Process: 41/2015-T

Date: May 18, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Tax Arbitration Case 41/2015-T addresses a critical Stamp Duty dispute involving vertical property ownership under item 28.1 of the General Table of Stamp Duty (TGIS). The claimants challenged Stamp Tax assessments totaling €17,559.22 on their urban property in Lisbon comprising nine separate floors or units in vertical ownership, each registered with independent property registry articles and separate tax patrimonial values (VPT) ranging from €88,850 to €194,060. The Tax Authority aggregated these individual VPT amounts to exceed the €1,000,000 threshold triggering Stamp Duty liability. The taxpayers argued this aggregation violated the tax incidence rule of item 28.1 TGIS, contending that each floor's individual VPT should be assessed separately, and since none exceeded €1,000,000 individually, no Stamp Duty was due. They further challenged the constitutionality of the AT's interpretation, alleging violations of equality and justice principles under Articles 13 and 266(2) of the Portuguese Constitution. The claimants cited multiple CAAD precedents supporting their position that vertical property units should be treated as distinct properties for Stamp Tax purposes, unlike horizontal property condominiums. The AT defended its position by arguing that the relevant VPT for tax incidence is the total value of the urban property, not individual components, relying on the IMI Code's definition of urban property. The case involves requests for annulment of the assessments, full refund of amounts paid, and compensatory interest. This arbitration highlights the fundamental distinction between vertical and horizontal property ownership regimes and their implications for Portuguese Stamp Duty taxation on high-value real estate.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 41/2015 – T

Subject: Stamp Duty; items 28 and 28.1 of the TGIS; urban property in vertical ownership

PARTIES

Claimants – A…, Tax ID …, domiciled at Rua …, No. … – … - … Lisbon and B…, Tax ID …, domiciled at Rua …, No. … – … ….

Respondent - Tax and Customs Authority (AT).

I. REPORT

a) On 27-01-2015, the Claimants filed with CAAD a request seeking, under the Legal Framework for Arbitration in Tax Matters (RJAT), the establishment of a single arbitral tribunal (TAS).

b) The request is signed by a lawyer representing the Claimants.

THE REQUEST

c) The Claimants, acting jointly, request the annulment of the Stamp Duty assessment on item 28 of the TGIS, assessed in 2012 (assessment date of 07 November 2012) and in 2013 (assessment date of 22 March 2013), concerning, respectively, the transitional regime of Law 55-A/2012 (article 6 letter f) sub-item i)) and the year 2012, on the grounds that the AT rejected ex officio review procedures that they filed in a timely manner, seeking the total annulment of these tax assessments, in the total amount of, respectively, € 2,926.61 and € 5,853.20, per claimant, that is, a total collection of 17,559.22 euros.

d) The two assessments relate to property registry articles (in the collection notices the floors are listed as autonomous property registry articles, in addition to the separation of the respective tax patrimonial values used for the purposes of IMI assessment, according to what appears in the property register) corresponding to floors or divisions capable of independent use of an urban property under vertical ownership regime, with residential use, located in Lisbon, at Rua … No. …, parish of ... (current parish of ...) with the following "property description": …-U-…-RCD with TPV of 88,850.00; …-U-…-RCE with TPV of 89,340.00; …-U…-1st with TPV of 190,180.00; …-U-…-2nd with TPV of 192,120.00; …-U-…-3rd with TPV of 194,060.00; …-U-…-4thD with TPV of 118,160.00; …-U-…-4thE with TPV of 88,850.00; …-U-…-5thD with TPV of 119,340.00 and …-U-…-5thE with TPV of 89,740.00.

e) They further request that the AT be condemned to reimburse the amounts paid and to pay the compensatory interest owed until full restitution.

f) They argue, in summary, that the assessment acts are illegal by virtue of violation of the tax incidence rule of item 28.1 of the TGIS, in that the AT added the tax patrimonial values of the floors in vertical ownership and none of them individually has a TPV equal to or greater than 1,000,000.00 euros, contending that it should be the TPV of each floor and not its sum that is relevant for tax purposes.

g) They further allege the unconstitutionality of the interpretation of the rule underlying the stamp duty assessments, by violation of the principle of justice (article 266-2 of the CRP) and equality (article 13 of the CRP).

h) They invoke in support of their position various decisions adopted by CAAD in other identical cases.

OF THE ARBITRAL TRIBUNAL

i) The request for establishment of the TAS was accepted by the President of CAAD and automatically notified to the AT on 28.01.2015.

j) By the CAAD Deontological Council, the undersigned was designated as arbitrator, and the parties were notified thereof on 16.03.2015. The parties did not manifest their will to refuse the designation, pursuant to the combined provisions of article 11, no. 1, letters a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

k) Therefore, the Single Arbitral Tribunal (TAS) has been regularly established as of 31.03.2015 to hear and decide the object of this dispute (articles 2, no. 1, letter a) and 30, no. 1, of RJAT).

l) All these acts are documented in the communication of establishment of the Single Arbitral Tribunal dated 31.03.2015, which is hereby reproduced.

m) On 01.04.2015 the AT was notified pursuant to article 17-1 of RJAT. It responded on 06.05.2015.

n) In its response, the AT argued for the non-holding of the parties' meeting provided for in article 18 of RJAT and for no oral arguments. Since this case raises questions entirely identical to those already raised in many other cases already decided by CAAD, the TAS, by order of 06.05.2015, dispensed itself from scheduling the meeting referred to in article 18 of RJAT, unless the Claimants should object to this procedural course. By motion of 06.05.2015, the Claimants gave their consent to the non-holding of said meeting and also to the production of written arguments.

o) Therefore, as both parties expressly waived the holding of the parties' meeting of article 18 of RJAT and the production of arguments, these procedural acts did not take place.

PROCEDURAL REQUIREMENTS

p) Legitimacy, capacity and representation - The parties have legal personality, judicial capacity, are legitimate and are represented (articles 4 and 10, no. 2, of RJAT and article 1 of Order No. 112-A/2011, of 22 March).

q) Principle of contradiction - The AT was notified as stated in item m). All procedural documents and all documents attached to the case were made available to the respective counterparty in the CAAD Case Management System.

r) Dilatory exceptions - The arbitral procedure is free from nullities and the request for arbitral decision is timely as it was submitted within the deadline prescribed in letter a) of no. 1 of article 10 of RJAT. Indeed:

The Claimants filed this request for arbitral decision with CAAD on 27-01-2015 and the notifications of rejection of the ex officio review procedures they filed requesting their annulment ex officio both bear the date of 05.01.2015 (documents A and B attached as annexes to the request for arbitral decision).

SUMMARY OF THE CLAIMANTS' POSITION

Regarding the possible illegality of the assessment acts by non-compliance with the tax incidence rule of item 28.1 of the TGIS

s) The Claimants, in summary, contend that the assessment acts are illegal by virtue of violation of the tax incidence rule of item 28.1 of the TGIS in that the AT added the tax patrimonial values of the floors in vertical ownership and none of them individually has a TPV equal to or greater than 1,000,000.00 euros, contending that it should be the TPV of each floor and not its sum that is relevant for tax purposes.

Regarding the possible unconstitutionality of the rule inherent in item 28.1 of the TGIS, in the implicit interpretation carried out by the AT

t) They further allege the unconstitutionality of the interpretation of the rule underlying the stamp duty assessments, by violation of the principle of justice (article 266-2 of the CRP) and equality (article 13 of the CRP).

SUMMARY OF THE RESPONDENT'S POSITION

Regarding the possible illegality of the assessment acts by non-compliance with the tax incidence rule of item 28.1 of the TGIS

u) The AT considers that "The taxable event for stamp duty of item 28.1 consisting in the ownership of urban properties whose tax patrimonial value shown in the register, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or greater than 1,000,000.00 euros, the tax patrimonial value relevant for purposes of tax incidence is, thus, the total tax patrimonial value of the urban property and not the tax patrimonial value of each of the parts that compose it, even when capable of independent use."

v) "And this interpretation of the tax incidence rule results from the combination with the other rule of incidence of IMI which is article 1, pursuant to which IMI is levied on the tax patrimonial value of urban properties, having regard to the notion of property of article 2 and of the urban property contained in article 4 and further of the species of urban properties described in article 6", states the AT."

w) To support this reasoning, it previously states: "… the property registry entry of each part capable of independent use is not autonomous, by register, but is contained in the description in the register of the property in its entirety – see the property record card of this property that represents the owner's document containing the property registry elements of the property."

x) It understands, in summary, that for purposes of SD the property in its entirety is relevant, as the divisions capable of independent use are not considered property, but only autonomous units under the horizontal ownership regime are, pursuant to article 2-4 of CIMI.

y) It concludes: "any other interpretation would violate, indeed, the letter and spirit of item 28.1 of the General Table and the principle of legality of the essential elements of the tax provided for in article 103, no. 2 of the CRP", contending for the legality of the assessments object of the request.

Regarding the possible unconstitutionality of the rule inherent in item 28.1 of the TGIS, in the implicit interpretation carried out by the AT and in the interpretation contended for by the Claimant

z) The AT argues that the implicit reading of the law carried out in the assessment acts does not violate the principle of equality (nor legality) because there is no discrimination between properties in horizontal ownership and properties in full ownership with floors or divisions capable of independent use.

aa) It counters that "it is unconstitutional, as contrary to the principle of tax legality, the interpretation of item 28.1 of the General Table, to the effect that the tax patrimonial value on which its incidence depends is determined globally and not floor by floor or division by division."

bb) Contending for the legality of the tax acts because they constitute a correct application of law to the facts, both at the level of their consistency with ordinary law and at the level of their conformity with constitutional principles.

II - ISSUES THAT THE TRIBUNAL MUST RESOLVE

The AT states that "…the property registry entry of each part capable of independent use is not autonomous, by register."

However, what appears to us to be relevant here is the factual reality: each "part" of the property in vertical ownership, or floor, is autonomous in the register (see the property record card and see the practice of the AT of issuing a collection notice for each floor of a property in vertical ownership).

The AT further states that "… the tax patrimonial value relevant for purposes of tax incidence is, thus, the total tax patrimonial value of the urban property."

However, the tax incidence rule does not refer, according to its literal element, to a "total tax patrimonial value of urban property," but only and solely to the TPV "used for purposes of IMI."

And we would add: that TPV should be determined in the same manner as it is in the operations of assessment of IMI.

In the case under discussion, there are no floors with non-residential use. Therefore, there is a correspondence between the sum of the TPVs of all floors and the "total tax patrimonial value" that appears in the property record card, which only occurs by mere coincidence, since, as we emphasize, there are no floors with use for non-residential purposes.

In the context of IMI, the taxable base of floors in horizontal ownership and the taxable base of floors in vertical ownership is considered identically, so it does not appear to us that it is the law introducing stamp duty which is the subject of this case, that altered or aims to alter this factual and legal reality (new formula for determining the taxable base).

On the substantive matter, in concreto, CAAD has already ruled in several decisions in which the central question is the same, that is, the scope of the tax incidence rule of items 28 and 28-1 of the TGIS is discussed.

The limit of interpretation is the letter, the text of the rule. What follows is the task of interconnection and valuation that escapes the literal domain.

Starting from the principle that every rule has a provision (and a disposition), the question that arises here is to determine, by delimiting, whether the tax incidence rule, as it is written – in its provision - ownership of urban properties … with residential use … whose tax patrimonial value shown in the register, pursuant to CIMI be equal to or greater than 1,000,000.00 euros – on the tax patrimonial value used for purposes of IMI, permits or not the understanding that regarding properties "with residential use" in vertical ownership, with floors or divisions capable of independent use, held by an entity, the TPV on which the rate will be applied should be that which results from the sum of the TPVs of the floors or should the individual TPV of each floor or division capable of independent use be considered, similarly to what occurs with floors under horizontal ownership regime and what occurs in the procedure for assessment of IMI.

What is at issue here is the adoption of an appropriate reading of the scope of the tax incidence rule of items 28 and 28.1 of the TGIS, in light of what no. 7 of article 23 of CIS states regarding the determination of taxable matter and the subsequent operation of assessment of the tax:

"In the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in CIMI."

The AT, albeit implicitly, appears to show that the legal basis it used to proceed with the addition of the tax patrimonial values (TPV) of the floors or divisions/parts of urban property, in order to determine if the minimum taxation threshold of 1,000,000.00 euros is reached, per each urban property in vertical ownership, was article 23-7 of CIS.

As we have stated in other decisions, regarding the interpretation of tax rules, there is a rule, albeit one that may be considered residual, very specific, which is contained in no. 3 of article 11 of the General Tax Law (LGT): "should doubt persist about the meaning of the tax incidence rules to apply, regard should be had to the economic substance of the taxable facts." This is a criterion to be used in the context of interpretation of the rules.

We do not advocate an "economic interpretation" of tax law rules, nor is it a way of filling gaps which, in this case, is not evident.

But it appears to us that recourse may also be had here to the analysis of the "economic substance of the taxable facts" to properly implement the "necessary adaptations of the rules contained in CIMI," in order to resolve the question that arises.

We are thus, only and exclusively, within the scope of the activity of interpretation and application of rules, that is, in the task of delimiting the legal-factual situations that should be considered as covered by the provision of the tax incidence rule of this new tax and which results from the combination of items 28 and 28-1 of the TGIS and in this case what should be considered acceptable, taking into account the unity of the legal system, at the level of the "necessary adaptations of the rules contained in CIMI," following the command of no. 7 of article 23 of CIS.

The possible non-conformity of the provision of the tax incidence rule (in the dimension of the determination of the taxable base), in relation to the constitutional text, (in the implicit interpretation carried out in the assessment of the tax here in question or in the interpretation contended for by the Claimants) will only arise if the interpreter reaches the conclusion that a determined and unequivocal reading of the law – correctly applied to a specific case - violates one or more constitutional principles with such intensity that the legislative option adopted could not have been so, and further considering that the AT cannot, based on possible unconstitutionalities of rules, not declared by courts and not confirmed by the Constitutional Court, fail to apply the law, in the meaning it considers most assertive.

The central question that the TAS must answer is the following:

• Do items 28 and 28-1 of the TGIS, as tax incidence rules, as they are written – in their provision - (ownership of urban properties … with residential use … whose tax patrimonial value shown in the register, pursuant to CIMI be equal to or greater than 1,000,000.00 euros – on the tax patrimonial value used for purposes of IMI), permit or not the understanding that regarding properties "with residential use" in vertical ownership, with floors or divisions capable of independent use, held by an entity, the TPV on which the rate will be applied should be that which results from the sum of the TPVs of the floors or should the individual TPV of each floor or division capable of independent use be considered, similarly to what occurs with floors under horizontal ownership regime and in the procedures for assessment of IMI?

The merits or lack of merits of the request will result from the answer given to this question, and should the answer not be in accordance with what was ably argued by the AT, it will not be necessary for the TAS to rule on the remaining grounds invoked in the request for arbitral decision or in the response, with possible implications for the validity of the assessment acts here in question.

III. PROVEN AND UNPROVEN FACTS AND GROUNDS

With relevance to the decision to be adopted, these are the facts considered proven, with indication of the respective documents (proof by documents), as grounds:

Proven Facts

  1. The Claimants A…, Tax ID …, and B…, Tax ID …, are listed as holders of the right of full ownership of the urban property under vertical ownership regime, in the proportion of ½ each, with 9 floors of residential use, located in Lisbon, at Rua … No. …, parish of ... (current parish of ...) with the following "property description" in the collection notices issued for each floor: …-U-…-RCD with TPV of 88,850.00; …-U-…-RCE with TPV of 89,340.00; …-U-…-1st with TPV of 190,180.00; …-U-…-2nd with TPV of 192,120.00; …-U-…-3rd with TPV of 194,060.00; …-U-…-4thD with TPV of 118,160.00; …-U-…-4thE with TPV of 88,850.00; …-U-…-5thD with TPV of 119,340.00 and …-U-…-5thE with TPV of 89,740.00 - As shown in the property record card attached by the Claimants as document No. 3 annexed to the request for arbitral decision and Documents Nos. 1 and 2 attached with the request for arbitral decision comprising 36 pages.

  2. The Claimants were notified on an undetermined date in 2012 of the collection notices relating to the Stamp Duty assessment occurring on 07 November 2012, relating to the transitional regime of Law 55-A/2012 (article 6 letter f) sub-item i) and in 2013 of the collection notices relating to the Stamp Duty assessment occurring on 22 March 2013, relating to the year 2012 – as shown in the Stamp Duty collection notices attached by the Claimants with the request for arbitral decision designated as Documents Nos. 1 and 2.

  3. The floors or divisions capable of independent use subject to taxation, with residential use, have TPV comprised between 88,850.00 euros for article …-U-…-RCD and article …-U-…-4thE and 194,060.00 euros for article …-U-…-3rd - as shown in the property record card attached by the Claimants as document No. 3 annexed to the request for arbitral decision and Documents Nos. 1 and 2 attached with the request for arbitral decision comprising 36 pages.

  4. In the urban property record card of the real property referred to in 1) the following appears: "Total tax patrimonial value: € 1,170,640.00" – as shown in the urban property record card attached by the Claimants with the request for arbitral decision.

  5. In all collection notices it states: "Tax Patrimonial Value of property-total subject to tax: 1,170,640.00" euros, which corresponds to the sum of the TPV of the floors with residential use of the real property identified in 1) – as shown in the Stamp Duty collection notices attached by the Claimants designated as Documents Nos. 1 and 2 annexed to the request for arbitral decision, comprising 36 pages.

  6. None of the floors referred to in 1) has use for purposes other than residential, which is why the values indicated in 4) and 5) are equal - as shown in the urban property record card attached by the Claimants with the request for arbitral decision.

  7. This tax was assessed on the basis of item 28.1 of the TGIS (the one assessed in 2013) and the one assessed in 2012 on the basis of the transitional regime of Law 55-A/2012 (article 6 letter f) sub-item i), – as shown in the collection notices attached by the Claimants designated as Documents Nos. 1 and 2 annexed to the request for arbitral decision.

  8. The Claimants paid in full the amounts shown in the collection notices that were notified to them - As confirmed by 66 documents annexed to the Claimants' motion of 06 May 2015 and taking into account the non-challenge specified by the AT of the alleged amount paid (agreement of the parties).

  9. The Claimants filed the present request for arbitral decision with CAAD on 27-01-2015 and the notifications of rejection of the ex officio review procedures they filed requesting their annulment ex officio both bear the date of 05.01.2015 - as shown in documents A and B attached as annexes to the request for arbitral decision.

Unproven Facts

There is no other factual matter alleged that is relevant to the proper resolution of the procedural issue.

The undisputed facts result from the documents attached by the Claimants, whose authenticity, contents and probative valuations did not merit any disagreement from the AT.

IV. ASSESSMENT OF THE ISSUES THAT THE TAS MUST RESOLVE

The subjection to stamp duty of properties with residential use resulted from the addition of items 28, 28-1 and 28-2 to the General Table of Stamp Duty, made by article 4 of Law 55-A/2012, of 29/10, which typified the following taxable facts:

"28 – Ownership, usufruct or right of surface of urban properties whose tax patrimonial value shown in the register, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or greater than € 1,000,000 – on the tax patrimonial value used for purposes of IMI:

28-1 – Per property with residential use - 1%;

28-2 – Per property, when the taxable subjects that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in a list approved by ministerial order by the Minister of Finance – 7.5%."

With relevance to this case they reference:

• No. 7 of article 23 of CIS regarding assessment of the tax: "In the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in CIMI."

• No. 4 of article 2 of CIMI: "For purposes of this tax, each autonomous unit, under the horizontal ownership regime, is considered as constituting a property."

• No. 3 of article 12 of CIMI: "Each floor or part of a property capable of independent use is considered separately in the property registry entry which also determines the respective tax patrimonial value."

It appears to us that the answer to the question raised in this request for arbitral decision concerns the implicit interpretation made by the AT of no. 7 of article 23 of CIS.

The AT would have considered, in order to proceed with the addition of the tax patrimonial values (TPV) of the floors or divisions/parts of urban property, in order to determine if the minimum taxation threshold of 1,000,000.00 euros is reached, per each urban property in vertical ownership, that the floors or divisions capable of independent use are not, by formal legal definition, considered urban properties. What is undisputable.

And it would have considered that this addition of TPV is required because the law states that one should proceed with the "necessary adaptations" of the "rules of CIMI" (no. 7 of article 23 of CIS).

Although items 28 and 28.1 speak of "urban properties" and "per property" and no. 7 of article 23 of CIS states that "the tax is assessed annually, in relation to each urban property," what appears to us to be relevant here, at the level of the determination of eligible taxable matter and assessment of the tax, is that "… with the necessary adaptations, the rules contained in CIMI" are applied as stated in the aforesaid no. 7 of article 23 of CIS. But, obviously, "adaptations" only when necessary.

What happened - regarding urban properties with residential use, in vertical ownership, with floors or divisions capable of independent use - was that the AT made the "adaptation" in the operations of assessment of SD by adding the TPV of each floor or independent division assigned to residential purposes (excluding the TPV of floors or divisions intended for other purposes, which in this case, only due to the non-existence of floors with non-residential use, occurs), creating a new legal reality, which is a tax patrimonial value of urban properties in vertical ownership, with residential use.

This operation in the tax process (incidence – determination of taxable matter – assessment – payment) appears to us to conflict with the literal element of the tax incidence rule, item 28 of the TGIS, which states that this tax is levied on "the tax patrimonial value used for purposes of IMI."

That is, the AT, in the operation of determination of taxable matter and subsequent assessment of SD of items 28 and 28.1 of the TGIS (operation of application of a rate to the taxable matter), regarding urban properties with residential use, in vertical ownership, with floors or divisions capable of independent use, should not consider any other tax patrimonial value (on which the ad valorem rate of the tax is applied) other than that which results exclusively from no. 3 of article 12 of CIMI. Whether for IMI or for this SD.

And for the reason that urban properties in vertical ownership, in their entirety, do not have TPV. The law determines in these cases that the TPV be assigned to each floor or part of the property separately.

The above conclusion will not be affected by the fact that in the property record cards of this type of property the "total tax patrimonial value" is indicated which corresponds to the sum of the TPVs of all floors, regardless of their use. What is relevant for this taxation will not be the "total tax patrimonial value" but only the "tax patrimonial value" of urban properties with residential use, in this case the floors separated for tax purposes in terms of eligible TPV.

And all the more so because, in the majority of cases of properties in vertical ownership, "residential use" is a characteristic of one or more floors separately and not of the property in its entirety.

Regarding these taxpayers and as to the property in question, there are no floors with non-residential use. Therefore, there is a correspondence between the sum of the TPVs of the floors and the "total tax patrimonial value" that appears in the property record card, which only occurs by mere coincidence, since there are no floors with use for non-residential purposes.

Creating a new legal reality, in order to find a new way of determining taxable matter that is not used in the context of IMI (a taxable base for the floors or parts of a property capable of independent use, with residential use) does not appear to have legal support in the "necessary adaptations" referred to in no. 7 of article 23 of CIS.

A conclusion reached taking into account the principle of tax legality, whether in the dimension of no. 1 of article 8 of the General Tax Law (should we consider that a tax incidence rule is at issue), or in the dimension of letter a) of no. 2 of article 8 of the General Tax Law (should we consider that a rule regulating the determination of the taxable base on which a rate is applied, that is, the assessment of the tax, is at issue).

Indeed, there is non-conformity with the literal element of the final part of the tax incidence rule (item 28 of the TGIS) which states that the tax is levied on "the tax patrimonial value used for purposes of IMI" and therefore, should not be levied on the sum of tax patrimonial values of properties, parts of properties or floors, no legal support being evident in the operation of addition of tax patrimonial values of the floors or parts of a property capable of independent use, with residential use, in order to reach the eligible taxation threshold of 1,000,000.00 euros or more.

That is, it does not conform to the law, the creation of a new TPV for purposes of taxation in SD regarding item 28 of the TGIS, as results from the notation in all collection notices of "tax patrimonial value of property – total subject to tax" – item 5 of the undisputed factual matter.

In this case, as we emphasize, only by mere coincidence (because there are no floors with non-residential use) the sum of the TPVs of the floors per se coincides with the "tax patrimonial value of property – total subject to tax" noted in the collection notices.

What is intended to mean that when no. 7 of article 23 states that "…the tax is assessed annually, in relation to each urban property," this expression "each urban property" will be intended to cover urban properties in horizontal ownership with residential use (or in other words the floors in horizontal ownership with residential use) and the floors or parts of urban properties of properties in vertical ownership, provided they are assigned to residential purposes, but always starting from a single taxable base for all legal purposes: the tax patrimonial value used for purposes of IMI (final part of item 28 of the TGIS).

The question does not require, in our understanding, to be raised at the level of violation of the CRP, being sufficient, in compliance with what is stated in no. 7 of article 23 of CIS, that one carries out a reading, "with the necessary adaptations of the rules of CIMI," which will be to consider that the expression "each urban property" includes not only the floors in horizontal ownership with residential use (which are urban properties by operation of law) as well as "the floors or parts of a property capable of independent use" with residential use (no. 3 of article 12 of CIMI).

If, for example, regarding the floors that make up the autonomous units of urban properties with residential use, in horizontal ownership, (even if they are by definition and by operation of law urban properties) one does not add the TPVs to determine the threshold of eligible TPV for subjection to SD, per taxable subject, of 1,000,000.00 euros (operation of determination of taxable matter), why should this occur regarding the "parts of property or floors" with residential use of properties in vertical ownership?

In both cases the same contributory capacity of the taxpayers is manifest (their level of wealth at the level of real property). It is the same "economic substance" analyzed from various angles. In both situations the same "ability-to-pay" is manifest.

It appears to us that it is the tax incidence rule contained in items 28 and 28-1 of the TGIS, in its literality, most notably its final part, combined with no. 7 of article 23 of CIS, that permits the conclusion, with the "necessary adaptations of the rules of CIMI," that the AT should not have added the TPVs of the floors or parts of the property identified above to find a new TPV relating to those assigned to residential purposes, separated from the TPV of those assigned to other purposes. A separation that in this case only does not occur due to the non-existence of any floor with use other than residential.

It will suffice, therefore, a mere declarative interpretation of the law, in light of its literal element, it not being necessary to resort even to its extensive interpretation (reasoning of parity of reason between the two types in which the ownership of floors materializes).

The Claimants allege, ultimately, the non-conformity of the tax acts with tax law, alleging the illegality contained in letter a) of article 99 of the Tax Procedure Code (CPPT): "erroneous classification … of taxable facts."

Indeed, with the grounds expressed above, the Stamp Duty assessments challenged as carried out in the manner in which they were, are not in harmony with the tax incidence rule of items 28 and 28-1 of the TGIS combined with the rule of no. 7 of article 23 of CIS, with the result that the illegality provided for in letter a) of article 99 of the CPPT occurs.

Proceeding on the first ground of the request formulated by the Claimant in the request for arbitral decision (item f) of the Report), it does not become necessary to proceed with the assessment of the other grounds (items g) and aa) of the Report), by way of futility, as their assessment is prejudiced.

As a consequence of the above, the request for annulment of the tax acts filed by the Claimants before the Arbitral Tribunal proceeds, as the Stamp Duty assessments carried out by the AT are not in conformity with the law, under the interpretation proposed above.

Indeed, it results from the proven facts (item 3) of part III of this decision) that none of the floors or parts of property has, in itself, a TPV that is equal to or greater than the taxation threshold indicated in item 28 of the TGIS (TPV equal to 1,000,000.00 euros).

Request for Interest

In the legislative authorization on which the Government based itself to approve RJAT, granted by article 124 of Law No. 3-B/2010, it is stated that "the tax arbitral process must constitute an alternative procedural means to the judicial impugnation process and to the action for recognition of a right or legitimate interest in tax matters."

Although letters a) and b) of no. 1 of article 2 of RJAT use the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning at CAAD and do not make reference to constitutive (annulling) and condemnatory decisions, it should be understood, in harmony with the aforesaid legislative authorization, that the powers included in their competence are those which in impugnation procedure are attributed to the tax courts in relation to the acts whose appraisal of legality falls within their competence.

Therefore, condemnation of the tax administration in the payment of compensatory interest may be pronounced here.

Article 43 of the General Tax Law "merely establishes an expedite and, so to speak, automatic means of indemnifying the injured party. Independently of any allegation and proof of damages suffered, he has a right to the indemnification established there, expressed in compensatory interest in the cases included in the provision (…)" Supreme Administrative Court Decision of 2-11-2006, case 604/06, available at www.dgsi.pt"

In the case at hand, it was proven that the Claimants paid all the amounts shown in the collection notices that were notified to them, whereby they have a right to compensatory interest counted from the date of payment, total or partial, of the Stamp Duty assessments now annulled until the date of issuance of the respective credit notes, counting the deadline for such payment from the beginning of the deadline for spontaneous execution of this decision (article 61, nos. 2 to 5, of CPPT), at the rate determined in accordance with what is provided in no. 4 of article 43 of the General Tax Law.

V. OPERATIVE PART

Pursuant to the grounds and bases set out above, it is judged:

  1. The request for arbitral decision is upheld as to the request for a declaration of illegality of the Stamp Duty assessments of item 28 of the TGIS, assessed in 2012 (assessment date of 07 November 2012) and in 2013 (assessment date of 22 March 2013), generating a collection in the total amount of, respectively, € 2,926.61 and € 5,853.20, per claimant, that is, a total collection of 17,559.22 euros, concerning, respectively, the transitional regime of Law 55-A/2012 (article 6 letter f) sub-item i)) and the year 2012, assessments which relate to the property registry articles corresponding to floors or divisions capable of independent use of an urban property under vertical ownership regime, with residential use, located in Lisbon, at Rua … No. …, parish of ... (current parish of ...) with the following "property description": …-U-…-RCD with TPV of 88,850.00; …-U-…-RCE with TPV of 89,340.00; …-U-…-1st with TPV of 190,180.00; …-U-…-2nd with TPV of 192,120.00; …-U-…-3rd with TPV of 194,060.00; …-U-…-4thD with TPV of 118,160.00; …-U-…-4thE with TPV of 88,850.00; …-U-…-5thD with TPV of 119,340.00 and …-U-…-5thE with TPV of 89,740.00,

due to non-conformity with the rules contained in items 28 and 28.1 of the TGIS and in no. 7 of article 23 of CIS;

  1. The request for condemnation of the AT for reimbursement of the amounts paid and for payment of compensatory interest to the Claimants, counted from the date of payment of the Stamp Duty tax installments, in whole or in part, until the date of issuance of the respective credit notes, counting the deadline for such payment from the beginning of the deadline for spontaneous execution of this decision (article 61, nos. 2 to 5, of CPPT), at the rate determined in accordance with what is provided in no. 4 of article 43 of the General Tax Law, is upheld.

Value of the case: in accordance with what is provided in article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and letter a) of no. 1 of article 97-A of CPPT), the value of the case is set at 17,559.62 euros.

Costs: pursuant to the provision in article 22, no. 4, of RJAT, the amount of costs is set at € 1,224.00 €, according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the respondent.

Notify.

Lisbon, 18 May 2015

Augusto Vieira

Single Arbitral Tribunal (TAS)

Document prepared by computer pursuant to article 131, no. 5, of the Civil Procedure Code, applicable by reference from article 29 of RJAT.

The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS apply to individual units in vertical property or to the aggregated value of the entire building?
Under Portuguese tax law, Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applies to individual units in vertical property ownership based on their separate tax patrimonial values (VPT), not the aggregated value of the entire building. In vertical property (propriedade vertical), each floor or division capable of independent use maintains its own property registry article with a distinct VPT. CAAD jurisprudence has established that each vertically-owned unit should be assessed independently for Stamp Tax purposes. The €1,000,000 threshold applies to each individual unit's VPT, not the sum of all units in the building. This contrasts with the Tax Authority's position that attempted to aggregate all units' values to trigger Stamp Duty liability, which taxpayers have successfully challenged through tax arbitration.
Can the Tax Authority (AT) sum the taxable heritage values (VPT) of separate units in vertical property to reach the €1,000,000 threshold for Stamp Tax?
No, the Tax Authority cannot lawfully sum the taxable heritage values (VPT) of separate units in vertical property to reach the €1,000,000 threshold for Stamp Tax under item 28.1 TGIS. Each unit in vertical property regime has independent property registration with its own VPT for IMI (Municipal Property Tax) purposes. The Stamp Duty incidence rule requires that 'the ownership of urban properties whose tax patrimonial value is equal to or greater than €1,000,000' triggers taxation. In vertical property, each floor or division constitutes a separate 'urban property' for tax purposes with its own registry article. Therefore, the threshold must be met individually by each unit's VPT, not through artificial aggregation. Taxpayers have successfully challenged AT's aggregation methodology through CAAD arbitration, citing violations of the tax incidence rule and constitutional principles of equality and justice.
What is the difference between horizontal property and vertical property for Stamp Tax purposes under Portuguese law?
The fundamental difference between horizontal property (propriedade horizontal) and vertical property (propriedade vertical) for Stamp Tax purposes lies in ownership structure and property registration. Horizontal property involves condominium ownership where individual units (fractions) are part of a single building with common areas, each having autonomous registry but forming part of an integrated whole. Vertical property involves separate floors or divisions of a building, each capable of completely independent use without shared common areas, registered as distinct property articles with separate VPT for IMI purposes. For Stamp Tax under item 28.1 TGIS, this distinction is critical: in horizontal property, units may be considered parts of a single property, potentially justifying aggregation; in vertical property, each floor functions as an entirely separate urban property with independent taxation. Courts and CAAD tribunals have recognized this distinction, treating vertically-owned units as individual properties where the €1,000,000 threshold applies separately to each unit's VPT rather than to aggregated building values.
How can taxpayers challenge Stamp Tax assessments on vertical property through CAAD tax arbitration?
Taxpayers can challenge Stamp Tax assessments on vertical property through CAAD (Centro de Arbitragem Administrativa) tax arbitration by filing a request for establishment of a single arbitral tribunal (TAS) under the Legal Framework for Arbitration in Tax Matters (RJAT). The procedure involves: (1) First filing an ex officio review request with the Tax Authority seeking annulment of the assessments; (2) Upon rejection, submitting an arbitration request to CAAD within the statutory deadline (typically within the timeframe specified in Article 10(1)(a) RJAT following notification of the AT's decision); (3) The request must be signed by a lawyer and identify the specific assessments challenged, amounts involved, and legal grounds (violation of item 28.1 TGIS incidence rule, constitutional violations); (4) CAAD appoints an arbitrator who establishes the tribunal; (5) The AT submits its response; (6) Parties may waive meetings and oral arguments if issues are well-established by precedent; (7) The tribunal issues a binding arbitral decision. This process provides taxpayers with an efficient, specialized alternative to traditional court litigation for resolving Stamp Tax disputes on vertical property.
Are taxpayers entitled to a refund and compensatory interest when Stamp Tax is unlawfully levied on vertical property units below the €1,000,000 threshold?
Yes, taxpayers are entitled to a full refund and compensatory interest when Stamp Tax is unlawfully levied on vertical property units below the €1,000,000 threshold. When CAAD arbitration tribunals annul illegal Stamp Duty assessments for violating the tax incidence rule of item 28.1 TGIS by improperly aggregating VPT of separate vertical property units, they order the Tax Authority to reimburse all amounts paid plus compensatory interest (juros indemnizatórios) calculated from the date of payment until full restitution. This compensatory interest compensates taxpayers for the unlawful deprivation of funds and is mandatory under Portuguese tax law when the State has wrongfully collected taxes. In Case 41/2015-T, claimants specifically requested condemnation of the AT to reimburse €17,559.22 in total collections plus compensatory interest until complete restitution. The legal basis for reimbursement stems from annulment of the underlying assessments, which renders the tax collection legally unfounded, creating an automatic right to restitution with interest to restore taxpayers to their rightful financial position.