Process: 380/2014-T

Date: January 26, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (380/2014-T) addresses whether Stamp Duty under Item 28.1 of the General Stamp Duty Table (TGIS) applies to vertical property ownership where individual units do not exceed the €1 million threshold. The claimant owned a building with 15 independently assessed units (14 residential, 1 services), none exceeding €1 million in taxable asset value (VPT). The Tax Authority aggregated all residential unit values to €1,409,410 and assessed €14,094.10 in Stamp Duty for 2013. The claimant argued that vertical property differs from a single property, and each independently assessed unit should be evaluated separately for the €1 million threshold under Item 28.1 TGIS. The Tax Authority countered that vertical ownership constitutes a single property for tax purposes, distinguishing it from horizontal property (condominium) where units have separate legal existence. The claimant also raised procedural defects: lack of proper notification under CPPT Articles 36, 37, and 39; insufficient substantiation of assessments; and omission of prior hearing rights. The case presents fundamental questions about whether tax law should respect the distinction between vertical and horizontal property regimes, and whether the separate IMI assessment of individual units under CIMI Article 7(2)(b) precludes aggregation for Stamp Duty purposes. The arbitral tribunal must determine if applying Item 28.1 based on aggregate value violates statutory interpretation principles, particularly given that none of the individual units meet the €1 million threshold that triggers the tax.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 380/2014 - T

Subject: Stamp Duty – Vertical Ownership; Item 28.1 of the TGIS

I. REPORT

A, taxpayer number…, resident in…, hereinafter referred to as the Claimant, filed a request for constitution of an arbitral tribunal in tax matters and a request for arbitral pronouncement, pursuant to Articles 2, No. 1(a) and 10, No. 1(a), both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, abbreviated as RJAT), requesting the annulment of 14 acts of assessment of Stamp Duty (IS), relating to the year 2013, in the total amount of € 14,094.10, or, if the Tribunal deems otherwise, their cancellation.

To support its request, it alleges, in summary:

a) it is the owner of various units of the urban property registered in the property register under article... of the parish...;

b) the property consists of 15 floors or units capable of independent use;

c) each of the floors or units capable of independent use was individually assessed for the purposes of the Municipal Property Tax Code (CIMI), none of them having a taxable asset value equal to or exceeding 1 million euros;

d) the Tax Authority considered the Claimant to be subject to Stamp Duty, item 28.1 of the General Table of Stamp Duty (TGIS), as owner of a property with a taxable asset value of € 1,409,410.00, resulting from the sum of the values of the various units allocated for housing held by the Claimant in the property referred to in item a) above;

e) the criterion for taxation in terms of Stamp Duty should take into account the taxable asset value shown in the register for each of the floors individually considered;

f) for the purposes of liability or non-liability to Stamp Duty, the Tax Authority cannot consider as the reference value the total value of the property constituted in vertical ownership, proceeding to the sum of the values of the units with independent use;

g) the legislator expressly established that Stamp Duty would apply only to properties whose taxable asset value was equal to or exceeding 1 million euros, which is not the case for any of the units with independent use held by the Claimant in the property referred to in item a) above.

Beyond the error regarding the presuppositions which the Claimant alleges to affect the assessments in question, the Claimant also attributes to both the notification of the collection notes and to the assessments themselves the defect of lack of substantiation, further alleging, as regards the notification of the collection notes, that it does not contain the elements referred to in Articles 36, No. 2, 37, No. 1 and 39, No. 12, all of the Tax Code of Procedure and Process (CPPT).

Furthermore, it invokes the omission of an essential formality, as the Tax Authority did not give the Claimant the opportunity to exercise the right to prior hearing before drawing up the assessments in question.

The Claimant attached 16 documents and did not summon any witnesses.

In the request for arbitral pronouncement, the Claimant chose not to designate an arbitrator, so, under Article 6, No. 1 of the RJAT, the signatory was designated by the Deontological Council of the Centre for Administrative Arbitration, with the appointment being accepted as provided for by law.

The collective arbitral tribunal was constituted on 18 July 2014.

Notified in accordance with Article 17 of the RJAT, the Respondent submitted a reply, alleging, in summary, the following:

a) the property in question in the present case is constituted under a regime of full ownership and is composed of 14 parts capable of independent use, intended for housing;

b) for this reason, its taxable asset value was determined separately, in accordance with Article 7, No. 2(b) of the CIMI, being the taxable asset value, in its entirety, in the amount of € 1,409,410.00;

c) for the purposes of IMI and Stamp Duty, the Claimant is not the owner of 14 autonomous units, but rather of a single property;

d) horizontal ownership and vertical ownership are distinct legal institutes, and tax law respects such distinction;

e) the interpreter and applicant of tax law cannot apply, by analogy, to the regime of full ownership, the regime of horizontal ownership, both out of respect for Article 11, No. 2 of the General Tax Law (LGT), and because it does not concern the existence of a lacuna in the law;

f) the registration in the manner provided for in No. 3 of Article 12 of the CIMI, which is based on the autonomous assessment of the floors or independent units, does not affect the application of item 28.1 of the General Table carried out on the basis of the total taxable asset value of the property.

The Respondent did not attach any documents, did not summon witnesses, nor did it attach the administrative file.

The meeting referred to in Article 18 of the RJAT, as well as the production of oral and written pleadings, was waived without objection from the parties, given that, on the one hand, no matters susceptible to discussion at said meeting were raised and, on the other hand, the file contained all the documentary elements necessary and sufficient to decide the matter on the merits.

II. QUESTIONS TO BE DECIDED:

Given the positions assumed by the parties, as reflected in the arguments presented, it is necessary to:

(i) determine the nullity of the notification of the tax acts, due to lack of essential elements of notification;

(ii) determine the voidability of the collection notes due to lack of substantiation;

(iii) determine the voidability of the assessments due to the omission of prior hearing by the Tax Authority;

(iv) determine the relevant taxable asset value for the purposes of the Stamp Duty levy in cases of properties constituted under a regime of full ownership, composed of floors or units capable of independent use, with housing allocation: whether the taxable asset value of each of the divisions of the property considered in isolation or the taxable asset value corresponding to the sum of all the taxable asset values of the divisions that compose it.

III. FACTS:

a. Established Facts:

With relevance to the decision to be rendered in the present case, the following facts were established:

  1. The Claimant is the owner and legitimate proprietor of the urban property registered in the property register under article..., of the parish of...;

  2. The property referred to in item 1) above is a property under a regime of full ownership, being composed of fifteen (15) floors or units capable of independent use;

  3. Of the fifteen (15) floors or units capable of independent use, fourteen were classified as for housing and one as services;

  4. Each of the fifteen floors or independent units was separately assessed for the purposes of IMI;

  5. None of the floors or units capable of independent use has a taxable asset value equal to or exceeding € 1,000,000.00;

  6. With reference to the year 2013 and to the property referred to in item 1. above, the Respondent assessed Stamp Duty corresponding to Item 28.1 of the TGIS, in the total amount of € 14,094.10;

  7. The Claimant having been notified of the collection notes, in accordance with the tenor contained in documents numbers 1 to 14, attached with the initial petition;

  8. By petition dated 7 May 2014, the Claimant requested from the Tax Authority a certified copy in accordance with Article 37, No. 1 of the CPPT, with the content of the document attached with the initial petition under number 15;

  9. The Tax Authority did not proceed to provide the certified copy requested by the Claimant.

b. Facts Not Established:

No other fact was proven with interest for the case.

c. Substantiation of the Facts:

The conviction regarding the facts established was formed on the basis of the documentary evidence attached by the Claimant, indicated with respect to each of the items, and whose correspondence to reality was not contested.

IV. CUMULATION OF REQUESTS:

There is identity of the nature of the tax facts, the factual and legal grounds invoked and the tribunal competent to decide, with nothing preventing that, under Article 3 of the RJAT and Article 104 of the Tax Code of Procedure and Process, the requests be cumulated.

V. CASE MANAGEMENT:

The Arbitral Tribunal was regularly constituted and is materially competent.

There are no nullities that invalidate the proceedings.

The parties have standing and legal capacity and are legitimate, with no defects in representation.

VI. ON THE LAW:

(i) Regarding the Lack of Essential Elements of Notification:

The Claimant first invokes that the collection notes notified to it do not contain all the elements legally required by the CPPT, violating the provisions of Articles 36, No. 2, 37, No. 1 and 39, No. 12, all of that statute.

Furthermore, it alleges that it was not notified of the Stamp Duty assessments claimed here – of which it only became aware of the respective date -, nor the grounds, factual and legal, that determined the taxation in terms of Stamp Duty of the property in question in the present case.

It concludes, requesting the declaration of nullity of the aforementioned notifications, due to violation of Articles 36, No. 2, 37, No. 1 and 39, No. 12 of the CPPT.

Since the Stamp Duty assessments were not attached to the file, we cannot rule on the defects attributed to them, so we shall only address the collection notes.

And, as to these, the truth is that no defect appears to be attributable to them.

In fact, the requirements provided for in Article 36, No. 2 of the CPPT refer to the notification of "acts in tax matters that affect the rights and legitimate interests of taxpayers".

The act in tax matters would be, therefore, in this case, the act of assessment of Stamp Duty, which the Claimant alleges was not notified to it.

Therefore, it is for the notification of the acts of assessment of taxes that the law requires compliance with the requirements provided for in Article 36, No. 2 of the CPPT.

But what the Claimant invokes are not any defects attributable to the assessments but rather to the collection notes of Stamp Duty.

As for the collection notes, it follows from the provision of Article 46, No. 5 of the Stamp Duty Code (CIS) that, when there is a levy of the tax referred to in item No. 28 of the General Table, the collection document is issued under the deadlines, terms and conditions defined in Article 119 of the CIMI, with the necessary adaptations.

The cited Article 119 of the CIMI provides that "the Services of the Directorate-General of Taxes send to each taxpayer, by the end of the month prior to that of payment, the competent collection document, with a breakdown of the properties, their parts capable of independent use, respective taxable asset value and the amount due attributable to each municipality in which the properties are located."

Comparing the collection notes notified to the Claimant, it is verified that these contain, by reference to the cited Article 119 of the CIMI, the following elements:

a) breakdown of the property;

b) its parts capable of independent use;

c) the respective taxable asset value.

Thus, the collection notes notified to the Claimant comply with all the requirements provided for in the cited Article 119 of the CIMI, except, naturally, for the element relating to the amount due attributable to each municipality of location of the properties, as this is not applicable to Stamp Duty.

Verified with all these requirements, it is concluded that no defect can be attributed to the collection notes in question in the present case.

The formal defect invoked by the Claimant of nullity of the notifications issued does not therefore hold, due to lack of essential elements.

(ii) Regarding the Lack of Substantiation of the Collection Notes:

The Claimant further alleges that the assessments in question in the present case, as well as the collection notes notified, suffer from the defect of lack of substantiation, and are therefore voidable, pursuant to the provisions of Articles 99(c) of the CPPT and 135 of the Administrative Procedure Code (CPA), in accordance with Article 2(d) of the CPPT.

Once again, since the assessments in question were not attached to the file, we cannot rule on the alleged lack of substantiation of the same, so we shall only examine the alleged irregularity as to the collection notes notified to the Claimant.

As to these, it appears that the Claimant confuses, once more, the concept of collection note with the concept of assessment.

In fact, Article 77 of the General Tax Law (LGT) provides:

"1 – The decision of a procedure is always substantiated by means of a brief statement of the factual and legal reasons that motivated it, and the substantiation may consist of a mere declaration of agreement with the grounds of earlier opinions, information or proposals, including those forming part of the tax audit report.

2 – The substantiation of tax acts may be carried out summarily, and must always contain the applicable legal provisions, the characterization and quantification of the tax facts and the operations for determining the taxable amount and the tax."

From a simple reading of the cited provision, it is verified that the duty to substantiate provided therein relates to the decision of a procedure and to tax acts, and is therefore not applicable to mere collection notes.

As to these, as already stated, the law only imposes compliance with the requirements provided for in Article 119 of the CIMI, which, as we have seen, are deemed to be met.

Now, among these requirements substantiation of the collection notes is not included, which, moreover, is understandable, since these are nothing more than the logical corollary of the assessment previously made.

It is, therefore, regarding the assessments, as tax acts, that the law imposes the duty to substantiate, as a right enshrined and constitutionally guaranteed to citizens (Article 268, No. 3, of the Constitution of the Portuguese Republic) and as an act defining the position of the Tax Authority in relation to individuals, so that the taxpayer can infer the reasoning followed by the Tax Authority to decide as it did and not otherwise.

The duty to substantiate thus allows a reasonable recipient to become aware of the cognitive and evaluative path followed by the author of the act to render the decision, so that the former can know the reasons why the author of the act decided as it did and not differently, so as to be able to trigger the administrative or contentious mechanisms of challenge[1].

It is precisely for this reason that Article 77, No. 2 of the General Tax Law requires that the decision of procedure contain "the applicable legal provisions, the characterization and quantification of the tax facts and the operations for determining the taxable amount and the tax", since only in this way can the taxpayer grasp the reason for being of the tax act and consider reactions to it.

Moreover, it cannot fail to be noted, as the Respondent rightly emphasizes, that, given the statement of facts and the substantiation used by the Claimant, it is clear that it understood exactly what the path was for the assessment of Stamp Duty, so it would always have to be understood that the formal defect invoked of lack of substantiation was overcome.

So much so that the Claimant defended itself against the Tax Authority's taxation decision, invoking that the taxable asset value to be taken into account for the purposes of taxation of Stamp Duty, under Item 28.1 of the TGIS, should be the one corresponding to the units or divisions capable of independent use individually considered and not the total taxable asset value of the urban property.

In this regard, the Supreme Administrative Court (STA) decided that "the formal defect of lack of substantiation does not occur if the appellant itself expressly reveals having understood perfectly the logical and legal process that led to the taxation decision, recognizing having perceived the presuppositions concretely taken into account by the author of the act and the reasons why the taxed values were reached, indicating the cognitive and evaluative path traveled (…)"[2].

Whether these presuppositions and reasons correspond or not to reality is a question that has to do with the substance and no longer with the form and which, therefore, is placed in another dimension from which it is not for us to rule on this point.

Without prejudice to the foregoing, the truth is that, since the law does not impose on collection notes any other requirement beyond those provided for in Article 119 of the CIMI, in particular the duty to substantiate, it seems evident that no defect of lack of substantiation can be attributed to these collection notes.

(iii) Regarding the Lack of Prior Hearing:

The Claimant alleges that the Tax Authority did not grant it the right, provided for in Article 60, No. 1(a) of the LGT, of prior hearing before the drawing up of the assessments from which the collection notes in question in the present case originate.

It concludes, requesting the annulment of the assessments, under the terms and for the purposes of Articles 99 of the CPPT and 135 of the CPA, in accordance with Article 2(d) of the CPPT.

Let us see if the Claimant has a point.

It is certain that Article 60, No. 1(a) of the LGT provides for the participation of taxpayers in the formation of decisions that affect them, in particular through the right to hearing before assessment.

It is equally certain that the omission of the right to prior hearing by the administration determines the annulment of the respective act, as a result of the combination of the provisions of Articles 133 and 135 of the CPA.

However, not every omission of the right to prior hearing determines, without more, the annulment of the respective act.

This is because, as has been emphasized by both doctrine and case law, the omission of the duty of hearing can, in certain cases, "... degrade into a non-essential formality and therefore be omitted without resulting in any illegality determining annulment of the act, with annulment not being justified in cases 'in which it is ascertained in contentious proceedings that, had it been carried out, the interested party would have had no possibility of presenting new elements or failed to comment on issues relevant to determining the content of the final decision, or ended up having the opportunity to comment in a second-stage proceeding (application for administrative review or hierarchical appeal), on issues which were improperly omitted from hearing in the first-stage proceeding'[3]".

This exception to the rule of voidability of an administrative act practiced without prior hearing is determined by the principle of preservation of the administrative act, according to which the annulment of a defective act will not be pronounced when it is certain that the new act to be issued, free from such defect, could not fail to have the same decisional content as the impugned act. That is, this principle applies when it is unequivocal to infer that the intervention of the taxpayer in the tax procedure, in particular through prior hearing, would be incapable of altering the direction of the final decision applied[4].

Returning to the case, it appears that, even if the Claimant's right to prior hearing had been effectively respected by the Tax Authority, the direction of the decision adopted in the context of this procedure would have been the same.

This is because what is at issue is not any appraisal of facts or elements that could have been brought to the proceedings by the Claimant but only and solely a question of legal interpretation directly related to the taxable asset value to be adopted for the purposes of taxation under Item 28.1 of the TGIS.

And, as to matters of legal interpretation, it seems evident that no new element, capable of altering the understanding of the Tax Authority, could be brought to the proceedings by the Claimant.

Therefore, assuming the right to prior hearing, in this case, absolute irrelevance in shaping the decisional content of the acts of assessment of Stamp Duty, it seems evident that the consequence of the omission of this formality cannot be the annulment of the act practiced.

Thus, it is concluded that the invoked defect of omission of an essential formality does not hold.

(iv) Regarding the Error as to the Legal Presuppositions of the Assessment:

The Claimant invokes that, although the property in question in the present case is not constituted under a regime of horizontal ownership, it should be, for the purposes of liability or non-liability to Stamp Duty, treated as such, given the fact that all the divisions constitute true autonomous units, as they constitute divisions with independent use.

For its part, the Respondent argues that, since the property is not constituted under a regime of horizontal ownership, it cannot be subject to such treatment, corresponding the taxable asset value of the property to the sum of the values of its parts, as provided for in Article 7, No. 2(b) of the CIMI, and being upon this value, if applicable, calculated the Stamp Duty.

For the examination of the questions at issue in the present case, it is important, first of all, to cite Article 4 of Law 55-A/2012, of 29 October, which added to the General Table of Stamp Duty, appended to the Stamp Duty Code, approved by Law No. 150/99, of 11 September, item No. 28, with the following wording:

"28 — Ownership, usufruct or right of surface of urban properties whose taxable asset value shown in the register, under the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000 — on the taxable asset value used for the purposes of IMI:

28.1 — For a property with housing allocation — 1%;

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

Having said this,

In item 28 of the TGIS and in Article 6 of Law 55-A/2012, of 29 October, an innovative concept was used, which is not used in any other tax legislation: the concept of property with housing allocation.

Neither the CIMI, indicated by the referred Law 55-A/2012 as the statute of subsidiary application with respect to the tax introduced by the addition of item 28 to the TGIS, uses such a concept.

In fact, the CIMI defines the concept of property, defines the various types of properties and identifies the species of urban properties.

Thus,

Under Article 2 of the CIMI, "property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated in or resting on it, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value".

No. 4 of the cited Article 2 expressly provides that each autonomous unit, under a regime of horizontal ownership, is regarded as constituting a property.

Properties are divided into rural (Article 3), urban (Article 4) or mixed (Article 5), with urban properties subdivided into 4 species: residential; commercial, industrial or for services; land for construction; and others (Article 6).

For its part, No. 2 of Article 6 of the CIMI clarifies that "residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes".

From the combined analysis of the aforementioned provisions, it is verified that the CIMI makes no distinction between properties constituted under a regime of horizontal ownership or full ownership. In fact, although No. 4 of Article 2 expressly states that the autonomous units of properties constituted under a regime of horizontal ownership constitute, each of them, a property, the truth is that it does not exclude from such classification the divisions with independent use of properties constituted under a regime of full or vertical ownership.

And, where the law did not distinguish, the interpreter cannot do so.

It should be recalled that, under Article 11, No. 1 of the General Tax Law, tax rules are interpreted in accordance with the principles of legal hermeneutics commonly accepted, in particular those established, among us, in Article 9 of the Civil Code.

Literal interpretation presents itself as the first stage of interpretive activity. As FERRARA states, "the text of the law forms the substratum from which the interpreter must depart and on which it must rest"[5]. Now, since the law is expressed in words, their verbal significance must be extracted from them according to their natural connection and the rules of grammar. However, where the words employed by the legislator are equivocal or indeterminate, it will be necessary to resort to logical interpretation, which attends to the spirit of the provision to be interpreted.

Logical interpretation, as has been peacefully established by doctrine[6], is based on the rational element, the systematic element and the historical element; weighing them and deducing from them the value of the legal rule in question.

By rational element shall be understood the raison d'être of the legal rule, i.e., the purpose for which the legislator instituted it. The discovery of the ratio legis thus presents itself as a factor of undoubted importance for determining the meaning of the rule.

It happens, however, that a given rule does not exist in isolation, but rather coexists with other legal rules and principles in a systematic and complex manner. Thus, it becomes natural that the meaning of a specific rule becomes clear from the confrontation of this rule with the others. As BAPTISTA MACHADO states, "this element comprises the consideration of the other provisions that form the normative complex of the institute in which the rule to be interpreted is integrated, that is, that regulate the same matter (context of the law), as well as the consideration of legal provisions that regulate parallel normative problems or related institutes (parallel places). It also comprises the systematic place that belongs to the rule to be interpreted in the overall legal order, as well as its consonance with the spirit or intrinsic unity of the entire legal order."[7]

As for the historical element, for its part, it must refer to and include materials connected with the history of the rule, such as "the evolutionary history of the institute, figure or legal regime in question (…); the so-called sources of the law, namely the legal or doctrinal texts that inspired the legislator in the preparation of the law (…); the preparatory works."

Let us apply what has been said to the case at hand, i.e., to the interpretation of No. 4 of Article 2 of the CIMI, also invoking the provision of Article 1414 of the Civil Code, which determines that "the fractions of which a building is composed, in conditions of constituting independent units, may belong to different owners under a regime of horizontal ownership".

Now, knowing that, as a rule, over each building incorporated in the ground falls, in principle, a single property right, belonging to one or more holders, it is easy to see that such rule [Article 1414 of the Civil Code] contains an important derogation from such principle. In fact, and as indeed PIRES DE LIMA and ANTUNES VARELA teach[8], what characterizes this institute [horizontal ownership] is "the fact that the fractions of the same building which constitute independent units belong to different owners".

But then, what is to be said about No. 4 of Article 2 of the CIMI? It should be said that it aims, congruently, to adapt the fiscal reality to the materiality permitted by Article 1414 of the Civil Code, i.e., aims to allow taxation of different owners in the measure of their ownership; but, also, aims to allow overcoming possible difficulties arising from the impossibility of assimilating each autonomous unit, under a regime of horizontal ownership, to the concept of property as defined in No. 1 of Article 2 of the CIMI. And only that. The legislator said exactly what it intended to say.

Thus, having analyzed the definition of property contained in No. 1 of Article 2 of the CIMI, we do not see any reason not to include the divisions with independent use of properties constituted under a regime of full ownership, since these constitute a fraction of territory that forms an integral part of the assets of a natural or legal person and that has economic value.

It being established that the divisions with independent use of properties constituted under a regime of full ownership are classified as properties, under the terms and for the purposes of the CIMI, it seems evident to us that each of these divisions will constitute a property with housing allocation provided that it is intended to have such use, that is, provided that it is intended to constitute a residence.

Finally, given the provision of No. 2 of Article 6 of the CIMI, which invokes the notion of "normal destination" of the property, there seem to be no doubts about the identity, despite the divergence in terminology, between the concepts of "residential property" and "property with housing allocation".

In the case before us, each of the divisions with independent use is individually classified, the 14 now under examination being allocated to housing and another allocated to services – see item 3 of the established facts.

Besides, were it not for the divisions in question in the present case being individually classified as a property, it would make no sense to have drawn up 14 notes of assessment of Stamp Duty and 14 collection notes, one respecting each independent unit.

In fact, if these divisions were not classified, individually, as properties, then a single note of assessment and a single collection note should have been drawn up, respecting the property.

The argument put forward by the Respondent that the assessment was carried out under Article 7, No. 2(b) of the CIMI, corresponding in this case the value of the property to the sum of the values of its parts, has no legal foundation, neither in the letter nor in the spirit of the law.

In fact, on one hand, one need only read the body of No. 2 of Article 7 to verify that the assessment can only be carried out under the terms set out there in the case of properties with parts that can be classified under more than one of the classifications of No. 1 of Article 6, that is, composite properties, which have simultaneously more than one allocation.

This is manifestly not the case in the present proceedings, since each of the properties, of the divisions with independent use owned by the Claimant, has only one allocation and not several – see item 3 of the established facts.

Thus, since the properties at issue in the present case are not composed of parts classifiable under more than one of the classifications of No. 1 of Article 6, it seems evident that Article 7, No. 2(b) is not applicable, as argued by the Respondent.

On the other hand, as regards the spirit of the law, it is important to note that, as has been argued by the most recent arbitral case law[9], the introduction of item 28 in the TGIS had as its objective the taxation of urban properties of high value.

The intention, with the introduction of the taxation provided for in item 28 of the TGIS, was to tax wealth, externalized in the ownership, usufruct or right of surface of urban properties "of luxury", with housing allocation.

In fact, as results from the arbitral case law cited above, which we follow closely, it is to be said that, as results from the analysis of the discussion of Bill No. 96/XII in the Parliament, the substantiation of the measure designated as special tax on residential urban properties of the highest value rests on the invocation of the principles of social equity and fiscal justice, calling upon those holding properties of high value intended for housing to contribute more intensively, with the new special tax applying to houses valued at equal to or exceeding 1 million euros.

Now, if the objective of the law was to adapt the taxation in terms of Stamp Duty to the taxpaying capacity of the taxpayers, it seems not to bear any relevance the distinction between properties constituted under a regime of horizontal ownership or vertical ownership.

In fact, one cannot see how the ownership of certain divisions in a property under a regime of full ownership can signify greater wealth and greater taxpaying capacity than the ownership of the same number of fractions in a property under a regime of horizontal ownership.

Manifestly, it is not there that the greater or lesser taxpaying capacity is revealed, all the more so because, as is known, horizontal ownership is a relatively recent legal institute, and it is certain that a large part of older buildings are not constituted in this regime, despite, in practice, functioning as such.

Now, the principle of the prevalence of substance over form imposes that the tax administration values the material truth. And, in the case before us, the material truth consists in the non-existence of any substantive difference between the divisions owned by the Claimant and the fractions of a property constituted in horizontal ownership.

And the Respondent itself ends up accepting such substantive identity, when, in Article 51 of the reply presented, it admits that the establishment of horizontal ownership implies a mere legal alteration of the property, with no new assessment taking place.

Now, if the alteration made is merely legal and not factual, what reason exists for the difference in tax treatment between one situation and the other? It seems to us that there is none.

In the case before us, verified the identity between the divisions owned by the Claimant and the fractions of a property constituted under a regime of horizontal ownership, no ground can be invoked to justify the non-application of the same regime to both situations.

And, if in the case of fractions of the property constituted under a regime of horizontal ownership there is no doubt that the taxable asset value relevant for the purpose of determining the application or non-application of Stamp Duty is the individual value of each of the fractions, it is not seen why such question should arise in the case of divisions that do not form part of a property constituted in horizontal ownership.

To distinguish, for the purpose of liability or non-liability to Stamp Duty, between the autonomous fractions of properties constituted under a regime of horizontal ownership and the divisions with independent use of properties constituted under a regime of full ownership, represents a clear violation of the principles of justice, equality and proportionality in taxation, of material truth and of taxpaying capacity, and cannot therefore be accepted.

Therefore, the thesis argued by the Respondent that the fact that the property is not constituted under a regime of horizontal ownership precludes the application of its regime cannot be upheld.

In the case before us, as results from the established facts, none of the divisions with independent use, or rather, none of the properties owned by the Claimant, has a taxable asset value equal to or exceeding one million euros, so these are not covered by the scope of application provided for in item 28 of the TGIS.

In view of all that has been stated, there is no doubt that the taxable asset value relevant for the purposes of the application of Stamp Duty in cases of properties constituted under a regime of full ownership, composed of various divisions with independent use, with housing allocation, is the taxable asset value of each of the divisions of the property and not, as argued by the Respondent, the total taxable asset value of the property, corresponding to the sum of all the taxable asset values of the divisions that compose it.

In view of all that has been stated, as there is no legal foundation for the acts of assessment carried out, their annulment is necessary.

VII. RULING:

In view of the foregoing, the Tribunal rules:

a. Judgment dismissing the request for declaration of nullity of the assessments impugned;

b. Judgment granting the request for declaration of illegality of the Stamp Duty assessments impugned and, in consequence, annuls the collection notes issued.

The value of the case is fixed at € 14,094.10, under Article 97-A, No. 1(a) of the Tax Code of Procedure and Process, applicable by virtue of Article 29, No. 1(a) and (b) of the RJAT and No. 2 of Article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

Under the provisions of No. 2 of Article 12 and No. 4 of Article 22 of the RJAT and Article 4 of the Regulations on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00, under Table I appended to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Respondent, as the losing party.

Register and notify.

Lisbon, 26 January 2015.

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, under Article 131, No. 5 of the Code of Civil Procedure, applicable by reference in Article 29, No. 1(e) of Decree-Law No. 10/2011, of 20/01, with its drafting governed by the old spelling.

[1] See Supreme Administrative Court Decision of 19 November 2008, case number 194/08, at www.dgsi.pt. In the same sense, see the Court of Appeal (Northern) Decision of 13 October 2005, case number 00584/03, available at www.dgsi.pt.

[2] Supreme Administrative Court Decision of 30 January 2013, case number 0105/12, available at www.dgsi.pt.

[3] cf. Diogo Leite Campos, Benjamim da Silva Rodrigues and Jorge Lopes de Sousa, in Annotated General Tax Law, 3rd edition, p. 290 – cf. Supreme Administrative Court Decision, 2nd Section, of 16 November 2011, case number 0539/11, available at www.dgsi.pt.

[4] See, in this sense, the Supreme Administrative Court Decision, 2nd Section, of 24 October 2012, case number 0548/12, available at www.dgsi.pt.

[5] FERRARA, FRANCESCO, Interpretation and Application of Laws, 1921, Rome; Translation by MANUEL DE ANDRADE, Arménio Amado, Editor, Successor – Coimbra, 2nd Edition, 1963, p. 138 et seq.

[6] See, in all respects, BAPTISTA MACHADO, JOÃO, op. cit., p. 181.

[7] BAPTISTA MACHADO, JOÃO, op. cit., p. 183.

[8] PIRES DE LIMA and ANTUNES VARELA, Annotated Civil Code – Volume III (articles 1251 to 1575), 2nd Revised and Updated Edition (Reprint), Coimbra Publishing House, Limited, 1987, p. 391.

[9] See, among others, decisions rendered in the context of cases 48/2013-T, 50/2013-T and 132/2013-T, all available at www.caad.org.pt

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable to vertical property buildings where no individual unit exceeds €1 million in taxable asset value?
The core issue is whether Stamp Tax under Item 28.1 TGIS applies when individual units in a vertical property do not exceed €1 million in taxable asset value. The claimant argues that each independently assessed unit should be evaluated separately, and since none exceeds €1 million, no Stamp Duty is due. The Tax Authority contends that vertical property constitutes a single property for tax purposes, justifying aggregation of all unit values. The resolution depends on whether tax law treats vertical property as one indivisible property or recognizes the independent assessment of its constituent units under CIMI Article 7(2)(b).
Can the Tax Authority aggregate the patrimonial values of independently assessed units in a vertical property to meet the €1 million threshold for Stamp Tax?
The Tax Authority aggregated the patrimonial values of 14 residential units totaling €1,409,410 to exceed the €1 million threshold. The claimant challenges this aggregation, arguing that vertical property units are independently assessed for IMI purposes under CIMI Article 7(2)(b), and this separate assessment should be respected for Stamp Duty. The Tax Authority maintains that despite separate IMI assessments, vertical property ownership differs from horizontal property (where units have autonomous legal existence), and the total property value determines Stamp Duty liability. The case hinges on whether CIMI Article 12(3) registration and separate assessment prevents aggregation for Item 28.1 TGIS purposes.
What is the correct taxable asset value (VPT) criterion for applying Verba 28.1 of the Tabela Geral do Imposto do Selo to properties with multiple independent divisions?
The dispute centers on whether the correct VPT criterion is each individual unit's taxable asset value or the aggregate value of all units in the vertical property. The claimant argues the legislator intended Item 28.1 TGIS to apply only to properties with VPT equal to or exceeding €1 million, and since each unit falls below this threshold, no tax is due. The Tax Authority argues that vertical property constitutes a single taxable property, making the aggregate VPT (€1,409,410) the relevant criterion. The tribunal must interpret whether 'property' in Item 28.1 means the entire building under vertical ownership or each independently assessed unit, considering the distinction between vertical and horizontal property regimes and the prohibition on analogical application of tax law under LGT Article 11(2).
What are the legal grounds for challenging Stamp Tax assessments on vertical property buildings before the CAAD arbitration tribunal?
The claimant raised multiple legal grounds before CAAD: (1) substantive error in the tax assessment basis, arguing the Tax Authority incorrectly aggregated unit values when each should be considered separately; (2) lack of substantiation (fundamentação) in both collection notes and assessments, violating transparency requirements; (3) defective notification lacking elements required by CPPT Articles 36(2), 37(1), and 39(12); (4) omission of prior hearing rights before issuing assessments, constituting omission of an essential formality; (5) violation of statutory interpretation principles, as applying Item 28.1 based on aggregation extends the tax beyond properties individually valued at €1 million. These grounds seek either annulment or cancellation of the €14,094.10 in assessments.
Does the lack of proper notification and reasoning (fundamentação) in Stamp Tax assessments constitute a basis for annulment under Portuguese tax law?
Yes, lack of proper notification and reasoning constitutes potential grounds for annulment under Portuguese tax law. The claimant alleged the collection note notifications failed to include mandatory elements under CPPT Articles 36(2), 37(1), and 39(12), and the assessments lacked sufficient substantiation (fundamentação). Additionally, the Tax Authority allegedly failed to provide prior hearing rights before issuing assessments, violating procedural guarantees. The claimant also requested a certified copy under CPPT Article 37(1), which the Tax Authority failed to provide. These procedural defects can constitute voidability (anulabilidade) grounds independent of substantive merit, as proper notification, substantiation, and prior hearing are essential formalities ensuring taxpayer rights and enabling effective defense against tax assessments.