context of CIMI, and this is the code applicable to matters not regulated with respect to item 28 of the TGIS.

Given this, it is clear that there would only be incidence of the new stamp duty tax if any of the parts, storeys or units with independent use presented a VPT exceeding € 1,000,000.00, which is not the case in these proceedings in respect to any of the parts or independent units of the property in question.

  1. The criterion used by the AT, in considering the value of the sum of the VPT attributed to the parts, storeys or units with independent use, with the argument that the property is not constituted under the horizontal ownership regime, finds no legal support and is contrary to the criterion that is applicable in the context of CIMI and, by referral, in the context of stamp duty tax, wherefore it appears to be illegal, by manifest violation of law, as it is based on factual and legal prerequisites contrary to those legally enshrined: it is the law itself that expressly establishes, in the final part of item 28 of the TGIS, that the stamp duty tax to be levied on urban properties of value equal to or exceeding €1,000,000.00 – "on the tax patrimonial value used for purposes of IMI." (emphasis ours)

Thus, the interpretation advocated by the AT violates the principle of tax legality, and moreover, its application in the concrete case would also violate the principles of equality, justice and proportionality, all enshrined in the Constitution of the Portuguese Republic. Its practical result would lead, for example, to the taxation of a property in vertical ownership by force of the sum of the individual values of its parts or independent units (as occurs in the case in proceedings) and to the non-taxation of the fractions of properties constituted under the horizontal ownership regime, even if each fraction had a VPT of €999,999.00. Furthermore, by the AT's criterion, many of the urban properties existing in vertical ownership, despite being older, can easily reach the reference value for the incidence of stamp duty tax, while recently built properties and, sometimes, luxurious properties under the horizontal ownership regime, but whose VPT per fraction does not equal or exceed the value of €1,000,000.00 are not subject to the new tax. Now, it offends the sensitivity and the fundamental ethical minimum underlying the interpretation and application of the legal rule that would lead to such a solution.

The tax legislator cannot treat equal situations differently. If the property in question in these proceedings were in the horizontal ownership regime, none of its residential fractions would be subject to the incidence of the new tax.

Moreover, the legislator's thought expressed in the rule of incidence, in referring to the application of the CIMI, was clear and unequivocal, following the principle of the prevalence of material truth over legal-formal reality.

  1. The question of the conformity of the provision of the rule of incidence with the constitutional text, however, would only arise if the interpreter reached the conclusion that a particular and unequivocal reading of the law, applied to a concrete case, offended one or several constitutional principles. However, in the case at hand what is at issue is an interpretation by the AT that led it to an application of the law without framing in the legal provisions in force, suffering from error on the legal prerequisites underlying its correct application and, consequently, from the defect of violation of law.

The uniform criterion, the only one compatible with the letter of the law and with the underlying ratio legis of the introduction of taxation of "luxury properties" defined as those whose VPT equals or exceeds €1,000,000.00, does not embrace the understanding upheld by the AT. In the case of properties in vertical ownership with autonomous fractions or independent units, there is no doubt that the law requires that regard be had to the value of each of the fractions or units, as occurs for purposes of IMI.

In introducing this legislative innovation the legislator considered as the determining element of taxpaying capacity urban properties with residential dedication of high value (luxury), more precisely, of value equal to or exceeding €1,000,000.00, on which it then imposed a special stamp duty tax rate, intending to introduce a principle of taxation on wealth expressed in the ownership, usufruct or right of superficies of luxury urban properties with residential dedication. For this reason, the criterion was the application of the new rate to urban properties with residential dedication whose VPT equals or exceeding €1,000,000.00.

This same conclusion is reached from the analysis of the discussion of legislative proposal no. 96/XII in the Assembly of the Republic, available for consultation in the Official Journal of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.

The justification for the measure designated as "special rate on residential urban properties of higher value" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute more intensely the holders of properties of high value intended for residential use, applying the new special rate to "houses of value equal to or exceeding 1 million euros."

Clearly the legislator understood that this value, when attributed to a residence (house, autonomous fraction or storey with independent use) translates a taxpaying capacity above average and, as such, capable of determining a special contribution to ensure fair distribution of the fiscal burden.

Only if one of those parts or independent units presented a VPT exceeding €1,000,000.00 would the legal prerequisite of incidence be fulfilled, which does not occur in these proceedings.

  1. Following these considerations, it must be concluded that the existence of a property in vertical or horizontal ownership cannot be, by itself, an indicator of taxpaying capacity. On the contrary, from the law it follows that both should receive the same fiscal treatment in obedience to the principles of justice, fiscal equality and material truth. Thus, only the existence, in a property composed of independent residential fractions, under the regime of horizontal or vertical ownership, of value equal to or exceeding € 1,000,000.00 can be capable of triggering the incidence of the new tax if the VPT of each of the parts or fraction.

Thus, the AT cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the fiscal system, as well as the principle of tax legality provided for in article 103, no. 2 of the CRP, and still the principles of fiscal justice, equality and proportionality.

For this very reason article 12, no. 3, of the CIMI states that "each storey or part of property capable of independent use is considered separately in the property registration which also determines the respective tax patrimonial value."

From the provision of this rule it results (similarly to what was provided for in article 232, rule 1, of the Code of Property Contribution and Tax on Agricultural Industry) that what is relevant for purposes of registration in the property register is the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent. What does not appear to be consistent with the decision of the AT to tax the residential parts of a property in vertical ownership, based on the total VPT of the property, introducing a criterion completely contrary to that which results provided for in the law, that is, in the Stamp Duty Tax Code and the CIMI, by express referral of the legislator on this matter.

Furthermore, the constitution of horizontal ownership entails merely a legal alteration of the property, which for tax purposes does not even require a new valuation of the property. The manner of constitution of the property under the full or horizontal ownership regime was not considered in the introduction of the new tax, just as it was not in the CIMI itself, certainly because the legislator was well aware of the injustice that would result from such discrimination. The material truth resulting from the value attributed to each of the parts or independent units, expressed in the VPT that is attributed to each of them for purposes of IMI and the actual dedication of the property to residential use, is what is required as the determining criterion of taxpaying capacity and not the mere legal-formal reality of the property being or not constituted under the horizontal or vertical ownership regime.

  1. In the case of these proceedings the property in question is in vertical ownership and contains storeys and units with independent use, intended for residential use, as was proven above. Given that none of the storeys intended for residential use has tax patrimonial value equal to or exceeding €1,000,000.00, as results from the documents attached to the proceedings, it is concluded that the legal prerequisite of incidence of stamp duty tax provided for in Item 28 of the TGIS is not fulfilled.

In accordance with this, the impugned assessments are illegal because they are based on error regarding the factual and legal prerequisites, which constitutes the defect of violation of law, wherefore their annulment is required.

  1. Finally, it should be noted that the impugned assessments are also illegal as they violate the rules of the transitional regime established by Law, the interpretation and application advocated by the AT configuring a case of unacceptable retroactivity, violating the transitional regime established. For in addition to the illegalities mentioned above, the AT proceeded to the assessments in question, with reference to the year 2012, ignoring the VPT fixed on 31 December 2012, but rather applying the VPT that resulted from the valuation of the property and its parts or independent units, which occurred in February 2013. Now, on this point the Claimant alleges and rightly so that even if, by mere hypothesis, the reference for the incidence of stamp duty tax were the total VPT, the assessments could not subsist, because, with reference to the year 2012, that total VPT was much less than €1,000,000.00. Indeed, the claimant is correct in what she alleges on this point.

Law 55-A/2012, of 29/10, came into force on the day following its publication, that is, on 30 October 2012. From the transitional provisions contained in its article 6 it results that the taxable fact is considered verified on 31 October 2012 and that the tax patrimonial value to be used in the tax assessment corresponds to that which results from the rules of the Code of Municipal Property Tax by reference to the year 2011.

Now, given that it is a question of an assessment of Stamp Duty Tax provided for in item 28 of the TGIS relating to the year 2012 the transitional rules of no. 1 of article 6 of Law 55-A/2012 must be observed, whereby the AT also was not empowered to proceed to the assessment of stamp duty tax on the basis of the VPT resulting from the valuation carried out in 2013.

On this point, the Supreme Administrative Court pronounced itself, in a Judgment issued on 19-11-2014, in proceedings no. 8777/14, in which it stated that: "It follows from paragraphs a) and c) of the said article 6 (transitional regime for 2012) that the taxable fact must be considered verified on 31 October 2012, and that the tax patrimonial value to be used in the tax assessment corresponds to that which results from the rules provided for in the Code of Municipal Property Tax by reference to the year 2011." (see Judgment cited, available at www.dgsi.pt).

Also for this reason the impugned assessments appear to be illegal due to violation of law.

  1. For all the foregoing, the impugned assessments are illegal due to the defect of violation of law due to error on the prerequisites, and must be annulled and all amounts paid must be reimbursed to the Claimant.

V – Regarding the Request for Compensatory Interest

  1. Paragraph b), no. 1, of article 24 of the RJAT provides that the arbitral decision on the merits of the claim which is not subject to appeal or review binds the tax administration from the end of the period provided for appeal or review, and this must - in the exact terms of the success of the arbitral decision in favour of the taxpayer and until the end of the period provided for voluntary execution of sentences of the tax courts - restore the situation that would have existed if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose.

Such provision is in line with the provision of article 100 of the LGT, applicable in the case by virtue of the provision of paragraph a), no. 1, article 29 of the RJAT, in which it is established that "the tax administration is obliged, in case of total or partial success of claims or administrative appeals, or of court proceedings in favour of the taxpayer, to immediate and full restoration of the situation that would have existed if the illegality had not been committed, comprising the payment of compensatory interest, in the terms and conditions provided for by law."

  1. Article 43, no. 1, of the General Tax Law further provides that "compensatory interest is due when it is determined, in an administrative claim or court appeal, that there was error attributable to the services that resulted in payment of the tax debt in an amount exceeding that legally due."

From the analysis of the evidentiary elements in these proceedings it is possible to infer that the AT had full and complete knowledge of the factual elements relevant to proceeding with the correct tax assessment.

With the notification of the arbitral request submitted and the means of proof attached in annex to the request the AT had the opportunity to revoke the acts by stopping their effects, which did not occur. Having not done so and maintaining the assessments tainted by error on the prerequisites, and therefore illegal, it is obliged to indemnify.

Therefore, having regard to the provision of article 61 of the Code of Tax Procedure and Process and considering that the requirements for the right to compensatory interest are fulfilled, that is, the existence of error attributable to the services that resulted in payment of the tax debt in an amount exceeding that legally due is verified, as provided for in no. 1 of article 43 of the LGT, the Claimant is entitled to compensatory interest at the legal rate, calculated on the amount of €3,920.58 from the date on which payment was made until its full reimbursement, as a way of achieving the restoration of the situation that would have existed if the illegality had not been committed.

  1. It does not appear that there are other relevant issues raised by the parties.

VI - DECISION

In view of the foregoing, this Arbitral Tribunal decides:

A) - To judge the claim for declaration of illegality of the impugned Stamp Duty Tax assessments in these proceedings well-founded, as they suffer from the defect of violation of law, due to error on the factual and legal prerequisites, annulling, consequently, the corresponding tax acts;

B) - To judge the claim for condemnation of the Tax Administration to reimburse the amounts unduly paid, in the amount of €3,920.58, plus compensatory interest at the legal rate, counted from the day of payment made until the full reimbursement of the aforementioned amount, condemning the Tax and Customs Authority to make these payments.

Value of the proceedings: The value of the proceedings is fixed at €3,920.58, in accordance with the provision of article 97-A, no. 1, paragraph a), of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings.

Costs: In accordance with the provision of no. 4, article 22 of the RJAT and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €612.00 to be borne by the Respondent Tax and Customs Authority.

Let it be registered and notified.

Lisbon, 12 November 2015

The singular arbitrator,

(Maria do Rosário Anjos)

Frequently Asked Questions

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Is Stamp Tax under Verba 28.1 of the TGIS applicable to urban properties held in vertical property (propriedade total) regime?
Yes, Stamp Tax under Verba 28.1 of the TGIS applies to urban properties held in vertical property (propriedade total) regime when their tax patrimonial value exceeds €1,000,000. However, the central dispute in Process 306/2015-T concerned the valuation methodology: whether the taxable value should be calculated by summing all independent units within the building or by assessing each autonomous unit separately. The Tax Authority's position was that properties in vertical ownership, despite having multiple independent residential units, should be valued as a single property with the VPT representing the aggregate of all component units. This interpretation triggered stamp tax liability when the total exceeded the €1,000,000 threshold, even though individual units remained below this amount.
Can a usufructuary challenge Stamp Tax assessments on properties composed of multiple housing fractions before the CAAD?
Yes, a usufructuary has legal standing to challenge Stamp Tax assessments before CAAD (Centre for Administrative Arbitration). In Process 306/2015-T, the claimant was the usufructuary of the property subject to stamp tax under Verba 28.1 TGIS, and her legitimacy to bring the arbitration request was not contested. The arbitral tribunal confirmed that the parties had legal personality, capacity, and legitimacy under Articles 4 and 10(2) of Decree-Law 10/2011 (RJAT) and Article 1 of Portaria 112/2011. As the holder of a real right over the property, the usufructuary is directly affected by stamp tax assessments and therefore has standing to contest allegedly illegal tax liquidations through the CAAD arbitral process.
How is the taxable value determined for Stamp Tax purposes on a building with 12 fractions under Verba 28 of the TGIS?
The determination of taxable value for Stamp Tax purposes on buildings with multiple fractions under Verba 28 TGIS depends on the property regime. In Process 306/2015-T, the Tax Authority calculated stamp tax by summing the individual VPTs of all 12 residential fractions, resulting in a total exceeding €1,000,000. The claimant contested this methodology, arguing that under CIMI Articles 7(2)(b) and 12(3), each independent unit in vertical property should be valued separately, just as fractions in horizontal property condominiums are individually registered with distinct VPTs. The claimant maintained that no legal provision mandates aggregating individual unit values to determine the property's total VPT for stamp tax purposes, and that each autonomous unit should be assessed independently based on its own VPT for stamp tax incidence.
What is the CAAD arbitral procedure for contesting Imposto de Selo liquidations under Decree-Law 10/2011 (RJAT)?
The CAAD arbitral procedure for contesting Imposto de Selo liquidations under Decree-Law 10/2011 (RJAT) follows these key steps: (1) submission of arbitration request under Articles 2(1)(a) and 10 of RJAT; (2) acceptance by CAAD President and automatic notification to Tax Authority; (3) constitution of singular or collective arbitral tribunal - parties may designate arbitrators or the Deontological Council appoints them (Article 6 RJAT); (4) notification of parties upon tribunal constitution (Article 11 RJAT); (5) Tax Authority submits reply within the legal deadline (Article 17 RJAT); (6) optional hearing under Article 18 RJAT, which may be waived by mutual agreement when no evidence is required and the matter is purely legal; (7) issuance of final arbitral decision within the prescribed timeframe. In Process 306/2015-T, the entire procedure from request submission (May 2015) to scheduled decision (November 2015) took approximately six months, with the hearing dispensed by agreement of both parties.
Does the individual value of each fraction or the total property value apply when assessing Stamp Tax under Verba 28.1 TGIS?
This was the central legal question in Process 306/2015-T. The Tax Authority applied the total property value methodology, summing all 12 individual fraction values to determine stamp tax liability under Verba 28.1 TGIS. The claimant argued that individual fraction values should apply, asserting that CIMI Articles 7(2)(b) and 12(3) require separate valuation and registration of each autonomous unit in vertical property, mirroring the treatment of horizontal property fractions. The claimant contended that interpreting Verba 28.1 to require aggregation of unit values: (1) lacks statutory basis, as no CIMI provision mandates summing independent unit VPTs for properties in vertical ownership; (2) violates the tax equality principle by treating identical situations (multiple residential units with autonomous use) differently based solely on whether the property regime is vertical or horizontal ownership; and (3) creates unconstitutional discrimination. The outcome depends on whether the law treats vertical property buildings as single taxable units or as collections of independently assessable fractions for stamp tax purposes.