Process: 351/2015-T

Date: March 9, 2020

Tax Type: Selo

Source: Original CAAD Decision

Summary

This landmark 2020 tax arbitration case (Process 351/2015-T) addresses the controversial application of Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) to properties held in total ownership (propriedade total) rather than horizontal ownership. The dispute involves a Lisbon building with seven physically and economically autonomous units—two cellars, ground floor, and four residential floors—valued collectively at €1,056,062.21 for Municipal Property Tax (IMI) purposes. The Tax Authority issued separate Stamp Tax assessments for six independent units across tax years 2012-2014, totaling €36,592.09. The claimant, head of three undivided estates dating back to 1994, challenged these assessments on multiple grounds: (1) illegality of aggregating taxable values of independent units within a single total ownership property; (2) violation of tax legality principles under Article 8 of the General Tax Law and Article 103 of the Portuguese Constitution; (3) breach of the constitutional equality principle by taxing total ownership properties differently from horizontal ownership properties; and (4) incorrect application of the 1% rate instead of 0.5%, with wrong reference year values (2012 instead of 2011). This case represents a reformed arbitral decision—the original April 2016 ruling was successfully challenged by the Tax Authority before the Central Administrative Court of the South in June 2019, necessitating appointment of a new arbitrator after the original arbitrator's death. The procedural history highlights the complex interplay between tax arbitration and judicial review in Portuguese administrative tax law, particularly regarding high-value urban properties caught in succession planning limbo.

Full Decision

TAX ARBITRATION JURISPRUDENCE

Case No. 351/2015-T

Date of Decision: 2020-03-09

Amount in Dispute: € 36,592.09

Subject Matter: Stamp Tax – Item 28 TGIS – Full Ownership – Reform of Arbitration Decision (attached to decision)
*Replaces the arbitration decision of 18 April 2016

ARBITRATION DECISION

I – REPORT

  1. On 1 June 2015, A..., holder of Tax Identification Number..., with tax domicile at Street..., n.º..., ..., in Lisbon, filed a request for constitution of an arbitration tribunal pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Tax Arbitration, with the wording introduced by article 228 of Law No. 66-B/2012, of 31 December (hereinafter abbreviated as RJAT), seeking the declaration of illegality of the following Stamp Tax assessments relating to item 28.1 of the General Table of Stamp Tax (hereinafter TGIS), made by reference to the years 2012, 2013 and 2014, concerning 6 independent units of an urban property in full ownership regime located at n.º... of Street..., municipality of Lisbon, with registration article... of the parish of... and described at the Property Registry Office of Lisbon under No..., in the total amount stated of € 36,592.09.

  2. To substantiate the request, the Claimant alleges, in summary:

a. the illegality of the assessment of Stamp Tax on the sum of the TPC of the divisions capable of independent use that make up each property in full or vertical ownership regime identified in these proceedings;

b. violation of the principle of tax legality inherent in article 8 of the General Tax Law and 103 of the Constitution of the Portuguese Republic;

c. violation of the Principle of equality constitutionally established;

d. the tax rate applicable to the assessments identified in items a) to f) of the preamble is 0.5% and not 1% as applied, and that the value on which the rate applies should be the value relevant for purposes of IMI in 2011, and not in 2012.

  1. On 2 June 2015, the request for constitution of the arbitration tribunal was accepted and automatically notified to the Tax Authority.

  2. The Claimant failed to appoint an arbitrator, so, pursuant to the provisions of item a) of No. 2 of article 6 and item a) of No. 1 of article 11 of the RJAT, the President of the Ethics Council of CAAD designated Dr. Fernando Pinto Monteiro as arbitrator of the singular arbitration tribunal, having the same communicated acceptance of the office within the applicable period.

  3. On 28 July 2015, the parties were notified of these designations and did not express willingness to refuse any of them.

  4. In accordance with the provision of item c) of No. 1 of article 11 of the RJAT, the singular Arbitration Tribunal was constituted on 7 September 2015.

  5. On 3 November 2015, the Respondent, duly notified for that purpose, filed its response defending itself by exception and by challenge.

  6. An arbitration decision was rendered, notified to the parties on 19 May 2016.

  7. Dissatisfied with said decision, the Respondent filed a challenge directed to the Central Administrative Court of the South.

  8. By judgment dated 25 June 2019, the Venerable Administrative Court of the South ruled the challenge filed by the Respondent as having merit, with the legal consequences.

  9. Having the Ethics Council of CAAD knowledge of the death of Dr. Fernando Pinto Monteiro, arbitrator of the singular arbitration tribunal constituted in this case, by order of 21 October 2019, the President of the Ethics Council of CAAD issued an order imposing the designation in his replacement.

  10. On 19 November 2019, the undersigned was appointed arbitrator in this case.

  11. The Arbitration Tribunal is materially competent and is regularly constituted in accordance with the provisions of articles 2, No. 1, item a), 5 and 6, No. 2, item a) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

The case does not suffer from any nullities.

Thus, there is no obstacle to the examination of the case.

Having considered all matters, it is necessary to render a decision.

II. DECISION

A. MATTERS OF FACT

A.1. Facts Established as Proven

  1. The claimant is head of estate of the indivisible inheritances of B..., C... and D...

  2. The urban property in full ownership regime located at n.º... of Street..., municipality of Lisbon, with registration article... of the parish of... and described at the Property Registry Office of Lisbon under No..., is part of the unpartitioned inheritances of C..., D... and E...

  3. The property was originally owned by C..., deceased on 11-04-1994, who was succeeded, as legitimate heirs:

i. D..., her second husband, by whom she had no children and who (the second husband) left no descendants;

ii. E..., her only son, born from her first marriage.

  1. As testamentary heirs, three of her grandchildren succeeded:

i. A...;

ii. F...;

iii. G...

  1. The property of C... was not partitioned.

  2. On 08-02-1996 the second husband of C..., D..., died without legitimate heirs.

  3. D... left a will, instituting as his universal heir his wife, C..., who had predeceased him. By the right of representation in testamentary succession, her only son, E..., took the place of C... in the succession of her husband.

  4. The property of D... was not partitioned.

  5. On 03-06-2004 the son of C..., E..., died, who was succeeded by:

i. H...;

ii. A...;

iii. I...;

iv. J...;

v. K...;

vi. L...

  1. The property of E... was not partitioned.

  2. The property in full ownership regime located at n.º... of Street..., municipality of Lisbon, with registration article... of the parish of... and described at the Property Registry Office of Lisbon under No..., consists of 2 cellars, ground floor, 1st, 2nd, 3rd and 4th floors with independent use, such that:

a. the 2 cellars and the 1st to 4th floors are intended for residential use;

b. the ground floor is assigned to services.

  1. Annually, the Tax Authority, for purposes of IMI (Municipal Property Tax), proceeded with the legal operations for assessment of this tax based on the taxable property value of each of its 7 units that are physically and economically autonomous.

  2. Despite the physical and economic autonomy of 6 of the 7 parts that compose the building allowing it, until the presentation of the arbitration request the property had not been constituted as horizontal property ownership.

  3. The sum of the taxable property value of each of said units amounts to € 1,056,062.21.

  4. On 27-11-2012 the Tax Authority issued 6 assessments for item 28.1 of the TGIS, pursuant to Law 55-A/2012, article 6, No. 1/f)/ii), corresponding to the 2 cellars and 1st, 2nd, 3rd and 4th floors of the property in question in these proceedings.

  5. On 27-03-2013 it again assessed stamp tax for item 28.1 with reference to the year 2013, corresponding to the 2 cellars and 1st, 2nd, 3rd and 4th floors of the property at issue, payable in 3 installments, with the exception of cellar A payable in 2 installments.

  6. On 22-03-2014 and with reference to the tax year 2013, the Tax Authority proceeded to assess item 8.1 of the TGIS, payable in 3 installments, with the exception of cellar A payable in 2 installments.

  7. On 1 December 2014, the third installments of the cellar and 1st to 4th floors and the 2nd installment of cellar A from the tax year 2013 were assessed in the total amount of € 3,579.93.

  8. On 20-03-2015, with reference to the tax year 2014, the Tax Authority issued 6 stamp tax assessments.

  9. On 14 April 2015, the first installments of the tax assessed with reference to the 6 independent units of the cellar and 1st to 4th floors and the 2nd installment of cellar A from the tax year 2014 were assessed in the total amount of € 3,579.98.

  10. All the aforementioned assessments were made taking into consideration not the value of the property as a whole, but based on the individual taxable property value of each unit that comprises it.

  11. The Claimant made the following payments:

a. on 1 December 2014, the third installments of the cellar and 1st to 4th floors and the 2nd installment of cellar A from the tax year 2013, in the total amount of € 3,579.93;

b. on 14 April 2015, the first installments of the tax assessed with reference to the 6 independent units of the cellar and 1st to 4th floors and the 2nd installment of cellar A from the tax year 2014, in the total amount of € 3,579.93.

A.2. Facts Established as Not Proven

With relevance for the decision, there are no facts that should be considered as not proven.

A.3. Basis for the Proven and Unproven Facts

With respect to the matters of fact, the Tribunal does not need to pronounce on everything that was alleged by the parties; rather, it is the tribunal's duty to select the facts that matter for the decision and to distinguish the proven from the unproven facts (see article 123, No. 2 of the CPPT and article 607, No. 3 of the CPC, applicable ex vi article 29, No. 1, items a) and e) of the RJAT).

Thus, the pertinent facts for judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) at issue (see former article 511, No. 1 of the CPC, corresponding to current article 596, applicable ex vi article 29, No. 1, item e) of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the procedural file attached to the case, the facts listed above were considered proven, with relevance for the decision.

Allegations made by the parties that were presented as facts but consisted of purely conclusive statements not susceptible to proof, whose truthfulness must be assessed in relation to the concrete facts of fact consolidated above, were not given as proven or unproven.

B. ON THE LAW

i. On matters of exception

a. On the partial lack of timeliness of the request for arbitral pronouncement

The Respondent begins its defense by arguing the partial lack of timeliness (and not untimeliness, as mentioned in the Response) of the request for arbitral pronouncement regarding the request for review of the legality of assessments and installments of stamp tax for the years 2012 and 2013.

The Respondent argues that, having no administrative procedure of the Claimant's initiative been initiated with respect to these assessments and installments of stamp tax, the corresponding voluntary payment periods terminated respectively on 20 December 2012, 30 April 2013, 1 August 2013 and 30 November 2013 for the assessments of the year 2012, and 30 April 2014, 31 July 2014 and 30 November 2014 for the assessments and installments of the year 2013.

The Respondent concludes that the request for constitution of the Arbitration Tribunal, dated 01-06-2015, was only timely under the period provided in article 10, No. 1, item a) of the RJAT, approved by Decree-Law No. 10/2011, of 20 January, with respect to the challenge of the 1st installment of stamp tax of the year 2014, whose voluntary collection period ended in April 2015.

Notwithstanding, as results from articles 23 and 72 of the initial petition, the Claimant argues nullity with respect to all assessments subject to this arbitration action, also formulating the request that the Tribunal "deign to declare null or, at least, annul, the contested assessments."

However, in accordance with article 102, No. 3 of the CPPT, "If the ground is nullity, the challenge may be filed at any time."

Therefore, the partial lack of timeliness of the request for arbitral pronouncement does not occur with respect to the request for review of the legality of assessments and installments of stamp tax for the years 2012 and 2013, without prejudice to the fact that with respect to such assessments no annulability can be known, as the Claimant's right of action has lapsed in that respect.

b. On the material incompetence of the Arbitration Tribunal

The Respondent also argues that the Arbitration Tribunal is materially incompetent under the provision of article 2 of the RJAT to review the legality of an installment of the assessment act, which is not in itself a tax act, there being no doubt, from the value of the case and all documents attached to it, that the Claimant contests exclusively the collection notices that constitute the 1st installments of stamp tax of the year 2014.

The Respondent invokes in its favor the decision in arbitration case No. 726/2014-T of CAAD.

While respecting due deference, the Tribunal finds no merit in the Respondent's argument.

In effect, it has been consistent jurisprudence of the superior courts of the administrative and tax jurisdiction that:

i. "In the interpretation of procedural documents, the criteria imposed by the principles of modern procedure and likewise by the constitutional principle of effective judicial protection must be observed, so that the court should extract from the wording given to the petition in the initial petition the meaning most favorable to the interests of the petitioner, establishing, even using the figure of implied request, what is the true claim for legal protection.";

ii. "In the interpretation of procedural documents, the principles applicable to the interpretation of legal acts, by virtue of article 295 of the CC, are applied, with the meaning that, under articles 236, No. 1 of the CC, a normal or reasonable recipient should extract from the written statements in the pleadings, observing also that formalistic rigor in the interpretation of procedural documents is now forbidden by the principles of modern civil procedure and likewise by the constitutional principle of effective judicial protection (see article 20 of the CRP), reason why the court should extract from the petition made to it the meaning most favorable to the interests of the petitioner, inquiring into its true claim.";

iii. "the jurisprudence of the Supreme Administrative Court, (...) has adopted a position of great flexibility in interpreting the petition when, in light of the concrete cause of action invoked, one can infer what is the true claim.";

iv. "Because formalistic rigor in the interpretation of procedural documents is now forbidden by the principles of modern civil procedure and likewise by the constitutional principle of effective judicial protection, some benevolence in the interpretation of the initial petition is justified."

Now, the initial Request is explicit that the Claimant intends that the legality of the Stamp Tax assessment acts be reviewed with respect to the properties and the years indicated therein, despite the assessment acts being reported to the collection notices delivered to it, especially because, as the Claimant states, no other acts were notified to it, the assessment act being naturally integrated in the collection notice.

Furthermore, the said "collection notices" expressly state that "You may file a claim or challenge the assessment...".

The fact that the Claimant may have indicated the value of the case incorrectly does not prevent the conclusion formulated, as such circumstance may only determine the correction of the value of the case, and it is certain that in identifying several of the assessments subject to the arbitration request presented, including all those relating to the year 2014, the Claimant stated the total value of the respective assessment.

Therefore, the Tribunal has no doubt that the Claimant intends pronouncement on the legality of the assessment acts and not the collection notices, so this exception must also be dismissed.

ii. On the merits of the case

a. On the nullity of the assessments

As already seen, the Claimant argues, in addition to voidability, the nullity of the assessments, arguing that "the assessment acts subject to this action are null, as they manifestly offend the essential content of a fundamental right, the right to equality which, in tax law is reflected in the principle of taxpaying capacity."

On this matter, it has been consistent jurisprudence that "As a rule, the defects of administrative and tax acts imply their mere voidability, nullity occurring only when any essential element of the act is lacking, when the law expressly determines it, or when the circumstances referred to in the various items of No. 2 of article 133 of the CPA exist, namely when there is violation of the essential content of a fundamental right."

In that sense, it has also been considered that:

"III - There are no absolute fundamental rights.

IV - However, restrictions on fundamental rights cannot violate that minimum beyond which the fundamental right ceases to be so, becomes emptied as such.

V - This untouchable minimum constitutes the so-called essential content or nucleus of each fundamental right."

The Central Administrative Courts have also understood that:

  • "The 'essential content of a fundamental right' provided for in article 161, No. 2, item d) of the NCPA refers to the hard core of a right, freedom and guarantee or analogous, to the shocking and serious violation of a structuring principle of the Rule of Law or of another fundamental right sufficiently defined in ordinary law, only generating the nullity of the administrative act when, as a consequence of that act, the essence of the fundamental value that justified the creation of the right in question is affected, without which the same cannot subsist.";

  • "The essential content of a fundamental right referred to in article 133 CPA refers to the hard core of a DLG (or the shocking and serious violation of a structuring principle of the Rule of Law or of another fundamental right sufficiently defined in ordinary law)."

Now, the Claimant does not demonstrate, nor even concretely alleges any shocking and serious violation of the fundamental rights it invokes, in terms such that the essence of the fundamental value that justified the creation of the right in question was compromised.

Accordingly and for the reasons stated, the alleged nullity of the assessment acts sub iudice must be dismissed.

b. On the voidability of the assessments

The defects of voidability alleged by the Claimant can only be reviewed with respect to stamp tax assessments for the year 2014.

In effect, as the Respondent states in the matter of exception, the voluntary payment periods terminated respectively on 20 December 2012, 30 April 2013, 1 August 2013 and 30 November 2013 for the assessments of the year 2012, and 30 April 2014, 31 July 2014 and 30 November 2014 for the assessments and installments of the year 2013.

Thus, the request for constitution of the Arbitration Tribunal having been filed on 01-06-2015, only voidabilities relating to the assessments of the year 2014 may be known.

Given this, and as already seen, the Claimant raises the following issues in the proceedings:

a. the illegality of the assessments of Stamp Tax on the sum of the TPC of the divisions capable of independent use that make up each property in full or vertical ownership regime identified in these proceedings;

b. violation of the principle of tax legality inherent in article 8 of the General Tax Law and 103 of the Constitution of the Portuguese Republic;

c. violation of the Principle of equality constitutionally established;

d. the tax rate applicable to the assessments identified in items a) to f) of the preamble is 0.5% and not 1% as applied, and that the value on which the rate applies should be the value relevant for purposes of IMI in 2011, and not in 2012.

Let us examine these.

At issue in these proceedings is, in the first instance, the question of whether the owner(s) of a property in full (or vertical) ownership consisting of divisions capable of independent use, whose TPC was determined separately under article 7, No. 2, item b) of the CIMI, is(are) subject to the incidence of Stamp Tax by virtue of the provision of item 28.1 of the TGIS on the sum of the TPC of those divisions, when none of said divisions has a TPC exceeding €1,000,000.00, but the sum of their respective TPC exceeds this amount.

From the argumentative framework presented by the parties, it is concluded that for the Tax Authority, the criterion for determining the incidence of Stamp Tax provided in item 28.1 of the TGIS for properties in full (or vertical) ownership with floors and divisions with independent use for residential purposes corresponds to the sum of the respective TPC attributed to the parts or divisions.

It was this understanding that led to the Stamp Tax assessments here contested and which the Claimant challenges, as it considers such judgment to be unconstitutional and illegal, which led to the filing of this request for constitution of an Arbitration Tribunal.

This issue has already been the subject of recurrent review in arbitration proceedings, and the jurisprudence is consistent in the direction of a negative answer, and can be seen, by way of example, in the decisions rendered in cases No. 48/2013-T, 49/2013-T, 50/2013-T, 53/2013-T, 132/2013-T, 181/2013, 183/2013-T, 248/2013-T and 280/2013-T, 30/2014-T, among others.

The Supreme Administrative Court (STA) has pronounced in the same direction, in a Judgment for which the Honorable Justice Francisco Rothes was Relator, in which it was decided:

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

II - In the case of a property constituted in vertical ownership, the incidence of Stamp Tax must be determined not by the TPC resulting from the sum of the TPC of all divisions or floors capable of independent use (individualized in the registration article), but by the TPC attributed to each of those floors or divisions intended for residential use."

Notwithstanding the foregoing, the Respondent has maintained the understanding reflected in these proceedings, arguing for an interpretation based on formal concepts, particularly with respect to the concept of property for purposes of the incidence of Stamp Tax. Now, with regard to the fundamental question at hand it may be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretive task requires something more, namely, from the text of the norm the discovery of the underlying ratio legis must be imposed, "a task of interconnection and valuation that escapes the literal domain", or in other words "the jurist must always have before his eyes the scope of the law, that is, the practical result that it seeks to achieve."

Accordingly, the question centers 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 "ownership, usufruct or right of superficies of urban properties with residential purpose (28.1) whose taxable property value shown in the register, in accordance with the CIMI, is equal to or exceeding 1,000,000.00 euros – on the taxable property value used for purposes of IMI."

Now, such legal provision does not support the understanding pursued by the Tax Authority, according to which with respect to properties "with residential purpose" in vertical ownership with floors or divisions capable of independent use, the TPC on which the Stamp Tax rate should apply must be the total TPC corresponding to the sum of the TPC individually attributed to each autonomous fraction, part or division.

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 for purposes of IMI, which means that the incidence for purposes of Stamp Tax – items 28 and 28.1 of the TGIS – should apply to each floor or division capable of independent use (similar to what happens with properties in horizontal ownership regime), just as happens for purposes of IMI.

For purposes of IMI, each part or division capable of independent use is, as we know, taxed individually based on the individual TPC attributed for this purpose. The reference to the CIMI, which the legislator introduced expressly and unequivocally in the letter of the law (items 28 and 28.1 of the TGIS) can only have one meaning, which offers no doubt: it is that same TPC (individual, of each part or independent division) that is the reference for purposes of the incidence of Stamp Tax established in items 28 and 28.1 of the TGIS.

For convenience and with due deference, the reasoning contained in Arbitration Decision No. 280/2013-T is transcribed here, as it is particularly concise and precise:

"The legal question to be resolved first is whether, in accordance with the provision of item 28.1 of the TGIS, one should or should not consider the sum of the TPC of each of the parts or divisions capable of independent use, given that none of them has a value equal to or exceeding €1,000,000.00;

Taking into account that the CIS refers to the CIMI the regulation of the concept of property and the matters not regulated regarding item 28 of the TGIS (No. 6 of article 1 and No. 2 of article 67, both of the CIS), it is in the CIMI that we will have to observe the concepts that will allow us to settle the question; (emphasized)

The generalist concept of property is contained in article 2 of the CIMI. In article 3 of the same legislation the legislator, using criteria of purpose and location, established the concept of rural properties, subsequently, in a classification by negation, in article 4, establishing that urban properties will be all those that should not be classified as rural;

In No. 2 of article 5 of the same Code the legislator establishes the concept of mixed properties which will be those in which there are distinct rural and urban economic realities and there is no subordination of one to the other;

Article 6 of the cited CIMI divides urban properties into: residential, commercial, industrial or service, land for construction and others;

In the concrete case we are in the presence of an urban property with parts or divisions capable of independent use with residential purpose and others with commercial purpose, it is a property with parts that can be classified under the residential division of item a) of No. 1 of article 6 and with parts that can be classified under item b) of the same No. and article, but in no way will it be a mixed property within the concept established in the already cited article 5 of the CIMI;

Each of the parts or divisions capable of independent use that compose the property in question fulfills the concept of property established in article 2 of the CIMI, they are physically and economically independent and are part of the assets of a legal person;

In fact, the Tax Authority in removing the TPC of the parts or divisions with affectation different from residential for purposes of Stamp Tax taxation, did nothing more than use the criterion defined in No. 4 of article 2 of the CIMI for properties in the horizontal ownership regime;

In other words, the Tax Authority, in order to make this removal, considered that the parts or divisions capable of independent use were true autonomous parts of property in vertical ownership meeting the concept of property;

And did nothing more than observe what is provided in No. 3 of article 12 of the CIMI: 'each floor or part of property capable of independent use is considered separately in the registration entry, which also discriminates its respective taxable property value.

Likewise, the Tax Authority when taxing for IMI did so by taxing separately the TPC of each of the parts or divisions capable of independent use;

The Tax Authority used the same criterion in Stamp Tax taxation when calculating it based on the TPC of each of the parts or divisions with independent use with residential purpose, only at the end it considered the overall TPC, finding it to be greater than €1,000,000.00 and summed the Stamp Tax values computed individually;

But this procedure has no legal support, since none of the parts or divisions with independent use with residential purpose, each one of them meeting the concept of property set out in article 2 of the CIMI, has a TPC equal to or exceeding €1,000,000.00, the requirement needed for there to be Stamp Tax taxation;

To carry out Stamp Tax taxation considering the overall TPC of the property, even after deducting the TPC of the parts or divisions not assigned to residential use, as the respondent intends, does not find support in the CIMI, as per the reference in No. 2 of article 67 of the CIS;

Nor can it be said that there is a different valuation and taxation of a property in full ownership with parts or divisions capable of independent use as opposed to a property in horizontal ownership. In truth, it does not exist for IMI just as it cannot exist for Stamp Tax, since as already said, the applicable legislation is the same;

In this perspective and considering that none of the parts or divisions capable of independent use destined or assigned to residential use has TPC equal to or exceeding €1,000,000.00, it is necessary to conclude that the Stamp Tax assessment acts are illegal for not having observed the conditions defined in item 28 of the TGIS."

What is stated above is, by itself, sufficiently clear to demonstrate that the thesis defended by the Tax Authority cannot prevail. An adequate 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 CIS allows to conclude with respect to the determination of the taxable matter and the consequent Stamp Tax assessment operation: "In the case of tax owed for the situations provided in item No. 28 of the General Table, the tax is assessed annually, with respect 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."

However, No. 3 of article 11 of the GTL also provides: "where doubt persists about the meaning of the rules of incidence to apply, regard must be had to the economic substance of the tax facts."

In the case at hand, for the correct interpretation of the legal norm contained in items 28 and 28.1 of the TGIS, regard should be had to the "economic substance of the tax facts" in order to properly implement the "necessary adaptations of the rules contained in the CIMI" for the appropriate review of the legal matter in discussion. Not forgetting respect for "unity of the legal system," which is required from the outset by the coherence or axiological character of the legal order." This is, without doubt, a determining factor for correct interpretation of the legal norm. Now, the legislator expressed his thinking on this matter coherently when introducing a comprehensive reference to the principles contained in the CIMI.

Given this, the delimitation of the scope of the rule of incidence of this new tax should follow the guidance of the letter and spirit of the law. First, regard should be had to what is expressly provided in items 28 and 28.1 of the TGIS with the "necessary adaptations of the rules contained in the CIMI," as results from No. 7 of article 23 of the CIS.

It is important to note that the subjection to Stamp Tax of properties with residential purpose resulted from the addition of item 28 of the TGIS, made by article 4 of Law 55-A/2012, of 29/10, which typified the following tax facts:

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

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

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

Law 55-A/2012 says nothing about the qualification of the concepts involved, particularly regarding the concept of "property with residential purpose." However, article 67, No. 2 of the CIS, added by said Law, provides that "on matters not regulated in this code concerning item 28 of the General Table, the CIMI applies subsidiarily."

The rule of incidence refers, therefore, to urban properties, the concept of which results from what is provided in article 2 of the CIMI, with the determination of the TPC obeying the terms set out in article 38 and following of the same code. Consulting the CIMI, it is found that article 6 only indicates the different types of urban properties, among which it mentions residential ones (see item a) of No. 1), clarifying in No. 2 of the same article that "residential, commercial, industrial or service are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal purpose each of these ends."

From the normative provisions referred to we can conclude that, from the legislator's perspective, what matters is not the legal-formal rigor of the concrete situation of the property (it is immaterial whether it is in vertical or horizontal ownership) but rather its normal use, the purpose to which the property is actually intended.

We also conclude that for the legislator the situation of property in vertical or horizontal ownership was not relevant, as no reference or distinction is made between them. An identical conclusion is drawn from the reference that the legislator introduced in the matter of Stamp Tax to the CIMI. Now, this tax establishes as a criterion for properties in vertical ownership the attribution of a TPC to each of the independent parts or divisions. What is relevant, therefore, is the material truth underlying its existence as an urban property and its use, that is, "with residential purpose."

Using the criterion that the law itself introduced in article 67, No. 2 of the CIS, "on matters not regulated in this code concerning item 28 of the General Table, the CIMI applies subsidiarily."

From what is provided in No. 4 of article 2 of the CIMI, it follows that "For purposes of this tax, each autonomous fraction in the horizontal ownership regime is considered as constituting a property." Adding also No. 3 of article 12 of the CIMI that "Each floor or part of property capable of independent use is considered separately in the registration entry, which also determines its respective taxable property value." (emphasized)

The criterion of "convenience" adopted by the Tax Authority does not appear to conform to the law or to the principle of tax legality, therefore the contested assessments are tainted by the defect of violation of law, for error regarding the factual and legal presuppositions.

Thus, the interpretation defended by the Tax Authority violates the principle of tax legality, and besides this, its application to the concrete case would also violate the principles of equality, justice and proportionality, all established in the Constitution of the Portuguese Republic. Its practical result would lead, for example, to the taxation of a property in vertical ownership by virtue of the sum of the individual values of its independent parts or divisions (as happens in the case of these proceedings) and to the non-taxation of fractions of properties constituted in a horizontal ownership regime, even if each fraction had a TPC of €999,999.00. It further happens that by the Tax Authority's criterion many existing urban properties in vertical ownership, despite being older, can easily reach the reference value for the incidence of Stamp Tax, while properties of recent construction and sometimes luxurious in a horizontal ownership regime whose TPC per fraction does not equal or exceed the value of €1,000,000.00 are not subject to the tax. Now, it offends the sensibility and the fundamental minimum ethical foundation underlying the interpretation and application of the legal norm that would lead to such a solution. Finally, such interpretation (as the Tax Authority intends) would also translate to a clear violation of the principle of interpretation in accordance with the Constitution, in view of the principles of equality and tax equity, legality, proportionality and justice, established in articles 13, 103, 104, No. 3 of the CRP, as well as in article 5, Nos. 1 and 2 of the GTL.

The tax legislator could not treat equal situations differently, did not wish to do so nor expressed it in the letter of the law. But if there were any doubt, resort to the ratio legis and to the principles of interpretation above set out would always guide us in the opposite direction to that defended by the Respondent. If the properties at issue in these proceedings were in horizontal ownership regime, none of their residential fractions would be subject to the tax that intends to tax luxury properties or residential units.

Moreover, as already stated, the legislator's thinking expressed in the rule of incidence, when it refers to the application of the CIMI, was clear and unequivocal, following the principle of the prevalence of material truth over legal-formal reality and the uniformity of the legal system.

To all that has been said, only this will be added: even if hypothetically it were admissible that in cases of properties in full (or vertical) ownership constituted by divisions capable of independent use, Stamp Tax could be required for the whole property if the value set in item 28.1 of the TGIS was reached, always such value would have to be fixed autonomously through a proper evaluation and not through the sum of the values in which each of the parts capable of independent use was autonomously evaluated. Effectively and as it is easy to see, the "market value" of the whole will not necessarily – and will not ordinarily – be equal to the sum of the parts, being commonly easier and more lucrative (which will even constitute part of the economic foundation of the horizontal ownership institute) the sale "of the parts" than the global sale of the whole, namely because of the expansion of the market that the substantially lower price of the parts in relation to the whole brings.

In fact, and moreover, it will be this increase in economic value resulting from the division that will justify an independent evaluation of each autonomous part of the property in vertical ownership in order to ensure that there is no less tax revenue for purposes of IMI and IMT by the fact that the division of the property has no legal correspondence in the form of horizontal ownership. In other words, the partition of the property always entails an increase in the value of the whole, since the "market value" of the whole will be (at least) ordinarily less than the sum of the "market value" of the parts.

Therefore and in the extreme, if the Tax Authority intended legitimately to apply item 28.1 of the TGIS to a property in full (or vertical) ownership constituted by divisions capable of independent use, it would always be obliged to carry out an evaluation of the same as a whole (that would be a credible approximation of its "market value" in "bulk") and not as a sum of the parts ("retail"), not least because these are not capable of being validly placed on the "market" separately.

In the case of these proceedings the properties at issue are in vertical ownership and contain floors and divisions with independent use intended for residential purposes as established above. Given that none of the floors intended for residential purposes has taxable property value equal to or exceeding €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal presupposition of Stamp Tax incidence provided in item 28.1 of the TGIS was not met.

Thus, the Tax Authority presenting no argument and no ground being ascertained on its own initiative to diverge from the arbitral jurisprudence cited, as well as from the Supreme Administrative Court jurisprudence above mentioned, with the additions above formulated, the jurisprudence cited above is adhered to without further consideration, finding the arbitration request filed in this case to have merit, with respect to the assessments relating to the year 2014, which should be annulled.

With respect to the assessments relating to the years 2012 and 2013, since these became consolidated in the legal order by not having been the subject of timely challenge, they should be upheld, and the arbitration request cannot proceed in that respect.

In light of the above decision, knowledge of the remaining questions raised by the Claimant is precluded.

With regard to the request for compensatory interest filed by the Claimant, article 43, No. 1 of the GTL establishes that compensatory interest is due when it is determined that there has been error attributable to the services as a result of which the tax debt was paid in an amount exceeding that legally due.

In this case, the error affecting the additional assessments annulled is to be considered attributable to the Tax and Customs Authority, which made them without the necessary factual and legal support.

The Claimant thus has the right to be reimbursed for the sums improperly paid (pursuant to articles 100 of the GTL and 24, No. 1 of the RJAT) by virtue of the annulled assessments and further to be indemnified for the improper payment through compensatory interest from the date of the corresponding payment until its reimbursement at the legal default rate, in accordance with articles 43, Nos. 1 and 4, and 35, No. 10 of the GTL, article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.

C. DECISION

Accordingly, this Arbitration Tribunal finds the arbitration request filed partially meritorious and consequently:

a) Annuls the Stamp Tax assessment acts relating to item 28.1 of the General Table of Stamp Tax (hereinafter TGIS) made by reference to the year 2014 concerning the 2 cellars and 1st to 4th floors of the urban property in full ownership regime located at n.º... of Street..., municipality of Lisbon, with registration article... of the parish of... and described at the Property Registry Office of Lisbon under No..., intended for residential use;

b) Condemns the Tax Authority to payment of compensatory interest as indicated above;

c) Condemns the parties to pay case costs in proportion to their respective degree of loss, setting the amount at € 1,622.00 to be borne by the Claimant and € 520.00 to be borne by the Respondent.

D. Value of the Case

Upon examination of the total value of the assessments subject to this arbitration action it is found that the same amounts to € 43,572.73 and not € 36,592.09 as indicated by the Claimant in the arbitration request.

Given the foregoing the value of the case is set at € 43,572.73 in accordance with article 97-A, No. 1, a) of the Tax Procedure and Process Code, applicable by virtue of items a) and b) of No. 1 of article 29 of the RJAT and No. 3 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is set at € 2,142.00 in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings to be paid by the parties in proportion to their respective degree of loss as above set, since the request was partially meritorious, in accordance with articles 12, No. 2, and 22, No. 4 both of the RJAT and article 4, No. 5 of the said Regulation.

Notify the parties.

Lisbon, 9 March 2020

The Arbitrator,

(José Pedro Carvalho)

ARBITRATION DECISION

REPORT

A..., with the identifying information of the case, in the capacity of head of the estate of the inheritance of B... hereinafter referred to only as claimant, filed on 02.06.2015 a request for Constitution of an Arbitration Tribunal with a singular arbitrator in accordance with articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Tax Arbitration) hereinafter referred to only as (RJAT) in conjunction with item a) of article 99 of the CPPT in which the Tax and Customs Authority (hereinafter referred to as Respondent) is sought to be condemned in a request for the declaration of illegality and unconstitutionality and the consequent annulment of the assessments of Stamp Tax relating to item 28.1 of the General Table of Stamp Tax (hereinafter TGIS) in the amount of € 36,592.09 made in 2012, 2013 and 2014 concerning the urban property located in Lisbon on Street..., n.º..., described in the respective Property Registry Office of Lisbon under n.º..., and registered in the property register of the parish of... under article... and which originated the following collection documents.

a) Assessment No..., relating to 1st floor

b) Assessment No..., relating to 2nd floor

c) Assessment No..., relating to 3rd floor

d) Assessment No..., relating to 4th floor

e) Assessment No..., relating to cellar

f) Assessment No..., relating to 4th floor

g) Assessment No..., relating to 1st floor

h) Assessment No..., relating to 1st floor

i) Assessment No..., relating to 1st floor

j) Assessment No..., relating to 2nd floor

k) Assessment No..., relating to 2nd floor

l) Assessment No..., relating to 2nd floor

m) Assessment No..., relating to 3rd floor

n) Assessment No..., relating to 3rd floor

o) Assessment No..., relating to 3rd floor

p) Assessment No..., relating to 4th floor

q) Assessment No..., relating to 4th floor

r) Assessment No..., relating to 4th floor

s) Assessment No..., relating to cellar

t) Assessment No..., relating to cellar

u) Assessment No..., relating to cellar

v) Assessment No..., relating to cellar A

w) Assessment No..., relating to cellar A

x) Assessment No..., relating to 1st floor

y) Assessment No..., relating to 1st floor

z) Assessment No..., relating to 4th floor

aa) Assessment No..., relating to 2nd floor

bb) Assessment No..., relating to 2nd floor

cc) Assessment No..., relating to 2nd floor

dd) Assessment No..., relating to 3rd floor

ee) Assessment No..., relating to 3rd floor

ff) Assessment No..., relating to 3rd floor

gg) Assessment No..., relating to 3rd floor

hh) Assessment No..., relating to 4th floor

ii) Assessment No..., relating to 4th floor

jj) Assessment No..., relating to cellar

kk) Assessment No..., relating to cellar

ll) Assessment No..., relating to cellar

mm) Assessment No..., relating to cellar A

nn) Assessment No..., relating to cellar

oo) Assessment No..., relating to 1st floor

pp) Assessment No..., relating to 2nd floor

qq) Assessment No..., relating to 3rd floor

rr) Assessment No..., relating to 4th floor

ss) Assessment No..., relating to cellar A

tt) Assessment No..., relating to cellar

THE FACTS

  1. The inheritances of C..., D... and E... are unpartitioned with an inventory proceeding in the 2nd Civil Court of Lisbon.

  2. The request for constitution of the Arbitration Tribunal was accepted by the Honorable President of CAAD, having the same been notified to the Tax and Customs Authority (hereinafter referred to as RESPONDENT or ATA) on 02 June 2015.

  3. The Claimant waived the appointment of an arbitrator requesting the respective appointment in accordance with No. 1 of article 6 and item a) of No. 1 of article 11 of the RJAT, therefore the Ethics Council of CAAD designated the undersigned, singular arbitrator of the arbitration tribunal, who communicated acceptance of the office, having the arbitration tribunal been constituted on 2015-09-07.

  4. The tribunal is regularly constituted and is materially competent to review and decide the object of the case, which is not affected by any nullities, with the parties having legitimacy, legal personality and capacity.

  5. The property on which the contested assessment was made is part of the unpartitioned inheritances of D..., E... and B..., is located on Street..., n.º..., municipality of Lisbon, is registered under registration article... of the parish of... and is composed of 2 cellars, ground floor, 1st, 2nd, 3rd and 4th floors with independent use such that:

  • the two cellars and 1st to 4th floors are intended for residential use

  • the ground floor is assigned to services

  1. Despite the physical and economic autonomy of 6 of the 7 parts that compose the building allowing for it, the fact is that up to the present the property has not been constituted as horizontal ownership nor has the property been valued as a whole, being subject to tax valuation only the physical and economic units that comprise it.

  2. The Tax Authority understood that it falls under the incidence of Item 28 of the TGIS because the sum of the taxable property value of each of its units that are physically and economically independent and assigned to residential use amounts to € 1,056,062.21, i.e. exceeds the sum of € 1,000,000.00 (one million euros).

Therefore,

  1. On 27.11.2012 the Tax Authority issued 6 assessment notices for item 28.1 of the TGIS in accordance with Law 55-A/2012, article 6, No. 1, f) ii) corresponding to the cellars 1st, 2nd, 3rd and 4th floors of the property of these proceedings.

  2. On 27.03.2013 it again assessed stamp tax for item 28.1 with reference to the year 2013 corresponding to the cellars and 1st, 2nd, 3rd and 4th floors of the property of these proceedings payable in 3 installments with the exception of cellar A payable in 2 installments corresponding to the 17 assessments above described.

  3. On 22.03.2014 and with reference to the year 2013 the Tax Authority again proceeded to assess item 28.1 payable in 3 installments with the exception of cellar A payable in 2 installments as appears from the 17 assessments described in the items of the preamble.

  4. On 1 December 2014 the third installments of the cellar and 1st to 4th floors and the 2nd installment of cellar A of the tax year 2013 were assessed in the total amount of € 3,579.93.

  5. On the past day 20.03.2015 with reference to the tax year 2014 the Tax Authority again issued 6 Stamp Tax assessments.

  6. And on 14 April 2015 the first installments of the tax assessed with reference to the 6 independent units of the cellar and 1st to 4th floors and the 2nd installment of cellar A of the tax year 2014 were assessed in the total amount of € 3,578.98.

  7. The truth is that as results from the assessments now contested for purposes of stamp tax all were made taking into consideration not the value of the property as a whole but the individual taxable property value of each of the units that comprise it.

  8. However as will follow from the Law below all the assessments identified in the preamble of this Initial Petition violate the law and determine the nullity or at least voidability of the indicated assessment acts in accordance with the explanations below.

MATTER OF FACT

With relevance for the review of the questions raised the following factual elements are highlighted:

a) The unpartitioned inheritances comprise a property located in Lisbon composed of cellars ground floor and 1st, 2nd, 3rd and 4th floors with independent use which despite its constitution is not constituted as horizontal ownership;

b) The taxable property value was determined separately as required by article 7, No. 2, item b) of the Code on Municipal Property Tax;

c) Each of the independent floors or divisions has a taxable property value (TPV) attributed in the valuation but none of the parts or floors that comprise it with independent use and residential purpose has TPV equal to or exceeding € 1,000,000.00;

d) Other facts with relevance for the arbitration decision were not proven.

ON THE LAW

a) At issue are the stamp tax assessments made by the Tax Authority under item 28.1 of the TGIS which provides for subjection to Stamp Tax of

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

28.1 For property with residential purpose - 1%"

b) The subjection to Stamp Tax of real property results from the verification and simultaneous conjunction of two factors:

1st - residential purpose;

and

2nd - that the taxable property value shown in the register is equal to or exceeding one million euros;

c) The legislator did not establish the legal concept of "property with residential purpose" and came to fill other gaps in the legal regime of item 28 of the TGIS establishing in article 67, No. 2 of the Stamp Tax Code that on matters not regulated in the Code concerning item 28 of the General Table the provisions of the Municipal Property Tax Code are applied subsidiarily.

d) The legal definition of property is contained in article 2 of the CIMI which in No. 4 provides that "For purposes of this tax each autonomous fraction in the horizontal ownership regime is considered as constituting a property."

e) However a unit capable of independent use of a property in vertical ownership is subject to the same rules except those inherent to ownership which only apply to properties constituted as horizontal ownership as only these have legal autonomy.

f) In fact materially the law establishes no difference in the procedures for valuation registration in the register and where there are parts capable of independent use properties in full ownership each part is valued by application of the respective rules being considered separately in the registration entry which will discriminate the respective taxable property value (article 12 No. 3 of the Code on Municipal Property Tax).

g) Thus the floors and divisions capable of independent use as is the situation of the property under review have their own and separate registration in the register with necessary and sufficient information between which the taxable property values which permit proceeding with the taxation under Item 28 of the TGIS.

h) One must ascertain in the case of properties in full ownership with floors or divisions capable of independent use what taxable property value (tpv) to consider for purposes of the incidence of stamp tax in light of item 28 of the TGIS should it correspond to the tpv of each floor or division with residential purpose or alternatively to the total tpv of the property or further as per the procedure adopted by the ATA to the sum of the tpv corresponding to each floor or division of independent use with residential purpose.

i) However the Tax Authority calculated the TPV of the properties considering them per se in accordance with the legal provisions above set out but without anything determining or permitting it paid regard to the value resulting from the sum of the 6 units having only deducted 217,735.46 from the taxable property value of the units assigned to services resulting in a value of € 1,056,062.21.

The question to be decided is perfectly clear and well delimited and concerns the relevant tpv which in our understanding is that which was fixed for each floor or division of independent use.

Questions of knowledge foreclosed.

With respect to the matters of fact the Tribunal does not need to pronounce on all that is alleged by the parties rather it is the tribunal's duty to select the facts that matter for the decision distinguishing proven from unproven fact (article 123, No. 2 of the CPPT and article 607, No. 3 of the Code of Civil Procedure applicable "ex vi" article 29, No. 1, items a) and e) of the RJAT. Thus the facts pertinent for judgment of the case are chosen and defined according to their legal relevance which is established in light of the various plausible solutions to the legal questions (see former article 511 of the CPC corresponding to current 596 applicable "ex vi" article 29, No. 2, e) of the RJAT.

In truth article 124 of the CPPT subsidiarily applicable by virtue of article 29, No. 1 of the RJAT in establishing an order of knowledge of defects presupposes that having found procedent a defect that ensures effective protection of the rights of those challenging the acts there is no need to know the remaining ones for if it were always necessary to review all the defects imputed to the contested acts it would be immaterial the order of their knowledge.

j) Limited to the question to be decided none of the floors or divisions capable of independent use has in the register a taxable property value equal to or exceeding € 1,000,000.00 therefore the factual and legal presuppositions that would legitimize the taxation made are not met therefore the assessments are tainted by the defect of violation of law.

In light of the above it is concluded that the Respondent is correct and accordingly it is decided:

a) To find the request for arbitral pronouncement meritorious with the consequent annulment with all legal effects of the stamp tax assessment acts better identified in the case.

b) To find meritorious the request for compensatory interest sought by the claimant.

VALUE OF THE CASE - In accordance with the provisions of article 306, Nos. 1 and 2 of the CPC and 97-A, No. 1, item a) of the CPPT and 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings the case is assigned the value of € 36,592.09.

COSTS - The costs in the amount of € 1,836.00 (Table I attached to the Regulation of Costs in Tax Arbitration Proceedings are entirely borne by the respondent (Article 24-A of the Regulation of CAAD).

Notify and record.

Lisbon, 2016-04-18

The Arbitrator,

(Fernando Pinto Monteiro)

Frequently Asked Questions

Automatically Created

How is Stamp Tax (Imposto do Selo) under Verba 28 TGIS applied to properties held in total ownership (propriedade total)?
Stamp Tax under Item 28.1 TGIS applies annually to properties with taxable values exceeding €1 million held by individuals. For total ownership properties (propriedade total), the Tax Authority's practice has been to assess each physically and economically autonomous unit separately, even when the building has not been formally constituted as horizontal property. This creates controversy when multiple independent units exist within a single registered property under one ownership title. The tax applies to the taxable property value (VPT) used for IMI purposes, regardless of whether the property comprises multiple autonomous divisions. In this case, the building consisted of seven independent units (cellars, ground floor, and residential floors), with six units subject to separate Stamp Tax assessments under Item 28.1, raising questions about whether the taxation basis should be the aggregate building value or individual unit values, and whether total ownership should be treated identically to horizontal ownership for Stamp Tax purposes.
Can the tax authority aggregate the taxable value (VPT) of independent units in a single building for Stamp Tax purposes?
The central legal question is whether the Tax Authority can treat physically and economically autonomous units within a total ownership property as separate taxable units for Stamp Tax purposes. The Tax Authority's position, as evidenced by the assessments in this case, was to issue separate stamp tax calculations for each of the six independent units (two cellars and four residential floors), despite the property being registered as a single unit under total ownership rather than horizontal property regime. The claimant contested this approach, arguing that aggregating the taxable values of independent divisions violates tax legality principles. The building's total IMI taxable value of €1,056,062.21 represents the sum of all seven autonomous units. This aggregation issue is critical because it determines whether each unit is taxed separately (potentially avoiding the €1 million threshold if individual units fall below it) or whether the entire building's value should be considered as one taxable base, which could result in different tax treatment and rates under Item 28.1 TGIS.
What tax rate applies to Stamp Tax under Verba 28.1 TGIS — 0.5% or 1% — and which reference year determines the taxable value?
Item 28.1 of the General Stamp Tax Table establishes different rates based on property value thresholds: 0.5% applies to taxable values between €600,000 and €1,000,000, while 1% applies to values exceeding €1,000,000. The claimant argued the Tax Authority incorrectly applied the 1% rate instead of 0.5%, and used the wrong reference year for determining taxable values. Specifically, the claimant contended that the applicable taxable value should be the IMI value relevant for 2011, not 2012, as the reference year determines which value applies when Stamp Tax under Item 28 was first introduced. The reference year issue is crucial for properties near threshold values, as IMI valuations can change annually. Additionally, the rate applied depends on whether each autonomous unit's value is assessed individually or whether values are aggregated—if individual units fall below €1,000,000, the 0.5% rate would apply; if aggregated above €1,000,000, the 1% rate applies. This dispute reflects broader uncertainties about how Item 28.1 transitioned into effect and which valuation snapshot governs ongoing annual assessments.
Does taxing total ownership properties differently from horizontal ownership properties violate the constitutional principle of equality?
The claimant raised a constitutional challenge based on Article 13 of the Portuguese Constitution, which enshrines the principle of equality and requires similar situations to be treated similarly. The argument centers on discriminatory treatment between properties held in total ownership (propriedade total) versus horizontal property (propriedade horizontal). When a building with multiple autonomous units is formally constituted as horizontal property, each unit becomes an independent property with separate ownership, and Stamp Tax applies individually to each autonomous fraction only if it exceeds the €1,000,000 threshold. However, for total ownership properties with equivalent physical and economic characteristics—multiple independent units capable of autonomous use but not formally divided—the Tax Authority's practice of assessing each unit separately while aggregating values for rate determination creates potentially harsher tax treatment. This differential treatment lacks objective justification, as the physical reality, economic use, and value of the autonomous units remain identical regardless of the formal property regime. The equality principle violation argument gained significance because property owners could be penalized for not completing horizontal property registration, or conversely, forced into specific property structures solely for tax optimization rather than legitimate ownership reasons.
What is an arbitral decision reform (reforma da decisão arbitral) and when can CAAD revise a prior ruling?
A reformed arbitral decision (reforma da decisão arbitral) occurs when a higher court reviews and overturns or modifies a tax arbitration tribunal's ruling, requiring the arbitration system to issue a new decision consistent with the court's findings. In Portuguese tax arbitration under the RJAT (Legal Regime for Tax Arbitration), parties can challenge arbitral decisions before the Central Administrative Courts on specific legal grounds. In this case, the original arbitration decision dated April 18, 2016 was challenged by the Tax Authority (the losing party) before the Central Administrative Court of the South. On June 25, 2019, that court ruled the challenge had merit, effectively annulling the original decision. Subsequently, the CAAD (Administrative Arbitration Center) must reconstitute the tribunal to issue a new decision aligned with the court's ruling. Here, the original arbitrator Dr. Fernando Pinto Monteiro had passed away, necessitating appointment of a replacement arbitrator in November 2019. The reform process demonstrates the hierarchical relationship between tax arbitration and judicial review in Portugal—while arbitration provides faster, specialized resolution, judicial oversight ensures legal uniformity and prevents arbitrary decisions. The three-year gap between the original 2016 decision and the 2020 reformed decision illustrates the extended timelines when arbitral awards undergo judicial challenge and reformation.