Process: 430/2015-T

Date: November 16, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 430/2015-T addresses the application of Stamp Tax (Imposto de Selo) under item 28.1 of the General Stamp Duty Table (TGIS) to properties held in vertical ownership. The claimant, a company owning three urban properties in Lisbon and Oeiras comprising multiple independent units (shops and residential floors), challenged Stamp Tax assessments totaling €58,538.10 for 2014. The central issue concerns whether item 28.1 TGIS applies to buildings with divisions susceptible to independent use held in full ownership (vertical property) rather than constituted under the horizontal ownership regime (condominium). The properties consisted of buildings with separate floors and units, each with individual tax property values, but owned entirely by a single entity rather than divided into separately-owned condominium units. The claimant sought declaration of illegality and unconstitutionality of the assessments and their annulment. The arbitration proceeded under Decree-Law 10/2011 establishing the Legal Framework for Tax Arbitration (RJAT). Dr. Sílvia Oliveira was appointed as sole arbitrator, and the tribunal was constituted on September 14, 2015. The Tax Authority defended the assessments in its reply, arguing the tax acts violated no legal or constitutional provisions. Both parties waived the oral hearing and written arguments, treating the matter as purely a question of law. This case illustrates how taxpayers can challenge Stamp Tax assessments on vertical property through CAAD arbitration, raising legality and constitutionality arguments regarding the scope of item 28.1 TGIS when applied to properties with independent units not constituted as horizontal property.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No.: 430/2015-T

Subject: Stamp Duty, Vertical Ownership, item no. 28.1. of the General Stamp Duty Table

Claimant – A… - …, S.A.

Respondent - Tax and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to constitute the Arbitral Tribunal, constituted on 14 September 2015, with respect to the above-identified case, decided as follows:

  1.     REPORT

1.1. A… - …, S.A., Legal Entity No. …, with registered office at Largo …, No. …, in Lisbon (hereinafter referred to as "Claimant"), filed a request for arbitral ruling and constitution of a single Arbitral Tribunal, on 13 July 2015, pursuant to article 4 and no. 2 of article 10 of Decree-Law No. 10/2011, of 20 January [Legal Framework for Tax Arbitration (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter referred to as "Respondent").

1.2. The Claimant seeks to "request the Constitution of an Arbitral Tribunal and submit (…) a Request for Arbitral Ruling, with a view to declaring illegal and unconstitutional and consequent annulment of the acts of assessment of Stamp Duty, item 28.1. of the General Stamp Duty Table, relating to the year 2014, with a collection of EUR 58,538.10, concerning the urban properties described (…)".

1.3. The request for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD and automatically notified to the Respondent on 15 July 2015.

1.4. Given that the Claimant did not proceed to appoint an arbitrator, pursuant to article 6, no. 2, letter a) of the RJAT, the undersigned was appointed as arbitrator on 28 August 2015 by the President of the Deontological Council of CAAD, with the appointment being accepted within the legally prescribed timeframe and terms.

1.5. On the same date, the parties were duly notified of this appointment and did not express any objection to the appointment of the arbitrator, pursuant to article 11, no. 1, letters a) and b) of the RJAT, in conjunction with articles 6 and 7 of the Deontological Code.

1.6. Thus, in accordance with the provisions of letter c), no. 1, of article 11 of the RJAT, the Arbitral Tribunal was constituted on 14 September 2015, and an arbitral order was issued on the same date, directing the Respondent to, pursuant to article 17, no. 1 of the RJAT, submit a reply within a maximum of 30 days and, if so desired, request the production of additional evidence.

1.7. On 13 October 2015, the Respondent submitted its Reply, defending itself through objection and concluding that "(…) the tax acts in question (…) did not violate (…) any legal or constitutional provision and should (…) be upheld".

1.8. Additionally, "given that the matter in dispute is (…) exclusively of law", the Respondent also submitted in its Reply a request for waiver of "the arbitral hearing provided for in article 18 of the RJAT, as well as of the submission of arguments".

1.9. The Parties were notified of the arbitral order, dated 14 October 2015, to rule, within a period of 5 days, on the possibility of waiving the holding of the hearing referred to in article 18 of the RJAT, as well as on the possibility of waiving the submission of written arguments.

1.10. The Claimant submitted a request on 20 October 2015, stating that "it does not object to the non-holding of the hearing referred to in article 18 of the RJAT, nor to the waiver of written arguments".

1.11. The Respondent, on the same date, also submitted a request stating that it had no objection to the waiver of the holding of said hearing, as well as stating that it considered the submission of arguments dispensable.

1.12. In these terms, it was decided by the Arbitral Tribunal, in an order dated 22 October 2015, in consonance with the procedural principles set forth in article 16 of the RJAT, of the autonomy of the Arbitral Tribunal in conducting the proceedings and determining the rules to be observed [letter c)], of cooperation and good faith [letter f)] and of free conduct of proceedings set forth in articles 19 and 29, no. 2 of the RJAT, and also taking into account the principle of limitation of unnecessary acts provided for in article 130 of the Civil Procedure Code (CPC) [applicable by virtue of article 29, no. 1, letter e) of the RJAT], to dispense with the holding of the hearing referred to in article 18 of the RJAT, as well as to dispense with the submission of arguments, with 16 November 2015 being designated as the date for issuance of the arbitral decision.

1.13. In the same order, the Claimant was further warned that "until the date of issuance of the arbitral decision it should pay the subsequent arbitration fee, pursuant to no. 3 of article 4 of the Regulation on Costs in Tax Arbitration Proceedings and notify CAAD of such payment", which it did on 30 October 2015.

  1.   STATEMENT OF CLAIM

2.1. The Claimant alleges to be the owner of the "(…) urban properties described in the Urban Property Register (…) of the Tax Service in Lisbon - … Neighborhood (…), Parish of Campolide, under article no. …; of the Tax Service in ... - … (…), Union of Parishes of ..., under article no. …; of the Tax Service in Oeiras - … (…), Union of Parishes of Oeiras and São Julião da Barra, Paço de Arcos and Caxias[2]; with respect to which it was notified by the Tax and Customs Authority (on 01.04.2015) for payment of the first of 3 installments, with payment deadline until 30.04.2015, with a view to the acts individualized in the (…) documents", whose copies it attached to the proceedings:

2.1.1. "Article …: 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …" (emphasis added);[3]

2.1.2. "Article …: 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …" (emphasis added);[4]

2.1.3. "Article …: 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015 …, 2015…, 2015 …, 2015 …, 2015 …, 2015 …" (emphasis added).[5]

2.2. According to the Claimant, "the urban properties (…) described are" of its "full ownership (…)" and, although "(…) they have been subject to different acts of stamp duty assessment, the Claimant has standing to bring this action (…) since the precedence of the cumulative claims depends on the assessment of the same circumstances of fact and the interpretation and application of the same legal rules and principles (…)".

2.3. "The properties described (…) constitute (…) the urban properties located" at "Street …, … to …, in Lisbon", at "Street …, No. … to …, and Street …, No. … and …, in ..." and at "Street …, No. …, in Oeiras".

2.4. With respect to the property located at "Street …, … to …, in Lisbon (…)", it is composed, according to the Claimant, "of shops, ground floor and six floors, right and left, which constitute divisions with independent use, whose (…) Tax Property Value was determined separately (…)", not being "(…) constituted under the regime of horizontal ownership, being rather in full ownership, with floors or divisions susceptible to independent use (…)".

2.5. Thus, according to the Claimant, "each of the independent divisions, dedicated to housing, has a tax property value assigned (…) as follows (…)":

[TABLE 1 - Property Tax Values for the first building with floors and units listed]

2.6. "The property, in vertical ownership, comprises a total of 7 floors, with divisions of independent use (…), with none of the parts or floors with residential use having a tax property value exceeding EUR 1,000,000.00 (…)".

2.7. With respect to the property located at "Street …, No. … to …, and Street …, No. … and …, in ... (…)", it is composed, according to the Claimant, "of twelve floors, constituted by divisions with letters A to D, with independent use, whose (…) Tax Property Value was determined separately (…)", not being "(…) constituted under the regime of horizontal ownership, being rather in full ownership, with floors or divisions susceptible to independent use (…)".

2.8. Thus, according to the Claimant, "each of the independent divisions, dedicated to housing, has a tax property value assigned (…) as follows (…)":

[TABLE 2 - Property Tax Values for the second building with 12 floors and units A-D]

2.9. "The property, in vertical ownership, comprises a total of 12 floors, with divisions of independent use (…), with none of the parts or floors with residential use having a tax property value exceeding EUR 1,000,000.00 (…)".

2.10. With respect to the property located at "Street …, No. …, in Oeiras (…)", it is composed, according to the Claimant, "of (…) ground floor and 8 floors, left, front and right, which constitute divisions with independent use, whose (…) Tax Property Value was determined separately (…)", not being "(…) constituted under the regime of horizontal ownership, being rather in full ownership, with floors or divisions susceptible to independent use (…)".

2.11. Thus, according to the Claimant, "each of the independent divisions, dedicated to housing, has a tax property value assigned (…) as follows (…)":

[TABLE 3 - Property Tax Values for the third building with 9 floors and multiple units]

2.12. "The property, in vertical ownership, comprises a total of 9 floors, with divisions of independent use (…), with none of the parts or floors with residential use having a tax property value exceeding EUR 1,000,000.00 (…)".

2.13. The Claimant further states that "the tax acts that form the basis of the present request for arbitral ruling relate to the assessment of stamp duty, item 28.1. of the General Stamp Duty Table, on the tax property value of the described residential divisions with independent use (…)", "(…) having as reference the tax property value of each of the residential divisions (...)" and that "it determined a tax value to be paid in the amount of EUR 18,698.60[6] (…)", "(…) EUR 19,892.10[7] (…)" and "(…) EUR 19,947.40[8] (…)", which correspond "(…) to the sum of the stamp duty collections, item 28.1 of the General Stamp Duty Table, relating to the year 2014, relating to each of the residential units described (…)".

2.14. The Claimant "seeks to declare illegal and unconstitutional the aforementioned acts of stamp duty assessment (…), on real property (…) in the manner it was applied by the Tax Authority in the cases of the present proceedings", on the grounds that it considers that "(…) the sum of the Tax Property Values of each floor and division should not be taken into account to determine whether or not the stamp duty is applicable".

2.15. In fact, the Claimant considers that "in the case of properties with the characteristics already described, the subjection to stamp duty is determined, not by the Tax Property Value of the properties, but by the Tax Property Value attributed to each of those floors or divisions susceptible to independent use", and therefore "as to the question of the value relevant for determining the stamp duty value, the Tax Authority's position is not acceptable, nor in accordance with the principle of fiscal legality".

2.16. In this context and citing arbitral decisions, the Claimant considers that "there would only be grounds for the application of the new stamp duty if any of the parts, floors or divisions with independent use had a Tax Property Value exceeding EUR 1,000,000.00 (…)".[9]

2.17. In conclusion, the Claimant considers that "the criteria adopted by the Tax Authority violate the principles of fiscal legality and equality, as well as that of the prevalence of material truth over legal-formal reality".

2.18. Thus, "from what has been said it follows that the cited norms, with the interpretation given to them by the Tax Authority (…) are unconstitutional, by violation of the principle of equality (…)".[10]

2.19. In these terms, the Claimant concludes by requesting "the declaration of illegality of the acts of stamp duty assessment identified above, and the consequent annulment, with all legal consequences (…), and to be manifestly unconstitutional by resulting from unconstitutional interpretation of the norms cited above, to be recognized, by violation of the principle of equality (…)", further requesting "the reimbursement of the amounts paid, relating to the (…) Stamp Duty now challenged, increased by compensatory and default interest".

  1.     RESPONDENT'S REPLY

3.1. The Respondent replied upholding the dismissal of the request for arbitral ruling and invoking the following arguments:

3.2. Indeed, the Respondent admits that "all properties are in vertical ownership with property U -…, having a total Tax Property Value of EUR 1,967,990.00, property U- …, having a total Tax Property Value of EUR 2,128,890.00 and property U-…, having a total Tax Property Value of EUR 2,026,920.00", noting that "it was on the total tax property values that the Tax Authority assessed (…) stamp duty of item 28.1. of the General Table (…)", resulting "from these stamp duty assessments (…) the total value of EUR 58,538.10, with the value of EUR 18,698.60 corresponding to property U-.., the value of EUR 19,892.10 corresponding to property U-… and the value of EUR 19,947.40 corresponding to property U-…".

3.3. "The subjection to stamp duty of item 28.1. of the General Table attached to the Stamp Duty Code results from the conjunction of two facts, namely, the residential use and the tax property value of each urban property registered in the property matrix being equal to or exceeding EUR 1,000,000.00".

3.4. For the Respondent, "the interpretation of item 28 of the General Stamp Duty Table (TGIS) added by Law No. 55-A/2012, of 29/10 (…) has raised considerable controversy regarding the formula for calculating the tax with respect to a property that is not constituted under horizontal ownership and whose areas and physical divisions are operated autonomously" a situation similar to the one configured in the proceedings.

3.5. The Respondent clarifies that "the Tax Authority has reiterated the understanding that if the building is constituted in full ownership with parts or divisions susceptible to independent use (…), it fits the legal tax concept of property, that is, a single unit, and the tax property value of it is determined by the sum of the parts with residential use, and if this is equal to or exceeding EUR 1,000,000.00, the property is subject to Stamp Duty of item 28 of the General Table attached to the Stamp Duty Code".

3.6. That is, the Respondent considers that "for a property not constituted under the regime of horizontal ownership, the criterion for determining the incidence of Stamp Duty is the global tax property value of the fractions and other divisions intended for housing".

3.7. Thus, the Respondent considers that "advocating an opposite understanding (…) is confusing teleologically distinct realities, full ownership, on the one hand, and horizontal ownership, on the other, whose distinction finds its foundation at the outset in civil law".[11]

3.8. According to the Respondent, "it thus becomes clear that we are dealing with distinct realities of fact and of law deserving (…) differentiated fiscal treatment since only this path is favored by the principle of closed typicality", nor can one "(…) fail to bear in mind that (…) we are faced with a norm of incidence, so that through the interpretive path, one cannot lead to a result that is not provided for in the law".[12]

3.9. Thus, the Respondent concludes that "the now Claimant, for purposes of Property Tax and also of stamp duty (…) is not the owner of autonomous fractions, but rather of a single property, the Tax Authority considering that this is the understanding that best conforms to the principle of legality inherent in article 8 of the General Tax Code, to which its activity is devoted".

3.10. In these terms, "(…) no error is recognized in the factual or legal assumptions in which the tax acts of assessment of the tax in dispute may have incurred and, consequently, the right of the taxpayer to payment of compensatory interest provided for in article 43 of the General Tax Code in case of error attributable to the services is not recognized".

3.11. The Respondent thus concludes that "(…) the tax acts in question, in terms of substance, did not violate (…) any legal or constitutional provision and should thus be upheld".

3.12. Additionally, "given that the matter in dispute is (…) exclusively of law (…)" the Respondent requested in its Reply the waiver of the holding of "(…) the arbitral hearing provided for in article 18 of the RJAT, as well as the submission of arguments (…)", taking into account that "(…) the position of the parties is broad and clearly defined".

  1.   PRELIMINARY RULING

4.1. The request for arbitral ruling is timely since it was submitted within the period provided for in letter a) of no. 1 of article 10 of the RJAT.

4.2. The parties have legal capacity and standing, are legitimate as to the request for arbitral ruling and are duly represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

4.3. The cumulation of claims made by the Claimant is legal and valid, pursuant to article 3, no. 1 of the RJAT, given that the merits of the claims depend essentially on the assessment of the same circumstances of fact and the interpretation and application of the same principles or rules of law.

4.4. The Tribunal is competent to rule on the request for arbitral ruling filed by the Claimant.

4.5. No exceptions requiring consideration were raised.

4.6. No nullities are evident, so it is now necessary to proceed to the merits of the claim.

  1.   FACTUAL FINDINGS

5.1. Findings of Fact

5.2. The following facts documented by the documents attached to the proceedings are considered proven:

5.2.1. The Claimant is the owner of the following urban properties:

▪ Property located on street …, … to …, in Lisbon, which is registered in the urban property matrix under article no. … of the parish … – Campolide (as per doc. no. 1 attached to the request).

▪ Property located on street …, No. … to … and on street …, No. …, in ..., which is registered in the urban property matrix under article no. … of the parish … – Union of Parishes of ... (S. Julião, N. S. da Anunciada and Santa Maria da Graça) (as per doc. no. 2 attached to the request).

▪ Property located on street ..., No. …, in Oeiras, which is registered in the urban property matrix under article no. … of the parish … – Union of Parishes of Oeiras and São Julião da Barra, Paço de Arcos and Caxias (as per doc. no. 3 attached to the request).

5.2.2. The aforementioned urban properties are not constituted under the regime of horizontal ownership, being composed, respectively, of shops, ground floor and six floors, right and left [in the first case (article no. U-…)], of twelve floors [in the second case (article no. U-…)] and of ground floor and eight floors, right, left and front [in the third case (article no. U-…)], all constituting floors or divisions susceptible to independent use (as per doc. no. 1, 2 and 3 attached to the request).

5.2.3. The total Tax Property Value of the aforementioned urban properties is, respectively, EUR 1,967,990.00 (property described in article no. U-…), EUR 2,128,890.00 (property described in article no. U-…) and EUR 2,026,920.00 (property described in article no. U-…), with the Tax Property Value of each of the divisions (or parts susceptible to independent use) intended for housing, considering the universe of all the properties described above ranging between EUR 39,800.00 and EUR 145,270.00 (article no. U-…), between EUR 13,530.00 and EUR 47,040.00 (article no. U-…) and between EUR 50,660.00 and EUR 80,170.00 (article no. U-…) (as per doc. no. 1, 2 and 3 attached to the request).

5.2.4. The Claimant was notified of the collection notices for payment of the 1st installment of tax, identified below, relating to Stamp Duty assessments, dated 20 March 2015, relating to the year 2014 (the payment deadline for which was "April/2015"), concerning the property located on street …, … to …, in Lisbon, as per copies of the documents attached to the case (doc. 4 to 18).

[DETAILED TABLE OF ASSESSMENT DETAILS WITH FLOORS, TAX PROPERTY VALUES, COLLECTIONS, AND FIRST INSTALLMENTS FOR FIRST PROPERTY]

5.2.5. The Claimant was notified of the collection notices for payment of the 1st installment of tax, identified below, relating to Stamp Duty assessments, dated 21 March 2015, relating to the year 2014 (the payment deadline for which was "April/2015"), concerning the property located on street …, No. … to … and on street …, No. … and …, in ..., as per copy of the documents attached to the case (doc. 19 to 61).

[DETAILED TABLE OF ASSESSMENT DETAILS WITH FLOORS, TAX PROPERTY VALUES, COLLECTIONS, AND FIRST INSTALLMENTS FOR SECOND PROPERTY]

5.2.6. The Claimant was notified of the collection notices for payment of the 1st installment of tax, identified below, relating to Stamp Duty assessments, dated 20 March 2015, relating to the year 2014 (the payment deadline for which was "April/2015"), concerning the property located on street …, No. …, in Oeiras, as per copy of the documents attached to the case (doc. 62 to 87).

[DETAILED TABLE OF ASSESSMENT DETAILS WITH FLOORS, TAX PROPERTY VALUES, COLLECTIONS, AND FIRST INSTALLMENTS FOR THIRD PROPERTY]

5.2.7. The total of the collections identified above in points 5.2.4. to 5.2.6. amounts to EUR 58,538.10, relating to the total value of Stamp Duty assessed with reference to the year 2014, as indicated by the Claimant in the request.

5.2.8. The total value relating to the first installments of Stamp Duty relating to the properties identified above was paid on 29 and 30 April 2015, as per copy of the bank transaction confirmations attached to the case (doc. 88 and 89).

5.3. No other facts were proven capable of affecting the decision on the merits of the claim.

5.4. Unproven Facts

5.5. No other facts were determined as unproven with relevance to the arbitral decision.

  1.   LEGAL GROUNDS

6.1. In the case under analysis, in order to assess the legality of the Stamp Duty assessments notified to the Claimant with reference to the year 2014, it will be important to answer a disputed question of law underlying the Request for Arbitral Ruling:

6.1.1. Is the subjection to Stamp Duty, pursuant to item no. 28.1. of the General Stamp Duty Table, determined by the Tax Property Value that corresponds to each part of the property with residential use, or, on the contrary, is it determined by the global Tax Property Value of the property, which would correspond to the sum of all Tax Property Values of the floors (with that type of use), which form part of it?

6.2. The answer to this question requires the analysis of the applicable legal norms in order to determine the correct interpretation in accordance with the Law and the Constitution, given that it concerns ascertaining a prerequisite for tax incidence, protected by the principle of fiscal legality (article 103, no. 2 of the Constitution of the Portuguese Republic - CRP).

6.3. As to the answer to be given to the question formulated above (point 6.1.1.), it is important to analyze the essence of item no. 28 of the General Stamp Duty Table, added by article 4 of Law No. 55-A/2012, of 29 October, pursuant to which the following is established:

"28. Ownership, usufruct or right of superficies of urban properties whose Tax Property Value contained in the property register, pursuant to the Property Tax Code, is equal to or exceeding EUR 1,000,000 – on the Tax Property Value for purposes of Property Tax:

28.1. – For property with residential use – 1%.

28.2. – (…)".

6.4. Although Law No. 55-A/2012 (in force since 30 October 2012) did not proceed with the qualification of the concepts contained in said item no. 28, namely, the concept of "property with residential use", if the provision of article 67, no. 2, of the Stamp Duty Code (also added by said Law No. 55-A/2012) is observed, it is verified that "to matters not regulated in this Code concerning item 28 of the General Stamp Duty Table, the Property Tax Code shall apply subsidiarily".

6.5. Now, from reading the Property Tax Code, it is easily apparent that the concept of "property with residential use" refers to the concept of "urban property", defined pursuant to articles 2 and 4 of that Code.

6.6. Indeed, in accordance with article 2, no. 1 of the Property Tax Code, "for purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated or placed in it, with a character of permanence, provided it is part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are located, although situated on a portion of territory that constitutes an integral part of a diverse patrimony or does not have a patrimonial nature" (emphasis added).

6.7. Further according to no. 2 and no. 3 of the same article, "buildings or constructions, although movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes", and it is presumed "the character of permanence when the buildings or constructions are placed on the same location for a period exceeding one year".

6.8. For purposes of Property Tax, "each autonomous fraction, under the regime of horizontal ownership, is deemed to constitute a property" and, in accordance with article 4 of the Code of that tax "urban properties are all those that should not be classified as rural (…)".

6.9. Among the various types of "urban properties" referred to in article 6 of the Property Tax Code, "residential urban properties" are expressly mentioned [no. 1, letter a)], with no. 2 of the same article adding that these "are buildings or constructions licensed for such use or, in the absence of a license, that have as their normal purpose each of these uses".

6.10. On the other hand, if it is true that no. 4 of article 2 of the Property Tax Code states that "for purposes of this tax, each autonomous fraction, under the regime of horizontal ownership, is deemed to constitute a property", it is equally true that there is nothing in the law that points to discrimination between properties in horizontal ownership and property in vertical ownership as far as their identification as "residential urban properties" is concerned.

6.11. Thus, it can be concluded that the autonomous parts of properties in vertical ownership, with residential use, should be considered as "residential urban properties".

6.12. As defended in various Arbitral Decisions, in particular, in the one issued in Case No. 88/2013-T, "in the legislator's view, what matters is not the legal-formal accuracy of the concrete situation of the property but rather its normal use, the purpose to which it is intended", and therefore, "it must thus be concluded that for the legislator it is irrelevant whether the property is constituted in vertical or horizontal ownership, what matters only being the material truth underlying its existence as an urban property and its use" (emphasis added).

6.13. Indeed, in the interpretation of the legal text, it makes no sense to distinguish what the law itself does not distinguish, since to distinguish, in this context, between properties constituted in horizontal and full ownership would be an "innovation" without associated legal support.

6.14. In fact, neither in item no. 28 of the General Stamp Duty Table, nor in the provisions of the Property Tax Code, is there anything suggesting a justification for such differentiation.[14]

6.15. Indeed, it can be stated that it is today common understanding that fiscal laws are interpreted by determining their true meaning, ascertained in accordance with the techniques and interpretive elements generally accepted by legal doctrine [see article 9 of the Civil Code and article 11 of the General Tax Code (LGT)].[15]

6.16. On the other hand, it is also necessary to bear in mind that the tax incidence norms must be interpreted in their exact terms, without resorting to analogy, making prevalence the certainty and security in their application.[16]

6.17. In these terms, the uniform criterion that is necessary is the one that determines that the incidence of the provision of the norm in question (item 28 of the General Stamp Duty Table) only takes place when any of the parts, floors or divisions with independent use of property in horizontal or full ownership, with residential use, possesses a Tax Property Value exceeding EUR 1,000,000.00 (emphasis added).

6.18. Thus "if the legal criterion imposes the issuance of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties in horizontal ownership, it clearly established a single and unequivocal criterion for the definition of the rule of incidence of item 28.1. of the General Stamp Duty Table" [17], and therefore fixing the global Tax Property Value of the property in question as the reference value for that purpose (as the Respondent seeks), finds no basis in the applicable legislation (emphasis added).[18]

6.19. Finally, it is important to inquire what the legislative intent underlying the rule of item 28 of the General Stamp Duty Table is and, in obedience to the provision of article 9 of the Civil Code[19], what are the circumstances in which the norm was drafted and what are the specific conditions at the time it is applied.

6.20. Indeed, at the time of the amendment, the legislator intended to introduce a principle of taxation on wealth expressed through ownership, usufruct or right of superficies of luxury urban properties with residential use, having considered, as a determinant element of tax capacity, urban properties with residential use of high value (luxury), that is, of value equal to or exceeding EUR 1,000,000.00, on which a special rate of Stamp Duty would henceforth be applicable.

6.21. In fact, this is what can be concluded from the analysis of the discussion of Proposed Law No. 96/XII in Parliament[20], with no different interpretive rationale being invoked from the one presented here.[21]

6.22. Indeed, the justification for the measure called "special tax on residential urban properties of highest value" is thus based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value intended for housing, thus making the new special tax apply to "houses of value equal to or exceeding 1 million euros" (emphasis added).

6.23. Now, if such logic seems to make sense when applied to a "residence" (whether a house, an autonomous fraction, a part of a property with independent use or an autonomous unit) whenever it represents, on the part of its holder, a tax capacity above the average (and, in that measure, capable of determining a special contribution to ensure fair apportionment of the fiscal burden), it would make no sense if applied "unit by unit" in order, through the sum of the individual Tax Property Values of the same (because held by the same individual), to ascertain such value equal to or exceeding one million euros (emphasis added).

6.24. It is further added that admitting differentiation of treatment could produce incomprehensible and discriminatory results from a legal point of view, as contrary to the objectives (promoting social equity and fiscal justice) that the legislator claimed to have in adding the said item no. 28.

6.25. Thus, the existence of a property in vertical or horizontal ownership cannot, by itself, be indicative of tax capacity, following from the law that both should receive the same fiscal treatment in obedience to the principles of justice, fiscal equality and material truth.

6.26. Conversely, the existence in each property of independent residences, under the regime of horizontal or vertical ownership, may be capable of triggering the incidence of the new tax if the Tax Property Value of each of the parts or fractions is equal to or exceeding the limit defined by law, that is, EUR 1,000,000.00.

6.27. Thus, it is illegal (and unconstitutional) to consider that the reference value for the assessment of the tax is the one corresponding to the sum of the Tax Property Values attributed to each part or division, at the outset because we would be faced with a clear violation of the principle of equality and proportionality in fiscal matters, since the fiscal legislator cannot treat equal situations differently, depending on whether we are or are not dealing with a property in horizontal or vertical ownership.

6.28. Now, if the properties under analysis were constituted under the regime of horizontal ownership, it would be clear that none of the residential divisions of which they form part would be subject to the incidence of the new tax, since none of them would individually exceed the limit of EUR 1,000,000.00 defined by law (see points 5.2.3. to 5.2.6., above regarding the Tax Property Value of each of the floors or divisions susceptible to independent use).

6.29. It is for this very reason that article 12, no. 3 of the Property Tax Code provides that "each floor or part of a property susceptible to independent use is considered separately in the property register entry which equally discriminates the respective Tax Property Value" so as not to generate situations violating the principles of social equity and fiscal justice (emphasis added).

6.30. Given that the constitution of horizontal ownership implies merely a legal alteration of the property, not even requiring a new assessment, it is the material truth that must impose itself as the criterion determining tax capacity and not the mere legal-formal reality of the property, and therefore, as a consequence, the discrimination operated by the Respondent translates into arbitrary and illegal discrimination.[22]

6.31. And, having regard to the entire social and economic reality often underlying many properties in vertical ownership, the fiscal legislator himself in the Property Tax Code treated the two situations (horizontal and vertical ownership) in an equitable manner, applying the same criteria.

6.32. Indeed, it must be reiterated that the Respondent cannot distinguish where the legislator himself understood not to do so, under pain of violating the coherence of the fiscal system and the principles of fiscal legality (article 103, no. 2 of the CRP), justice, equality and fiscal proportionality, those included in it.

6.33. Analyzing the situation under consideration, it is found that the Tax Property Value of the floors (autonomous units) with residential use in the various properties described above varies between the lowest value of EUR 13,530.00 (in article no. U-…) and the highest value of EUR 145,270.00 (in article no. U-…), whereby, in each of them individually considered, the said Tax Property Value is always inferior to EUR 1,000,000.00 (as already referred to in point 6.28., above).

6.34. Thus, in light of the above, and answering the question posed above (see point 6.1.1.), it is concluded that the floors with residential use (of the properties identified in the proceedings) cannot be subject to Stamp Duty referred to in item no. 28 of the General Stamp Duty Table, and the acts of assessment subject to the Request for Arbitral Ruling submitted by the Claimant are thus illegal [23].

6.35. Additionally, having also regard to everything stated above, we can conclude that the interpretation made by the Respondent is not in accordance with the Law and the Constitution, as it violates the principle of equality (article 13 of the CRP) and does not contribute to equality among citizens (article 104, no. 3, of the CRP) [24].

On Compensatory Interest

6.36. Finally, as regards the request for payment of compensatory interest submitted by the Claimant, pursuant to article 43 of the General Tax Code, according to which "(…) compensatory interest is due when it is determined (…) that there was error attributable to the services resulting in payment of the tax debt in an amount superior to that legally due (…)", it is important to note that, pursuant to letter b), no. 1, of article 24 of the RJAT (and in accordance with what is established there), "the arbitral decision on the merits of the claim (…)" must "(…) restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out (…)" (emphasis added).[25] [26]

6.37. In fact, in accordance with article 100 of the General Tax Code, applicable to the case by virtue of letter a), no. 1, of article 29 of the RJAT, "the tax administration is obligated, in the event of success (…) of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, under the terms and conditions provided for in law" (emphasis added).[27]

6.38. Thus, in the situation under analysis, following the illegality of the assessment acts already identified above, as well as having regard to the request for payment of compensatory interest made by the Claimant, there must be:

6.38.1. Reimbursement of the amounts already paid at this date by the Claimant, as a means of achieving the restoration of the situation that would exist if the illegality had not been committed;

6.38.2. Payment of compensatory interest at the legal rate, calculated on the amounts paid relating to the Stamp Duty assessments, dated 20 and 21 March 2015 (and relating to the year 2014), which shall be counted in accordance with no. 3 of article 61 of the Code of Tax Procedure and Process (CPPT), with the requirements of the right to such interest being satisfied (that is, verified the existence of error attributable to the services resulting in payment of the tax debt in an amount superior to that legally due, as provided for in no. 1, of article 43 of the General Tax Code).[28]

  1.   DECISION

7.1. In accordance with article 22, no. 4, of the RJAT, "the arbitral decision issued by the arbitral tribunal contains the fixing of the amount and the apportionment among the parties of the costs directly resulting from the arbitral proceedings".

7.2. In this context, the basic rule regarding responsibility for costs of proceedings is that the party that caused them shall be condemned, and it is understood that the losing party gives rise to the costs of the proceedings, in the proportion in which it loses (article 527, no. 1 and 2 of the Civil Procedure Code).

7.3. In the case under analysis, having regard to the above, the principle of proportionality imposes that the entire responsibility for costs be attributed to the Respondent.

7.4. In these terms, having regard to the analysis conducted, this Arbitral Tribunal decided:

7.4.1. To grant the request for arbitral ruling submitted by the Claimant and condemn the Respondent as to the request for declaration of illegality of the Stamp Duty assessments, dated 20 and 21 March 2015 (relating to the year 2014), underlying the collection notices for the 1st installment identified in this case, annulling, in consequence, all the respective tax assessment acts;

7.4.2. To grant the request for condemnation of the Respondent in the reimbursement of the amounts wrongfully paid by the Claimant, increased by compensatory interest at the legal rate, counted in accordance with the legal terms;

7.4.3. To condemn the Respondent in the payment of the costs of the present proceedings.

Value of the Proceedings: Having regard to the provisions of articles 306, no. 2 of the Civil Procedure Code, article 97-A, no. 1 of the Code of Tax Procedure and Process and article 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at EUR 58,538.10.

Costs of the Proceedings: Pursuant to the provision of Table I of the Regulation on Costs of Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceedings is fixed at EUR 2,142.00, to be borne by the Respondent, in accordance with article 22, no. 4 of the RJAT.

Let it be notified.

Lisbon, 16 November 2015

The Arbitrator

Sílvia Oliveira

Frequently Asked Questions

Automatically Created

What is the scope of Stamp Tax (Imposto de Selo) under verba 28.1 of the Tabela Geral do Imposto de Selo (TGIS) for vertical property?
Item 28.1 of the General Stamp Duty Table (TGIS) establishes Stamp Tax on urban property ownership. The key issue in vertical property cases is whether this provision applies when a single owner holds a building containing multiple divisions or floors susceptible to independent use (vertical ownership) as opposed to buildings constituted under the horizontal ownership (condominium) regime where individual units are separately owned. The scope question centers on whether the tax applies to each independent division/unit within a vertically-owned building or only to the building as a whole, and whether properties must be formally constituted as horizontal property for the tax to apply to individual units.
Can property owners challenge Stamp Tax assessments on vertical property through CAAD tax arbitration?
Yes, property owners can challenge Stamp Tax assessments on vertical property through the Administrative Arbitration Centre (CAAD) under the Legal Framework for Tax Arbitration (RJAT - Decree-Law 10/2011 of January 20). CAAD Process 430/2015-T demonstrates this process, where the claimant filed a request for arbitral ruling seeking annulment of Stamp Tax assessments under item 28.1 TGIS. The arbitration process provides an alternative to judicial courts for resolving tax disputes, with arbitrators appointed to constitute tribunals that decide on the legality and constitutionality of tax assessments.
What are the grounds for declaring the illegality or unconstitutionality of Stamp Tax levied under verba 28.1 of TGIS?
Grounds for challenging Stamp Tax under item 28.1 TGIS may include: (1) illegality arguments contending the tax provision does not apply to the specific property situation (e.g., vertical vs horizontal ownership); (2) unconstitutionality arguments alleging the tax violates constitutional principles such as equality, proportionality, or ability to pay; (3) improper application of the law to properties not meeting the factual requirements for taxation; (4) double taxation concerns; and (5) violation of the principle that taxes must have clear legal basis. In vertical property cases, challenges often focus on whether the legislative intent was to tax properties not constituted under horizontal ownership regimes.
How does the CAAD arbitration process work for disputes involving Imposto de Selo on urban real estate properties?
The CAAD arbitration process for Stamp Tax disputes on urban properties follows the RJAT framework: (1) the taxpayer files a request for arbitral ruling and tribunal constitution; (2) CAAD's President accepts the request and notifies the Tax Authority; (3) an arbitrator is appointed (by agreement or by CAAD's Deontological Council); (4) the tribunal is formally constituted; (5) the Tax Authority submits a reply within 30 days; (6) parties may request evidence production; (7) an oral hearing may be held unless waived; (8) written arguments may be submitted unless waived; (9) the arbitrator issues a decision within the statutory timeframe. Parties pay arbitration fees according to CAAD regulations.
What was the outcome of CAAD Process 430/2015-T regarding the 2014 Stamp Tax assessment of €58,538.10 on urban properties?
The provided excerpt of CAAD Process 430/2015-T does not include the final arbitral decision, as the document is incomplete. The case involved Stamp Tax assessments totaling €58,538.10 for 2014 on three urban properties in Lisbon and Oeiras held in vertical ownership. The claimant sought annulment on illegality and unconstitutionality grounds. The Tax Authority defended the assessments. Both parties waived the hearing and arguments, treating the matter as purely legal. The decision was scheduled for November 16, 2015, but the outcome is not provided in the available documentation. To determine the actual decision, one would need to access the complete arbitral ruling.