Process: 35/2014-T

Date: July 4, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This tax arbitration case (Process 35/2014-T) concerns the application of Verba 28.1 of the Portuguese General Table of Stamp Duty (Imposto do Selo) to a unique property structure. Two taxpayers, who hold usufruct rights over an urban property in vertical ownership comprising 34 divisions with independent use, challenged stamp duty assessments totaling €9,965.80 each for the 2012 tax year. The central legal issue revolves around whether stamp duty liability should be determined by aggregating the Taxable Patrimonial Value (TPV) of all divisions or by assessing each independent division separately. The claimants argued that since each division's individual TPV falls below the €1,000,000 threshold established by Law 55-A/2012, no stamp duty should be due. They contended that the Tax Authority incorrectly applied Verba 28.1 by treating the property as a single unit rather than recognizing that each division was independently evaluated for Property Tax Code purposes. The claimants raised constitutional challenges under Articles 13, 18, 103(2), and 104(1) of the Portuguese Constitution, arguing violations of equality principles and property rights. They also alleged breaches of Article 67(2) of the Stamp Duty Code and Articles 2, 6(2), and 12(3) of the Property Tax Code. Subsidiarily, if stamp duty was determined to be applicable, the claimants argued for application of the 0.8% rate rather than the higher rate applied by the Tax Authority. The case was brought before the Administrative Arbitration Center (CAAD) under the Legal Framework for Tax Arbitration, with the claimants seeking annulment of the assessment acts and reimbursement of paid amounts plus 4% annual compensatory interest. This decision addresses the critical distinction between properties in vertical versus horizontal ownership and how independent divisions should be treated under stamp duty legislation.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 35/2014-T

Claimants: A and B

Respondent: Tax and Customs Authority

Subject Matter: Stamp Duty – Item 28.1 of the General Table of Stamp Duty – immovable property in full ownership with divisions susceptible to independent use

The Arbitrator Mónica Respício Gonçalves, appointed by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 24 March 2014 (order of the President of the Ethics Council of CAAD of 24 March 2014), hereby submits the following:

A) Report

On 15 January 2014, the taxpayers A, TIN ... and B, TIN ..., hereinafter identified, respectively, as First Claimant and Second Claimant and, both, as Claimants, filed a request for arbitral pronouncement, in accordance with the provisions of articles 2, no. 1, subparagraph a) and 10, no. 1, subparagraph a) of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as LFTA), in conjunction with articles 1, subparagraph a), 2 and 3 of Ordinance No. 112-A/2011, of 22 March.

In the said request for arbitral pronouncement, the Claimants seek that the Arbitral Tribunal declare:

2.1. The unconstitutionality, illegality and annulment, for violation of the provisions of item 28.1 of the General Table of Stamp Duty (GTSD), of article 67, no. 2 of the Stamp Duty Code (SDC), of articles 2, 6, no. 2 and 12, no. 3 of the Property Tax Code (PTC), and of articles 13, 18, 103, no. 2 and 104, no. 1 of the Constitution of the Portuguese Republic (CPR), of the following acts of assessment of Stamp Duty, relating to 2012, issued by the Tax and Customs Authority (hereinafter, Respondent), in the name of each of the Claimants: (i) the assessment acts issued in the name of the First Claimant, with the numbers 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ... and 2013 ..., totalling € 9,965.80; (ii) the assessment acts issued in the name of the Second Claimant, with the numbers 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ... and 2013 ..., also totalling € 9,965.80;

2.2. The condemnation of the Respondent to refund the Stamp Duty paid by the First Claimant, in the amount of € 2,006.70, plus compensatory interest, calculated daily, at the rate of 4% per annum, until the actual reimbursement of such amounts unduly collected;

2.3. The condemnation of the Respondent to refund the Stamp Duty paid by the Second Claimant, in the amount of € 9,965.80, plus compensatory interest, calculated daily, at the rate of 4% per annum, until the actual reimbursement of such amounts unduly collected;

and, subsidiarily,

2.4. The declaration of illegality of the above-mentioned assessment acts, for violation of the provisions of article 6, subparagraphs c), d) and f), item ii), of Law No. 55-A/2012, and consequent partial annulment of the same acts, based on the application of the rate of 0.8% to the taxable amount determined by the Respondent, and refund to the Claimants of any differences found in relation to the amounts of tax already paid, plus the corresponding compensatory interest.

  1. The request for constitution of the arbitral tribunal was accepted on 16 January 2014, by the Honorable President of CAAD, having been notified to the Respondent on 17 January 2014.

  2. The Claimants did not proceed to appoint an arbitrator, therefore, pursuant to the provisions of article 6, no. 1, of the LFTA, the undersigned was appointed by the President of the Ethics Council of CAAD to form the present Single Arbitral Tribunal, with the appointment having been accepted in accordance with the legal provisions and the parties having been notified of this appointment on 3 March 2014. The Tribunal was constituted, pursuant to the provisions of article 11 of the LFTA, on 24 March 2014.

  3. On 2 May 2014, the Respondent filed its Response.

  4. Having the Parties been notified of the arbitral order that designated the date for the holding of the first meeting of the arbitral tribunal, provided for in article 18 of the LFTA, the Respondent requested that the holding of said meeting be dispensed with, as there were no exceptions or additional evidence to be requested, beyond the documentary evidence attached to the proceedings.

  5. To this extent, the date for scheduling of said meeting was cancelled and the Claimants were notified to pronounce themselves on the Respondent's request.

  6. Having been the Claimants duly notified and having chosen not to pronounce themselves within the specified period, the tribunal decided to dispense with said meeting.

  7. The Claimants support their request, in summary, in the following manner:

9.1. The Claimants are usufructuaries of an urban immovable property, in vertical ownership, consisting of 34 divisions with independent use, although they are indicated in the respective property register as holders of full ownership and, in accordance with a certificate of land registry attached to the proceedings, the respective usufruct is not registered.

9.2. The Taxable Patrimonial Value (TPV) of each of the said divisions with independent use, individually considered, is less than € 1,000,000.00 (one million euros), although the sum of the TPV of all divisions with independent use and residential affectation exceeds the indicated value of € 1,000,000.00.

9.3. For purposes of the PTC, each of the divisions with independent use was evaluated individually, on 27 March 2013, based on PTC Form 1 filed on 31 December 2012.

9.4. The urban immovable property in question is not constituted under a horizontal property regime.

9.5. Thus, the Claimants allege that the acts of assessment of Stamp Duty in question are illegal, in that, in the case of an immovable property with these characteristics, liability to Stamp Duty is determined, not by the TPV of the immovable property, but by the TPV attributed to each of the floors or divisions in question.

9.6. The liability to Stamp Duty of immovable properties with residential affectation resulted from the addition of item 28 of the GTSD, by no. 4 of Law No. 55-A/2012, of 29 October and which came into force on 30 October 2012.

9.7. From article 6 of the said Law, it follows that the taxable event is deemed to have occurred on 31 October 2012, and that the TPV to be used in the assessment of the tax is that which results from the rules of the PTC, by reference to the year 2011.

9.8. Furthermore, in accordance with that provision, the taxation provided for in item 28 of the GTSD, by reference to the year 2012, is effected at the rate of 0.5% on the TPV, provided that it is equal to or greater than € 1,000,000.00, of urban immovable properties with residential affectation.

9.9. In the absence of a definition of the concept of "immovable properties with residential affectation" in the said Law No. 55-A/2012, the Claimants understand that one must resort to the concept of urban immovable property, provided for in article 2 of the PTC, considering the legal reference contained in article 67 of the SDC.

9.10. Furthermore, the Claimants argue that, for the legislator, what is relevant for the purpose of determining the destination of an immovable property is the "normal use" of that immovable property (see article 6 of the PTC), that is, the purpose for which it is intended, with the situation of the immovable property in vertical ownership or in horizontal property not being relevant, with no reference or distinction being provided between one and the other.

9.11. Therefore, the Claimants understand that the Respondent cannot consider as the reference value for the purpose of the incidence of Stamp Duty the total value of the immovable property, by virtue of the provisions of the PTC, which should apply subsidiarily in these matters, considering the reference in article 67 of the SDC.

9.12. The Claimants conclude that the criterion adopted by the Respondent, of considering the value of the sum of the TPVs attributed to the divisions with independent use, with the argument that the immovable property is not constituted under a horizontal property regime, has no legal basis, violating the provisions of the PTC, to which the final part of item 28 of the GTSD itself refers.

9.13. For which reason, the Claimants allege, the adoption of the criterion supported by the Respondent violates the principles of legality and fiscal equality, as well as the principle of the prevalence of material truth over legal-formal reality.

9.14. Now, in the concrete case, the immovable property in question is constituted in vertical ownership, containing 26 floors and divisions with independent use intended for residential purposes, with no TPV equal to or greater than € 1,000,000.00 having been attributed to any of them, therefore, it should be concluded that the legal prerequisite for the incidence of Stamp Duty, provided for in item 28 of the GTSD, is not met.

9.15. The Claimants further argue that this is the interpretation that best accords with the ratio legis underlying the rule of item 28 of the GTSD, and in compliance with article 9 of the Civil Code, in that the intention of the legislator was to introduce a principle of taxation on wealth manifested in the ownership, usufruct or surface right of luxury urban immovable properties with residential affectation, this same understanding resulting from the analysis of the discussion of Draft Law No. 96/XII, in the Assembly of the Republic.

9.16. The Claimants allege, based on the analysis of said discussion, that the justification for the measure in question rests on the invocation of the principles of social equity and fiscal justice, making the new special rate apply to "houses of value equal to or greater than 1 million euros", an expression which the Claimants consider to be illustrative of the fact that the incidence of this Stamp Duty falls on an immovable property or an autonomous fraction (in the legal sense).

9.17. The Claimants further argue that the Respondent admits that this is the applicable criterion, since the value of incidence in each assessment issued corresponds to the TPV of each of the divisions with independent use intended for residential purposes, with the assessment being individualized on the part of the immovable property corresponding to each of these divisions.

9.18. Thus, the Claimants understand that if the legal criterion requires the issuance of individualized assessments for the autonomous parts of immovable properties in vertical ownership, in the same manner as it establishes for immovable properties in horizontal property, the legislator clearly established the criterion that must be unique and unambiguous for the definition of the incidence rule of the new tax.

9.19. For which reason the Claimants conclude that the existence of an immovable property in horizontal property or vertical ownership cannot, by itself, be an indicator of contributive capacity, and both should receive the same fiscal treatment, in compliance with the principles of justice, fiscal equality and material truth.

9.20. Therefore, the Claimants understand that it is illegal and unconstitutional, for violation of the principles of equality and proportionality in fiscal matters, provided for in articles 13, 104, no. 1 and 18 of the CPR, to consider, as the reference value for the incidence of Stamp Duty, the value corresponding to the sum of the TPVs attributed to each part or division, since the fiscal legislator cannot treat equal situations differently and, if the immovable property in question were constituted in horizontal property, none of its autonomous fractions would be subject to Stamp Duty.

9.21. Furthermore, it follows from article 12, no. 3 of the PTC that, for the purposes of registration in the property register, what is relevant is the autonomy that, within the same immovable property, can be attributed to each of its parts, economically and functionally independent, for which reason the constitution of horizontal property entails a mere legal alteration of the immovable property, not requiring a new evaluation.

9.22. Thus, the Claimants argue that material truth is what must be imposed as the determining criterion of contributive capacity, and not mere legal-formal reality of the immovable property, constituting the discrimination operated by the Respondent an arbitrary and illegal discrimination, in that the law does not require the constitution of horizontal property.

9.23. The Claimants conclude that the Respondent cannot distinguish where the legislator did not, under penalty of violation of the coherence of the fiscal system, of the principle of fiscal legality provided for in article 103, no. 2 of the CPR, of the principles of justice, equality and fiscal proportionality, provided for in articles 13, 104, no. 1 and 18 of the CPR and, likewise, of article 9 of the Civil Code, applicable by virtue of article 11, no. 1 of the General Tax Law (GTL).

9.24. Furthermore, if the Respondent intended to apply the Stamp Duty provided for in item 28 of the GTSD to the case in question, based on an analogical interpretation, such application would also be illegal, for violation of article 11, no. 4 of the GTL.

9.25. The Claimants thus conclude that the acts of assessment of Stamp Duty in question should be declared unconstitutional and illegal, being consequently annulled, for violation of the provisions of item 28.1 of the GTSD, of article 67, no. 2 of the SDC, of articles 2, 6, no. 2 and 12, no. 3 of the PTC, and of articles 13, 18, 103, no. 2 and 104, no. 1 of the CPR, see, arbitral decision delivered in case No. 50/2013, in that they suffer from the defect of error of fact and law in the prerequisites of the taxable event, defect of violation of law and defect of non-existence of the taxable event, which the Claimants invoke.

9.26. Without conceding, the Claimants further argue that the acts of assessment of Stamp Duty in question are illegal, for defect of violation of the provisions of article 6, no. 1, subparagraphs d) and f), item ii) of Law No. 55-A/2012, for incorrect application of the rate to the taxable amount, in that, having said assessment acts been practiced by the Respondent on 17 July 2013, the Respondent should have applied the rate of 0.8% provided for in the applicable transitional provisions and not the rate of 1%.

9.27. Finally, given the payment of the tax, partial as regards the First Claimant and total, as regards the Second Claimant, the Claimants petition the condemnation of the Respondent for the payment of compensatory interest considered due.

In its Response, the Respondent invoked, in summary, the following:

10.1. The TPV of the floors or parts with residential affectation, forming part of the immovable property in full or vertical ownership in question, amounts to € 1,993,160.00, and it was on this value that the Respondent assessed, in accordance with article 6, no. 1, subparagraph f), subitem i) the Stamp Duty of item 28.1 of the GTSD, in the wording given by article 4 of Law No. 55-A/2012, of 29 October, at the rate of 1%.

10.2. The Respondent argues that the situation of the immovable property of which the now Claimants claim to be usufructuaries falls literally within the provision of item 28 of the GTSD.

10.3. In fact, the Respondent understands that it results from article 2 of the PTC that only the autonomous fractions of an immovable property constituted under a horizontal property regime are considered as immovable properties, from which it concludes that the Claimants are not usufructuaries of 34 autonomous fractions, but rather of a single immovable property.

10.4. The Respondent alleges that horizontal property is a specific legal regime of ownership, provided for in article 1414 and following of the Civil Code, and that it would be abusive and illegal to apply this regime, by analogy, to the full ownership regime, as the Claimants wish (in the Respondent's understanding).

10.5. The Respondent considers that the regimes in question (that of full ownership and that of horizontal property) are regimes of civil law, imported into tax law in accordance with article 2 of the PTC, but maintaining the meaning they have in civil law as it results from article 11, no. 2 of the GTL.

10.6. Furthermore, as the Respondent argues, article 10 of the Civil Code, to which article 11, no. 1 of the GTL refers, only allows analogy to be applied in cases of gaps in the law, which does not occur in the case in question in tax law, since the item in question refers to the PTC, which determines that, in the regime of horizontal property, fractions constitute immovable properties, from which the Respondent concludes that, not being the immovable property in question subject to this regime, the fractions are susceptible, legally, of independent use, without there being common parts.

10.7. The Respondent does not therefore accept that parts susceptible of independent use have the same fiscal regime as autonomous fractions under the horizontal property regime.

10.8. Furthermore, according to the Respondent, the immovable property in question, being constituted in full ownership, is physically constituted by parts susceptible of independent use, a materiality to which tax law attributes relevance, evaluating each of these parts individually, in accordance with article 12, no. 3 of the PTC, with each floor or part susceptible of independent use being considered separately in the property registration, although forming part of the same register, with the assessment of PTC being made taking into account the TPV of each part.

10.9. The Respondent alleges that the rule provided for in article 12, no. 3 of the PTC is not unprecedented, in that it has a counterpart in article 232, rule 1 of the Code of Land Contribution and Tax on Agricultural Industry.

10.10. The Respondent adds that the unity of the urban immovable property in vertical ownership composed of several divisions is not affected by the fact that all or part of these divisions are susceptible of independent economic use, with the parts or divisions in question not being legally equated to autonomous fractions under a horizontal property regime.

10.11. The Respondent argues that, without prejudice to the co-ownership regime, the ownership of these parts or divisions cannot be attributed to more than one owner, although doctrine admits that each of the parts of the immovable property may be the subject of rental or any other type of use by the holder, which should be expressly stated in the property register.

10.12. The Respondent understands that the fact that PTC has been calculated based on the TPV of each part of immovable property with independent economic use does not affect the application of item 28.1 of the GTSD, since the determining factor for the application of this item is the total TPV of the immovable property and not, separately, each of its portions.

10.13. A different interpretation would violate, in the Respondent's opinion, the letter and spirit of item 28.1 of the GTSD and, likewise, the principle of legality of the essential elements of the tax, provided for in article 103, no. 2 of the CPR.

10.14. The Respondent does not further understand how the taxation in question could have violated the principle of fiscal equality, as the Claimants allege, in that different legal regimes are involved and the legislator can – the Respondent argues – subject to different and discriminatory legal-fiscal frameworks immovable properties under a horizontal property regime and vertical ownership, benefiting the more evolved institute of horizontal property, without this discrimination being considered arbitrary, since it may be imposed by the need to impose coherence to the fiscal system.

10.15. The Respondent further alleges that the property registration of each part susceptible of independent use is not autonomous, by register, but rather consists of a description in the register of the immovable property, in its entirety, and it should be concluded that the procedural norms of evaluation, property registration and assessment of the parts susceptible of independent use do not result in the equating of the immovable property in full ownership to the immovable property in horizontal property, and that the interpretive theory of the prevalence of the economic substance of the taxable facts over their legal form should not be accepted in this context.

10.16. In this manner, the Respondent concludes, based on the conjunction of articles 1, 2, 4 and 6 of the PTC, that the taxable event of the Stamp Duty provided for in item 28.1 of the GTSD is the total TPV of the urban immovable property and not the patrimonial value of each of the parts that make it up, even if susceptible of independent use.

10.17. The Respondent also argues that it is not viable to violate the transitional regime, provided for in article 6 of Law No. 55-A/2012, by reference to the year 2012, as regards the assessment acts in question, since it is not this transitional regime that is being applied, but rather the general taxation regime for the year 2012, from which the rate applied in the assessment acts of Stamp Duty in question results, of 1%.

10.18. As an effect, the Respondent argues that the assessment acts in question were issued only in July 2013, due to the fact that the immovable property was the subject of evaluation, with its TPV not having been determined in time to establish three payment periods, thus establishing that payment should occur in the last of these periods, that is, in the month of November, with the delay in assessment having caused no prejudice to the Claimants.

B) Preliminary Order

The Tribunal is competent and is properly constituted, in accordance with articles 2, no. 1, subparagraph a), 5 and 6, all of the LFTA.

The parties have legal personality and capacity, are entitled to sue and be sued, and are properly represented, in accordance with articles 4 and 10 of the LFTA and article 1 of Ordinance No. 112-A/2011, of 22 March.

There are no nullities and preliminary matters affecting the entire proceeding, and it is therefore necessary to proceed to the merits of the claim.

C) Subject Matter of the Arbitral Pronouncement

The following matters are submitted to the Tribunal, in accordance with the terms described above:

14.1. Is the interpretation unlawful according to which item 28.1 of the GTSD should be interpreted as providing, within its scope, immovable properties in full ownership with parts or divisions susceptible of independent use, with residential affectation, which are characterized by the fact that, to none of these parts or divisions, a TPV equal to or greater than € 1,000,000.00 has been attributed, although the sum of the TPVs relating to each part or division individually considered is equal to or greater than the same value of € 1,000,000.00?

14.2. Is the interpretation unconstitutional according to which item 28.1 of the GTSD should be interpreted as providing, within its scope, immovable properties in full ownership with parts or divisions susceptible of independent use, with residential affectation, which are characterized by the fact that, to none of these parts or divisions, a TPV equal to or greater than € 1,000,000.00 has been attributed, although the sum of the TPVs relating to each part or division individually considered is equal to or greater than the same value of € 1,000,000.00?

14.3. Subsidiarily, and without conceding, is the interpretation unlawful according to which the rate to be applied to Stamp Duty assessed by reference to the year 2012, under article 6 of Law No. 55-A/2012, is 1%, to the detriment of the rates provided for in the transitional regime enshrined in this legal provision?

14.4. Are, in the concrete case, the prerequisites upon which the Law makes dependent the right of each of the Claimants to compensatory interest met?

D) Matter of Fact

D.1 – Facts Proven

The following facts with relevance to the decision are considered proven, based on the documentary evidence attached to the proceedings:

15.1. The Claimants are passive subjects of PTC for the immovable property located at ..., no. 2, 2-A, 2-B, 2-C and 2-D, turning onto ..., no. 9, 9-A, 9-B, 9-C and 9-D, in ..., registered in the respective Urban Property Register under article ..., of the parish of ..., municipality of ... (see Document 1 attached to the request for arbitral pronouncement).

15.2. The urban immovable property was the subject of general evaluation, with each of its parts or divisions susceptible of independent use having been individually the subject of evaluation, separately, with the respective TPV, individually considered, appearing in the urban property record of the immovable property (see Document 1 attached to the request for arbitral pronouncement).

15.3. Of the parts or divisions susceptible of independent use that make up the urban immovable property in question, those dedicated to residential purposes are the following (see Document 1 attached to the request for arbitral pronouncement):

· RCD/9, with a TPV of € 39,810.00;
· RCE/9, with a TPV of € 39,810.00;
· 1D/2, with a TPV of € 82,030.00;
· 1D/9, with a TPV of € 78,830.00;
· 1E/2, with a TPV of € 81,330.00;
· 1E/9, with a TPV of € 82,030.00;
· 2D/2, with a TPV of € 82,030.00;
· 2D/9, with a TPV of € 78,830.00;
· 2E/2, with a TPV of € 81,330.00;
· 2E/9, with a TPV of € 82,030.00;
· 3D/2, with a TPV of € 82,030.00;
· 3D/9, with a TPV of € 78,830.00;
· 3E/2, with a TPV of € 81,330.00;
· 3E/9, with a TPV of € 82,030.00;
· 4D/2, with a TPV of € 82,030.00;
· 4D/9, with a TPV of € 78,830.00;
· 4E/2, with a TPV of € 81,330.00;
· 4E/9, with a TPV of € 82,030.00;
· 5D/2, with a TPV of € 82,030.00;
· 5D/9, with a TPV of € 78,830.00;
· 5E/2, with a TPV of € 81,330.00;
· 5E/9, with a TPV of € 82,030.00;
· 6D/2, with a TPV of € 73,750.00;
· 6D/9, with a TPV of € 72,470.00;
· 6E/2, with a TPV of € 73,750.00;
· 6E/9, with a TPV of € 72,470.00.

15.4. The total value resulting from the sum of the said parts or divisions susceptible of independent use, dedicated to residential purposes, corresponds to € 1,993,160.00 (see Documents 2 and 3 attached to the request for arbitral pronouncement).

15.5. The First Claimant was notified of the acts of assessment of Stamp Duty, issued under item 28.1 of the GTSD, identified in the collection documents no. 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., in the total amount of € 9,965.80, with, in all cases, a rate of 1% being applied on the TPV of the part or division in question and with the date of assessment being indicated as 17 July 2013, and also with the payment period being the month of November 2013 (see Document 2 attached to the request for arbitral pronouncement).

15.6. The Second Claimant was notified of the acts of assessment of Stamp Duty, issued under item 28.1 of the GTSD, identified in the collection documents no. 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., in the total amount of € 9,965.80, with, in all cases, a rate of 1% being applied on the TPV of the part or division in question and with the date of assessment being indicated as 17 July 2013, and also with the payment period being the month of November 2013 (see Document 3 attached to the request for arbitral pronouncement).

15.7. The First Claimant made partial payment of the Stamp Duty resulting from the assessment acts in question, in the amount of € 2,006.70, having thus paid the Stamp Duty due by reference to the assessment acts identified in the collection documents 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ..., 2013 ... (see Document 5 attached to the request for arbitral pronouncement).

15.8. The Second Claimant made full payment of the Stamp Duty resulting from all assessment acts of which it was notified, in the amount of € 9,965.80 (see Document 6 attached to the request for arbitral pronouncement).

As to the facts proven, the Tribunal's conviction was based on the documentary evidence referred to, attached to the proceedings and in the attached administrative file.

No other facts capable of affecting the merits decision, in view of the possible legal solutions, and which would therefore be important to record as unproven, were proven.

E) On the Law

(i) On the eventual (il)legality of the interpretation according to which item 28.1 of the GTSD should be interpreted as providing, within its scope, immovable properties in full ownership with parts or divisions susceptible of independent use, with residential affectation, which are characterized by the fact that, to none of these parts or divisions, a TPV equal to or greater than € 1,000,000.00 has been attributed, although the sum of the TPVs relating to each part or division individually considered is equal to or greater than the same value of € 1,000,000.00:

As we have seen, the main question subject to this decision concerns the interpretation of item 28.1 of the GTSD, specifically on the matter of whether the rule of incidence provided there is applicable to immovable properties with residential affectation, in full ownership, with parts or divisions susceptible of independent use, and which are characterized by the fact that none of these divisions has a TPV greater than € 1,000,000.00, in cases where the sum of the TPVs attributed to each part or division individually considered is equal to or greater than the said value.

Item 28 was added to the General Table of Stamp Duty by Law No. 55-A/2012, of 29 October, thereupon providing that the following come within the field of incidence of the tax "28 - Ownership, usufruct or surface right of urban immovable properties whose taxable patrimonial value appearing in the register, in accordance with the Property Tax Code, is equal to or greater than € 1,000,000 - on the taxable patrimonial value used for purposes of PTC: 28.1. - For immovable property with residential affectation - 1%;".

In accordance with the transitional provisions provided for in Law No. 55-A/2012, of 29 October, for application of the said rule of incidence still in the year 2012, it was established that: (i) the taxable event was deemed to have occurred on 31 October 2012, (ii) the Tax and Customs Authority should effect the assessment of the tax due by the end of the month of November of that year, (iii) the passive subjects should effect payment of the tax assessed in such terms by 29 December 2012 and also, (iv) the applicable rate in that year was 0.5% for immovable properties with residential affectation evaluated in accordance with the PTC and 0.8% for immovable properties with residential affectation not yet evaluated in accordance with the PTC.

From the analysis of the literal element of item 28.1 of the GTSD, it is concluded that the taxable event relevant for the purpose of applying the rule of incidence in question incides on the right of ownership, usufruct or surface right whose object corresponds to (i) urban immovable properties; (ii) with residential affectation; of TPV equal to or greater than € 1,000,000.00; with this patrimonial value being that used for purposes of PTC.

In these terms, the intention of the legislator was to create a tax whose incidence is gauged by the economic destination of the urban immovable property and by the TPV used for purposes of PTC, with the assessment being promoted in terms identical to that of this tax.

Furthermore, Law No. 55-A/2012, of 29 October also added no. 2 of article 67 of the Stamp Duty Code, in accordance with which it was established that "To matters not regulated in the present Code concerning item no. 28 of the General Table applies, subsidiarily, the provisions of the PTC".

Thus, with regard to the concrete matter subject to this decision, it is important to consider article 12, no. 3, of the PTC, in accordance with which "each floor or part of an immovable property susceptible of independent use is considered separately in the property registration, which also discriminates its respective taxable patrimonial value.".

Furthermore, in accordance with article 119, no. 1 of the PTC, "The services of the Directorate-General for Taxes send to each passive subject, by the end of the month prior to that of payment, the respective collection document, with discrimination of the immovable properties, their parts susceptible of independent use, respective taxable patrimonial value and the amount of tax attributed to each municipality of the location of the immovable properties.".

Given the legislative context set out and in that the interpretation of the concept of "immovable property" is at issue, it is first necessary to enquire about the existence of a legal definition of said concept.

In this regard, one should consider the concept of immovable property expressly provided for in article 2 of the PTC and which the legislator orders to be applied here subsidiarily, as we have seen, through the reference contained in article 67, no. 2 of the SDC.

Thus, immovable property shall be "any portion of territory, embracing waters, plantations, buildings and constructions of any nature incorporated into or resting on it, with a character of permanence, provided it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, even though situated in a portion of territory that constitutes an integral part of a diverse patrimony or does not have a patrimonial nature.".

Now, as doctrine recognizes, the fiscal concept of immovable property departs from the civil concept of immovable property, contrary to what the Respondent argues, and "For fiscal purposes, no. 1 of this article [2 of the PTC] provides for the existence of three necessary requirements in order for one to be dealing with the concept of immovable property, namely, physical structure, patrimonial character and economic value." (J. Silvério Mateus and L. Corvelo de Freitas, Taxes on Real Estate Property, Stamp Duty, Annotated and Commented, Engifisco, 1st edition, 2005, p. 101).

Thus, "the physical element is defined by the reference to "any portion of territory", embracing waters, plantations and constructions of any nature incorporated into or resting on it with a character of permanence. In the legal sphere, importance is attached to patrimonial character. The good, in the physical sense, must be capable of integration into the patrimony of a natural or legal person. (...) The requirement of economic value is, naturally, associated with the requirement of patrimonial character, resulting from which the susceptibility of generating income or other types of utility for its holder." (Op.Cit.).

Also in this sense has the Supreme Administrative Court already pronounced itself, when it refers that "Thus, and as the Supreme Administrative Court (2nd Section) rightly noted in Decisions delivered in Appeals 1109/11 and 1004/11, on 30 May 2012 and on 27 June 2012, respectively, "In accordance with art. 2 of the PTC the concept of immovable property rests on three elements: an element of physical nature (portion of territory, embracing waters, plantations, buildings and constructions of any nature incorporated into or resting on it, with a character of permanence), an element of legal nature (requirement that the thing - movable or immovable - form part of the patrimony of a natural or legal person) and an element of economic nature (requirement that the thing have economic value in normal circumstances). This is a concept of immovable property that differs, both from the concept of immovable property contained in no. 3 of art. 8 of the Personal Income Tax Code, (However, for Rui Duarte Morais ("On Personal Income Tax", 2nd edition, Almedina, 2008, p. 116) the Personal Income Tax Code does not define what is immovable property, and therefore, in a systematic interpretation, we understand that we should resort to the notion contained in the PTC. This is because "In reality, no. 3 of art. 8 of the Personal Income Tax Code presents the definitions of rural, urban and mixed immovable property, for purposes of this tax. Besides such notions, being overly simplistic, they do not proceed to a rigorous delimitation of these concepts (see art. 3 to 6 of the PTC), there are patrimonial realities not capable of being inserted into any of these categories (such would be the case of immovable properties that do not have a component of land in their physical make-up). and from that contained in no. 2 of art. 204 of the Civil Code. (In this context, see Nuno Sá Gomes, "The Fiscal Concepts of Immovable Property", in Notebooks of Science and Tax Technique, no. 54 (and also published in Science and Tax Technique nos. 101 and 102 – May and June of 1967), a study which, although relating to the legislative evolution that culminated in the old Code of Land Tax, maintains some relevance.)".

Now, in the concrete case, it seems to us that all three requirements mentioned are met, in that the parts or divisions susceptible of independent use subject to the assessment acts in question have physical correspondence with reality, form part of the patrimony of two natural persons (the Claimants) and possess an economic value which, for lack of anything else, results from the TPV attributed to them through the general evaluation carried out by the Respondent.

Thus, it seems to us that the parts or divisions susceptible of independent use, meeting all the requirements in order to qualify as an "immovable property", in economic, physical and patrimonial terms, should be considered autonomously for purposes of the incidence of item 28.1 of the GTSD.

Furthermore, we agree with the understanding expressed in the Arbitral Decision delivered in case No. 50/2013-T, when it refers that "We further conclude that for the legislator the situation of the immovable property in vertical or horizontal property ownership was not relevant, as no reference or distinction is made between one and the other. What is relevant is the material truth underlying its existence as an urban immovable property and its use.".

As an effect, in the rule of incidence contained in item 28.1 of the GTSD, the legislator did not find it relevant to distinguish between immovable properties in horizontal property and immovable properties in vertical ownership.

And this is because what is relevant, ultimately, is the economic destination of the immovable property, as follows also from article 6 of the PTC, in light of the constitutional principles inherent in articles 103, no. 1 and 104, no. 3 of the CPR.

One cannot, therefore, fail to consider the autonomy of the parts or divisions susceptible of independent use that make up the urban immovable property in question, for the purpose of applying item 28.1 of the GTSD, especially since the legislator itself orders, in case of doubt, to consider the economic reality of the taxable facts, in article 11, no. 3 of the GTL, stipulating, on the rules of interpretation of tax norms, that "Persisting doubt as to the meaning of the norms of incidence to be applied, regard shall be had to the economic substance of the taxable facts.".

In fact, it is not clear how, in the case at issue, this interpretive rule could be set aside, as the Respondent argues.

In truth, in terms of economic substance, there is no difference whatsoever between a building in horizontal property and a building in vertical or full ownership made up of parts or divisions susceptible of independent use, justifying itself, therefore, in terms of rules of incidence – and in particular, the rule contained in item 28.1 of the GTSD – equal treatment of these two situations.

It is not, therefore, a matter of applying the same treatment to distinct realities, based on analogy, as the Respondent argues, but of applying to substantially and economically identical realities the same fiscal treatment.

The fiscal legislator also determines this equal treatment, in article 119 of the PTC, when it establishes that the tax should be assessed individually on each part or division susceptible of independent use, taking into consideration the TPV of each part or division susceptible of independent use, individually considered.

From which it follows that the TPV to be considered in the application of item 28.1 of the GTSD is that which follows from the letter and ratio of articles 2, 6, no. 1, subparagraph a), 12 and 119 PTC.

Furthermore, the PTC not only does not distinguish between urban immovable properties with residential affectation in the form of horizontal property and urban immovable properties with residential affectation in the form of full or vertical ownership, but considers both immovable properties in question in article 6, no. 2 of the PTC, under the designation of "residential urban immovable properties", with unique property registration rules.

To this extent, the rule contained in item 28.1 of the GTSD should be applied indistinctly to both types of residential urban immovable properties – those constituted in horizontal property and those found in full or vertical ownership – and should thus incide on the TPV attributed by the Respondent, through general evaluation, to each of the parts or divisions susceptible of independent use.

So much so that the Respondent issued, in the case subject to these proceedings, as many assessment acts as there were parts or divisions susceptible of independent use dedicated to residential purposes.

In light of what has been set out above, and given the fact that none of the parts or divisions susceptible of independent use, subject to the assessment acts in question, has a taxable patrimonial value greater than € 1,000,000.00, as was demonstrated in these proceedings, it is concluded that the Claimants' claim is well-founded, considering the assessment acts in question illegal, for error on the factual and legal prerequisites and violation of article 1, no. 1 of the Stamp Duty Code and item 28.1 of the GTSD, with the said acts to be annulled.

Given the illegality of the assessment acts subject to this decision, the tribunal is relieved of the necessity to analyse the matters relating to the eventual unconstitutionality of the application of the norm in question and also the subsidiary request presented by the Claimants, for manifest uselessness.

(ii) On the right of the Claimants to compensatory interest:

The Claimants request reimbursement of the amounts paid, plus compensatory interest, in accordance with the provisions of article 43 of the General Tax Law.

Article 43 of the General Tax Law determines that the taxpayer shall be entitled to be compensated through compensatory interest whenever the unduly payment of tax is attributable to error of the services.

As doctrine clarifies, "The error attributable to the services that effected the assessment is demonstrated when they proceed to challenge or contest that same assessment and the error is not attributable to the taxpayer (for example, there will be annulment for error attributable to the taxpayer when the assessment is based on erroneous factual prerequisites, but the error is based on an incorrect indication in the return that the taxpayer submitted)." (Campos, Diogo Leite de; Rodrigues, Benjamim Silva, Sousa, Jorge Lopes de, General Tax Law, Annotated and Commented, 4th Ed. 2012 Encontro da Escrita, ..., p. 342).

Now, in the case in question, the acts of assessment of Stamp Duty are illegal, in that they were practiced with error of fact and law and offense of the applicable legal norms and principles, with this error being entirely and exclusively attributable to the Services.

In light of what has been set out, it is decided that the request for condemnation of the Respondent for payment to the Claimants of compensatory interest in accordance with the provisions of article 43, no. 1, of the General Tax Law is well-founded.

Decision

In light of what has been set out, this Arbitral Tribunal hereby judges the claim formulated to be entirely well-founded and consequently:

53.1. Declares the illegality of the acts of assessment of Stamp Duty, annulling them, with the due legal consequences;

53.2. Condemns the Respondent to refund the amount unduly paid plus compensatory interest; and,

53.3. Condemns the Respondent to payment of costs.

The value of the action is set at € 19,931.60 (nineteen thousand nine hundred thirty-one euros and sixty cents), in accordance with the provisions of article 97-A, no. 1, subparagraph a), of the Code of Administrative Procedure and Tax Procedure (CPPT), applicable by virtue of article 29, no. 1, subparagraph a), of the LFTA.

The value of the Arbitration Fee is set at € 1,224.00 (one thousand two hundred twenty-four euros), in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Respondent, in accordance with articles 12, no. 2, 22, no. 4, of the LFTA and 4, of the cited Regulation.

Let it be notified.

Lisbon, 4 July 2014

The Arbitrator

Mónica Respício Gonçalves

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese Stamp Tax General Table and how does it apply to properties with independent units?
Verba 28.1 of the Portuguese General Table of Stamp Duty (Tabela Geral do Imposto do Selo) was introduced by Law 55-A/2012 and applies to urban properties with residential use (afetação habitacional) whose Taxable Patrimonial Value (Valor Patrimonial Tributário) equals or exceeds €1,000,000. The key interpretative issue for properties with independent units concerns whether the €1,000,000 threshold applies to each independent division separately or to the aggregate value of the entire property. This distinction is particularly relevant for properties in vertical ownership (propriedade total) that contain multiple divisions capable of independent use but are not constituted under a horizontal property regime. The taxable event occurs annually, and the TPV used for assessment purposes is determined according to Property Tax Code rules.
How is Stamp Tax (Imposto do Selo) calculated for buildings held in total ownership with divisions capable of independent use?
Stamp Tax (Imposto do Selo) calculation for buildings held in total ownership with divisions capable of independent use depends on how the property is characterized for tax purposes. When a property contains multiple divisions with independent use but remains in vertical ownership (not horizontal property), two interpretative approaches exist: (1) treating the entire property as a single taxable unit by aggregating all divisions' TPV, or (2) treating each independent division as a separate taxable unit. If individual divisions are evaluated separately under the Property Tax Code (Código do IMI), taxpayers may argue that each division's TPV should be considered independently for stamp duty purposes. Under this interpretation, only divisions with individual TPV equal to or exceeding €1,000,000 would be subject to stamp duty under Verba 28.1. The rate applicable was initially 0.5% for 2012, with subsequent adjustments. The determination requires analyzing Article 67 of the Stamp Duty Code and Article 2 of the Property Tax Code regarding property classification.
Can taxpayers challenge Stamp Tax assessments on multi-unit properties through CAAD tax arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on multi-unit properties through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings. The process involves filing a request for arbitral pronouncement under Articles 2(1)(a) and 10(1)(a) of Decree-Law 10/2011 (Legal Framework for Tax Arbitration) in conjunction with Ordinance 112-A/2011. Taxpayers may seek declarations of unconstitutionality, illegality, and annulment of assessment acts, as well as reimbursement of overpaid taxes plus compensatory interest at 4% annually. Challenges can be based on substantive grounds (misapplication of Verba 28.1, incorrect property characterization, improper TPV calculation) or constitutional grounds (violations of equality, property rights, legality principles under Articles 13, 18, 103(2), and 104(1) of the Portuguese Constitution). The arbitral tribunal is constituted by an arbitrator appointed by CAAD's Ethics Council, and decisions are binding on the Tax Authority, providing an efficient alternative to judicial litigation for resolving stamp duty disputes.
What are the constitutional grounds for contesting Stamp Tax levied under Verba 28.1 in Portugal?
Constitutional grounds for contesting Stamp Tax levied under Verba 28.1 include several fundamental rights and principles enshrined in the Portuguese Constitution (Constituição da República Portuguesa). Article 13 guarantees the principle of equality, which may be violated if similar properties (with independent divisions below the threshold) are treated differently based solely on whether they are in horizontal or vertical ownership. Article 18 addresses restrictions on fundamental rights, requiring that tax legislation respect proportionality and necessity principles. Article 103(2) establishes the tax system's objectives, including wealth redistribution and equality, which could be breached if stamp duty disproportionately affects certain property configurations. Article 104(1) enshrines the principle of tax legality (nullum tributum sine lege), requiring clear legal authorization for taxation—ambiguities in how Verba 28.1 applies to properties with independent divisions may violate this principle. Additionally, constitutional challenges may invoke violation of property rights under Article 62, arguing that aggregating TPV of independent divisions for stamp duty purposes creates excessive tax burdens incompatible with constitutional property protection guarantees.
What is the procedure for requesting a tax arbitration ruling and reimbursement of overpaid Stamp Tax with compensatory interest?
The procedure for requesting tax arbitration and reimbursement involves several steps: (1) File a request for arbitral pronouncement (pedido de pronúncia arbitral) with CAAD within the statutory deadline, identifying the contested assessment acts and legal grounds; (2) Include all relevant documentation, such as property registrations, tax assessments, payment proof, and Property Tax evaluation forms; (3) Specify the relief sought, including annulment of assessment acts and reimbursement amounts; (4) Upon acceptance, an arbitrator is appointed by CAAD's Ethics Council, and the Tax Authority (Autoridade Tributária e Aduaneira) is notified and must file a Response (Resposta); (5) The arbitral tribunal may hold hearings or decide based on documentary evidence; (6) If successful, the tribunal issues a decision declaring assessments illegal/unconstitutional and ordering reimbursement; (7) Compensatory interest (juros indemnizatórios) is calculated daily at 4% annually from the payment date until actual reimbursement; (8) The Tax Authority must comply with the arbitral decision and process the refund. Taxpayers may present principal arguments and subsidiary arguments (e.g., if tax is due, applying a lower rate) to maximize chances of obtaining relief.