Process: 431/2015-T

Date: November 9, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 431/2015-T addresses a fundamental dispute regarding Stamp Duty (Imposto de Selo) application under Item 28.1 of the General Stamp Duty Table (TGIS) on properties held in vertical ownership. The claimant, a corporation owning multiple urban properties comprising independently usable residential and commercial divisions, challenged €59,379.30 in Stamp Duty assessments for 2014. The core controversy centers on whether the €1,000,000 taxable patrimonial value (VPT) threshold applies to each individual division or to the total property value. The Tax Authority assessed Stamp Duty based on the aggregate VPT of entire properties, while the claimant argued that properties in vertical ownership (not formally constituted under horizontal ownership regime) should have each independently usable division assessed separately under Article 7(2)(b) of the Municipal Property Tax Code (CIMI). The claimant contended that none of the individual divisions exceeded €1,000,000 when evaluated separately, and therefore no Stamp Duty was due. Supporting their position, the claimant cited prior CAAD arbitral decisions (132/2013-T and 32/2013-T) establishing that the incidence criterion requires individual divisions to exceed the threshold, not the global property value. The claimant further argued that the Tax Authority's interpretation violates constitutional principles of equality (Articles 13 and 104(3) of the Portuguese Constitution) and tax legality, as it creates disparate treatment between properties in horizontal versus vertical ownership with equivalent values. This case represents significant jurisprudence on the proper interpretation of Item 28.1 TGIS concerning non-horizontalized properties and the applicable valuation methodology for determining Stamp Duty liability on luxury residential real estate.

Full Decision

CAAD – Tax Arbitration Center

ARBITRAL CASE No. 431/2015-T

Theme: Stamp Duty. Item 28.1 of the GSTD. Properties in vertical ownership.

ARBITRAL DECISION

  1. REPORT

A, SA, with registered office in ..., no. 30, 1200-086 ... and with Tax Registration Number ... (hereinafter referred to as the Claimant), hereby, pursuant to the combined provisions of articles 95 of the General Tax Law (LGT), 99(a) of the Tax Procedure and Process Code (CPPT), 2(1)(a) and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration ("RJAT"), requests the establishment of an Arbitral Tribunal, in which the Tax and Customs Authority (AT) is the Respondent, with a view to the declaration of illegality and unconstitutionality and consequent annulment of the acts assessing Stamp Duty (Item 28.1 of the GSTD), in the total amount of € 59,379.30 (fifty-nine thousand, three hundred and seventy-nine euros and thirty cents), referring to the year 2014 and the urban properties registered in their respective property matrices under the articles ..., of the parish of ... (area of the Finance Office of ...); ..., of the Union of Parishes of ... (..., ... and ..., of the area of the Finance Office of ... 2); ..., of the Union of Parishes of ... of the ... and ... (area of the Finance Office of ... 1) and ..., of the parish of ... (area of the Finance Office of ... 1), of which it is the owner.

Cumulatively, the Claimant requests that the Respondent be condemned to restitution of the sums unduly paid, as well as to the payment of indemnifying interest and default interest.

The grounds for the requests for annulment of the acts assessing Stamp Duty for the year 2014 formulated by the Claimant are as follows:

a. None of the urban properties identified above are constituted under the regime of horizontal ownership, although all are constituted by flats or divisions capable of independent use, intended for residential and commercial purposes;

b. The AT assessed Stamp Duty of item 28.1 of the GSTD on the TPC of each one of the divisions capable of independent use, intended for residential purposes, although none of the TPC, determined separately, in accordance with the provisions of article 7(2)(b) of the Municipal Property Tax Code (CIMI), is of a value exceeding € 1,000,000.00;

c. The AT understands that the criterion for determining the incidence of Stamp Duty, in accordance with Item 28.1 of the GSTD, is the global TPC of the property, regardless of whether it is composed of divisions intended for residential purposes for independent use;

d. For its part, the Claimant considers that the sum of the TPC of the divisions that make up each one of the properties cannot be taken into account, since subjection to Stamp Duty, in accordance with Item 28.1 of the GSTD, is determined by the combination of two facts: residential use and TPC recorded in the property matrix equal to or exceeding € 1,000,000.00;

e. That, in the case of urban properties not constituted under the regime of horizontal ownership, comprised of various flats or divisions with independent use and residential purpose, subjection to SD is determined not by the total TPC of the property, but by the TPC attributed to each one of its flats or divisions;

f. The position of the AT regarding the question of the value relevant for determining the amount of Stamp Duty does not appear acceptable, nor in accordance with the principle of fiscal legality, for, as is evident from the incidence rule, it is not of concern to the legislator the legal-formal rigour of the concrete situation of the property, but rather its normal use, the purpose to which it is intended;

g. Thus, according to the arbitral decision rendered in arbitral case No. 132/2013-T, there would only be incidence of the new Stamp Duty if any of the parts, flats or divisions with independent use presented a TPC exceeding € 1,000,000.00, given that "The criterion that is required is, thus, that which determines that the incidence of the rule only occurs when any of the parts, flats or divisions with independent use of property in horizontal or full ownership with residential purpose, possesses a TPC exceeding € 1,000,000.00. Setting as the reference value for the incidence of the new tax the global TPC of the property in question, as the now respondent intended, does not find a basis in the applicable legislation, which is the CIMI, given the reference made by the cited article 67(2) of the CIS.";

h. Thus, the AT cannot consider as the reference value for the incidence of the new SD the total value of the property, when the legislator established a different rule under the CIMI, and this is the code applicable to matters not regulated, as regards Item 28 of the GSTD;

i. The criteria used by the AT violate the principles of equality (article 13 and 104(3) of the CRP) and fiscal legality, as is evident from the arbitral decision rendered in case No. 32/2013-T: "From what was previously stated, it is deduced, in summary, that the interpretation made by the AT is not in accordance with the Law and the Constitution, by violation of the principle of equality (art. 13 of the CRP), as well as what is provided in art. 104(3) of the CRP. (…) In view of the above, it is concluded that item no. 28, by opening the possibility of taxing differently the ownership of real property of equal value held by different persons on the basis of criteria that may clash, without the minimum necessary justification, with, in particular, the principle of fiscal capacity (such as the dispersion or concentration of residential real property held by each one), cannot fail to be considered unconstitutional, given the violation of the principle of equality.";

j. The request is legitimate and timely, as is evidenced in the payment documents of the Stamp Duty challenged.

The Claimant concludes by formulating the requests for (i) "declaration of illegality of the acts assessing stamp duty identified, and the consequent annulment, with all legal consequences, because they violate the regulations contained in item no. 28.1 of the GSTD and [a]re manifestly unconstitutional by violation of the principle of equality" and (ii) "reimbursement of the sums paid, referring to the concrete amounts of Stamp Duty hereby challenged, added to default interest and indemnifying interest", assigning to the cause the economic value of € 59,379.30 (fifty-nine thousand, three hundred and seventy-nine euros and thirty cents).

Notified in the terms and for the purposes provided in article 17 of the RJAT, the AT presented a reply, in which it argues that the acts assessing Stamp Duty that are the subject of the present request for arbitral pronouncement should be maintained, as they embody a correct interpretation of Item 28.1 of the GSTD, with the following grounds:

a. "The now Claimant, disagreeing with the interpretation that the AT makes of the cited item 28.1 of the General Table annexed to the CIS considers the assessments illegal and unconstitutional, by violation of the principles of legality, equality and material truth";

b. " (…) specifically as regards real property, the determination of its taxable value now has as its basis the new system of valuations contained in the Municipal Property Tax Code";

c. (…) "it was precisely the wealth arising from real property ownership that Law No. 55-A/2012 came, in an innovative manner, to tax, subjecting to Stamp Duty (SD) property and other real rights over urban properties whose taxable patrimonial value (TPC) would prove to be equal to or exceeding 1,000,000€";

d. "The interpretation of this item 28 of the General Table of Stamp Duty (GSTD) added by Law No. 55-A/2012, of 29/10, in articulation with art. 6(1)(f)(i) of the same Law has raised much controversy regarding the formula for calculating the tax for a property that is not constituted under horizontal ownership and whose areas and physical divisions are exploited autonomously";

e. (…) "The AT has repeatedly held the understanding that if the building is constituted in full ownership with parts or divisions capable of independent use (so-called full ownership), it integrates the legal-tax concept of 'property', that is, a single unit, and the taxable patrimonial value thereof is determined by the sum of the parts with residential purpose, and being this equal to or exceeding €1,000,000.00, there is subjection to the Stamp Duty of item 28 of the General Table annexed to the CIS", that is (…) "for a property not constituted under the regime of horizontal ownership, the criterion for determining the incidence of Stamp Duty is the global patrimonial value of the fractions and other divisions intended for residential purposes";

f. "A conclusion that has been based on the following premises:

In the CIS there is no definition of the concepts of urban property, so the provisions of the CIMI must be applied, to determine any subjection to SD (Cfr. article 67(2) of the CIS as amended by Law No. 55-A/2012);

Article 2(1) of the CIMI defines the concept of property;

Article 2(4) of the CIMI safeguards autonomous fractions of properties constituted under the regime of horizontal ownership, which it considers, exceptionally, as properties;

By contrast, if a property is constituted in full ownership with parts or divisions capable of independent use, it is the property as a whole, and no longer each one of those parts, that integrates the concept of 'property', for purposes of IMI and SD, by reference of article 1(6) of the CIS;

This is not prevented by the fact that each flat/division is recorded separately in the property registration, with their respective taxable patrimonial values, as such discrimination is only relevant, for tax purposes, in light of the concept of property matrices contained in article 12 of the CIMI and in the matter regulated in this Code for the organization of the matrices;

The imposition of organizing the matrices in this way is due to the need to recognize the autonomy that, within the same property, belongs to each one of its parts, which may be functionally and economically independent;

This autonomization is only justified because within the same property there may be use for commerce or residential purposes, with or without lease, which is determinant in the rules of tax appraisal under the CIMI, in light of the different use coefficients provided in article 41 of that code";

g. "To advocate an understanding to the contrary, according to the AT, is to confuse realities that are teleologically distinct, full ownership, on the one hand, and horizontal ownership, on the other, whose distinction finds its foundation from the outset in civil law";

h. "As is well known, 'Horizontal ownership is the ownership that applies to the various fractions comprising a building, fractions that must be in conditions to constitute independent units (art. 1414 of the Civil Code).";

i. (…) "It thus becomes clear that we are dealing with facts and legal realities that are distinct and merit, according to the AT, a differentiated tax treatment as only such approach is favored by the principle of closed typicality"

j. "Indeed, one cannot fail to bear in mind that we are dealing with an incidence rule, so one cannot, through the interpretative route, lead to a result that is not provided for in law";

k. "It is, moreover, what flows from the principle of legality and the principles of typicality and determination in which it is divided, which confirms that incidence rules must be pre-determined in their content, with the elements making up the same being formulated in a precise and determined manner";

l. (…) "In harmony, it is concluded that the now claimant, for purposes of IMI and also of stamp duty, by force of the wording of the said item, is not the owner of autonomous fractions, but rather of a single property, with the AT considering that this is the understanding that best accords with the principle of legality inherent in article 8 of the LGT, to which all of its activity is devoted".

m. "In keeping with this, no error is recognized in the factual or legal assumptions in which the tax assessment acts of the tax in question may have incurred and, consequently, the right of the taxpayer to payment of the indemnifying interest provided in article 43 of the LGT in case of error attributable to the services is not recognized";

n. "All considered, we must, necessarily, conclude that the tax acts in question, in terms of substance, did not violate, thus, any legal or constitutional provision, and should, thus, be maintained".

The AT concludes by requesting that the meeting referred to in article 18 of the RJAT be dispensed with, given that the matter under analysis is "a matter exclusively of law, if it is widely set out in the (…) documents [procedural], without there being any need, for the decision of the dispute, for further procedures".

The request for establishment of the Arbitral Tribunal was filed with the CAAD on 13 July 2015, having been accepted by His Excellency the President of the CAAD and notified to the AT on 16 July 2015.

Not having the Claimant exercised the power to appoint an arbitrator, under the provisions of article 6(1) of the RJAT, the undersigned was appointed arbitrator by His Excellency the President of the Deontological Council of the CAAD, a responsibility which she accepted within the legally prescribed period, without opposition from the Parties.

The Singular Arbitral Tribunal was regularly constituted on 14 September 2015 and is materially competent to appraise and decide the dispute that is the subject of the present proceedings.

The Parties have judicial personality and capacity, are legitimate and are duly represented (articles 4 and 10(2) of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are not affected by nullities and no exceptions have been invoked, nothing preventing the appraisal of the dispute.

The Parties waived the holding of the meeting referred to in article 18 of the RJAT, as well as the production of arguments, whether oral or written.

  1. MATTER OF FACT

2.1. Facts considered proven:

2.1.1. Both at the time of the occurrence of the tax event and at the time of the request for establishment of the arbitral tribunal, the Claimant was the owner of the urban properties identified in the initial petition: PROPERTY A: registered in the property matrix of the parish of ..., municipality of ..., under article ..., located at ..., nos. …, ..., comprised of 13 flats or divisions of independent use, one being allocated to covered and enclosed parking and the remaining twelve, intended for residential purposes; PROPERTY B: registered in the property matrix of the Union of Parishes of ... (..., ... and ...), municipality of ..., under article ..., located at ..., nos. 33 and 35 corner to the ... 11, nos. 43, 44, 45, 46, 47, 48 and 49 and to the ..., nos. 1 to 15, in ..., comprised of 36 flats or divisions of independent use, 28 intended for residential purposes and the remaining 8, for commerce and services; PROPERTY C: registered in the property matrix of the Union of Parishes of ... of the ...s and ..., municipality of ..., under article ..., located at ..., no. 2, in ... of the ...s, comprised of 44 flats or divisions of independent use, 40 of which intended for residential purposes and the remaining 4, for commerce and, PROPERTY D: registered in the property matrix of the parish of ..., municipality of ..., under article ..., comprised of 24 flats or divisions of independent use, one intended for commerce and the remaining 23, for residential purposes;

2.1.2. In the name of the Claimant, on 20 March 2015, for voluntary payment in three annual installments, by 30 April 2015, 31 July 2015 and 30 November 2015, respectively, the assessments of SD for the year 2014, relating to PROPERTY A, were issued, on the basis of the TPC of each one of the divisions capable of independent use and the rate of 1%:

[Table with Document Identification, Property Identification, TPC, and Assessment columns follows - content preserved as in original]

2.1.3. In each one of the collection notes identified in the table above, there is a mention of "Patrimonial Value of the property – total subject to tax: € 1,277,550.00" which, according to the property record with copy attached to the request for arbitral pronouncement, is equivalent to the sum of the TPC of the divisions of independent use, allocated to residential purposes;

2.1.4. In the name of the Claimant, on 21 March 2015, for voluntary payment in three annual installments, in the months of April, July and November 2015, respectively, the assessments of SD for the year 2014, relating to the divisions from 2nd A to 10th C and in two annual installments, in the months of April and November 2015, those relating to divisions from 11th A to 11th C, all of PROPERTY B, were issued, on the basis of the TPC of each one of the divisions capable of independent use and the rate of 1%:

[Table with Document Identification, Property Identification, TPC, and Assessment columns follows - content preserved as in original]

2.1.5. In each one of the collection notes identified in the table above, there is a mention of "Patrimonial Value of the property – total subject to tax: € 1,775,190.00" which, according to the property record with copy attached to the request for arbitral pronouncement, is equivalent to the sum of the TPC of the divisions of independent use, allocated to residential purposes;

2.1.6. On 21 March 2015, assessments were issued in the name of the Claimant, for voluntary payment in two annual installments, in the months of April and November 2015, relating to the various divisions of independent use and residential purpose of PROPERTY C, the first installments of which are listed in the collection notes identified in the table below, on the basis of the TPC of each one of those divisions and the rate of 1%:

[Table with Document Identification, Property Identification, TPC, and Assessment columns follows - content preserved as in original]

2.1.7. In each one of the collection notes identified in the table above, there is a mention of "Patrimonial Value of the property – total subject to tax: € 1,772,400.00" which, according to the property record with copy attached to the request for arbitral pronouncement, is equivalent to the sum of the TPC of the divisions of independent use, allocated to residential purposes;

2.1.8. On 20 March 2015, in the name of the Claimant, for voluntary payment in three annual installments, in the months of April, July and November 2015, respectively, the assessment of SD for the year 2014, relating to the division of independent use and residential purpose designated as 1st A and in two annual installments, in the months of April and November 2015, the assessments relating to the remaining divisions of independent use and residential purpose of PROPERTY D, were issued, the first installments of which are listed in the collection notes identified in the table below, on the basis of the TPC of each one of those divisions and the rate of 1%:

[Table with Document Identification, Property Identification, TPC, and Assessment columns follows - content preserved as in original]

2.1.9. In each one of the collection notes identified in the table above, there is a mention of "Patrimonial Value of the property – total subject to tax: € 1,112,790.00" which, according to the property record with copy attached to the request for arbitral pronouncement, is equivalent to the sum of the TPC of the divisions of independent use, allocated to residential purposes;

2.1.10. The first installments of each one of the assessments of Stamp Duty for the year 2014, relating to the various flats or divisions capable of independent use and residential purpose of the properties identified in the request for establishment of the arbitral tribunal, were paid by the Claimant on 29 April 2015, in the global amount of € 24,679.56 (those relating to PROPERTY A, in the sum of € 4,258.58; to PROPERTY B, in the sum of € 6,099.60; to PROPERTY C, in the sum of € 8,862.00 and to PROPERTY D, in the sum of € 5,459.38).

2.2. Justification of the proven matter of fact:

The Tribunal's conviction regarding the matter of fact given as proven resulted from critical analysis of the documentary evidence attached to the request for arbitral pronouncement (copies of the property records of the immovable properties identified above, as well as of the payment documents relating to the first installments of each one of the assessments of Stamp Duty for the year 2014, issued in the name of the Claimant) and not contested by the Respondent.

2.3. Facts not proven

There are no facts relevant to the decision of the case that should be considered as not proven.

  1. MATTER OF LAW – JUSTIFICATION

3.1. Order of appraisal of the defects

The principal question brought before this Tribunal by the Claimant is whether subjection to Stamp Duty, in accordance with item no. 28 of the GSTD, of an urban property not constituted in horizontal ownership, is determined by the Taxable Patrimonial Value (TPC) that corresponds to each one of the parts of the property, economically independent and with residential purpose, as it argues, or whether it is determined by the global TPC of the property, which would correspond to the sum of all the TPC of the flats or divisions of independent use and residential purpose that compose it, as the AT interprets the rule.

According to the provisions of article 124(1) of the CPPT, applicable on a subsidiary basis to the tax arbitral process, under article 29(1)(a) of the RJAT, in the absence of defects that lead to the declaration of inexistence or nullity of the act(s) challenged, the tribunal should appraise the defects argued that determine its voidability, with article 124(2)(b) of the same providing that, as regards the latter, the order of their appraisal will be that indicated by the challenging party, provided that a relationship of subsidiarity is established between them, without prejudice to the priority appraisal of the defects whose acceptance would assure the most stable or effective protection of the offended interests.

Given that, from the acceptance of the defect of violation of law, by error in the application of law resulting from the erroneous interpretation of the rule provided in item no. 28.1 of the GSTD and in article 7(2) of the Municipal Property Tax Code, applicable ex vi of article 67(2) of the Stamp Duty Code, an effective protection of the offended interests will result, we shall proceed to its appraisal.

3.2. Of the concept of residential urban property

Item 28 of the GSTD, as amended by Law No. 83-C/2013, of 31 December (State Budget for 2014), provides that the following are subject to stamp duty:

"28 — Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000 — on the taxable patrimonial value used for purposes of IMI:

28.1 — For residential property or for land for construction the building of which, authorized or planned, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code – 1%;

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

The cumulative requirements for application of the rule contained in Item 28.1 of the GSTD, in its current wording, are that the immovable property to be taxed is a residential urban property or land for construction the building of which, authorized or planned, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code, whose taxable patrimonial value for purposes of IMI is equal to or exceeding € 1,000,000.00.

It has long been generally accepted by legal doctrine that tax rules are interpreted like any other legal rules, a solution which is now expressly contained in article 11(1) of the General Tax Law (LGT), by establishing that "1 - In the determination of the meaning of tax rules and in the qualification of the facts to which they apply are observed the general rules and principles of interpretation and application of laws".

Among the elements of interpretation, that from which the applicator of the rule must start is precisely the grammatical element, that is, the text of the law, although it must be noted that, in determining the meaning and value of the rule, the interpreter cannot fail to consider the logical element or, in accordance with article 9(1) of the Civil Code, fail to "reconstitute (…) the legislative thought, paying particular attention to the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

The incidence rule contained in item 28.1 of the GSTD uses the expression "residential property", the concept of which is not defined in the Code in which it is inserted; in order to determine its exact meaning and scope, in respect for the unity of the system, the interpreter should resort to the so-called "parallel places", that is, there must be taken into consideration the "legal provisions that regulate parallel normative problems or related institutes".

Such "parallel places" will be found, necessarily, in the case at hand, in the rules of the Municipal Property Tax Code, to which article 67(2) of the Stamp Duty Code, added by the same Law No. 55-A/2012, of 29 October, refers in bloc, by establishing that "2 - To matters not regulated in the present Code relating to item no. 28 of the General Table, the provisions of the CIMI shall apply, on a subsidiary basis."

Article 6 of the CIMI, inserted in Chapter I, under the heading "Incidence", enumerates, in item 1, the types of urban properties, which may be classified as: a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Other, with items 2, 3 and 4 of the same article delimiting what should be understood by each of those designations.

Residential properties are, in accordance with article 6(2) of the CIMI, buildings or constructions licensed for residential purposes or that, in the absence of a license, have as their normal destination residential purposes (residential purposes).

However, the urban properties of which the Claimant is owner and of which the present proceedings deal, comprising flats or divisions capable of independent use, some intended for commerce and/or services and others intended for residential purposes, cannot, globally, be considered as residential urban properties, inasmuch as they have a use classification that falls within more than one of the classifications established in article 6(1) of the CIMI.

Nor does it appear that the flats or divisions allocated to residential purposes that compose it can be segregated from the whole, in order, as a whole, to integrate the notion of residential property provided in the incidence rule of item 28.1 of the GSTD.

3.3. Of the distinction between flats or divisions capable of independent use and autonomous fractions, for tax purposes

Although article 12(3) of the CIMI provides that "Each flat or part of property capable of independent use is considered separately in the property registration, which also discriminates its respective taxable patrimonial value", which is also discriminated in the collection document (cfr. article 119(1) of the CIMI Code), the AT argues that the TPC relevant for purposes of the incidence rule of item 28.1 of the GSTD is the global patrimonial value of the property and not the value of each one of the divisions of independent use.

And it does so by arguing that, were the TPC relevant for application of that incidence rule to be that of each division of independent use, one would be applying, by analogy, to properties in vertical ownership the regime of horizontal ownership, in which, in accordance with article 2(4) of the CIMI Code, each autonomous fraction is deemed to constitute a property.

It should be noted that, indeed, from a formal perspective, the AT is correct in stating that a property constituted in horizontal ownership is a legal-tax reality distinct from an urban property in "full ownership" or "vertical ownership".

However, if article 2(4) of the CIMI Code establishes the legal fiction that each one of the autonomous fractions of a property constituted in horizontal ownership constitutes a property, the fact is that a part of independent use of an urban property not constituted in horizontal ownership continues to be merely that – a part of a property and not a property.

On the other hand, using the language of item 28.1 of the GSTD, the expression "residential property", it does not appear legitimate for the AT to claim to include therein the flats or divisions of independent use of urban properties not constituted in horizontal ownership which, as the AT itself recognizes, are not properties, and therefore cannot be equated with the autonomous fractions of properties constituted under the horizontal ownership regime.

3.4. Of the taxable patrimonial value of urban properties in full ownership

With respect to the determination of the taxable patrimonial value of properties not constituted in horizontal ownership, article 7(2) of the CIMI Code applies, but only as regards "urban properties with parts classifiable within more than one of the classifications in item 1 of the preceding article", in which case, according to its item b) "(…) each part is valued by application of the corresponding rules, the value of the property being the sum of the values of its parts".

And this is the only rule in the CIMI Code in which reference is made to the "value [global] of the property", although this has no relevance at the level of tax assessment.

From the combination of article 7(2) and article 6(1), both of the CIMI Code, it follows that, if an urban property not constituted in horizontal ownership comprises exclusively parts or residential divisions, the value of the property does not equal the sum of its parts.

3.5. Of the TPC relevant for purposes of item 28.1 of the GSTD

As was stated in the preceding point, the TPC of an urban property not constituted in horizontal ownership, which comprises exclusively parts or residential divisions, does not equal the sum of the TPC assigned individually to each one of those parts or divisions.

Which is to say that each one of those parts is autonomous and that, not having been assigned a TPC equal to or exceeding € 1,000,000.00, it will be excluded from the incidence of Stamp Duty – item 28.1 of the GSTD.

Having arrived here, it falls to be questioned whether subjection to Stamp Duty of a part or division of independent use, with residential purpose, of a property not constituted in horizontal ownership, in which are integrated parts or divisions of independent use, classifiable within more than one of the classifications in article 6(1) of the CIMI Code, for example, divisions intended for commerce or for services, as is the case at hand.

Now, the answer must be negative, notwithstanding the provision of article 7(2)(b) of the CIMI, according to which the value of the property is the sum of the values of its parts or divisions of independent use, classifiable within more than one of the classifications in article 6(1) of the same Code.

This is because, here, we are not comparing, as the AT contends, two legally distinct realities, such as the parts or divisions of independent use of an urban property not constituted in horizontal ownership, on the one hand, and the autonomous fractions of properties submitted to that regime, which, for purposes of IMI, are themselves properties, on the other.

What is compared here are realities in every way identical, that is, parts or divisions of independent use and residential destination, integrated in urban properties not constituted in horizontal ownership.

And the answer to the question must be negative, for nothing would justify that the legislator intended to tax parts or divisions of independent use, intended for residential purposes, of an urban property not constituted in horizontal ownership, comprised of other parts or divisions of independent use intended for other purposes and not tax parts or divisions of independent use allocated to residential purposes of another urban property in full ownership, comprised exclusively of parts or divisions of independent use, intended for residential purposes. Had the legislator intended to treat unequally realities in every way identical, one would have to conclude that there is a flagrant violation of the principle of equality.

Not appearing to be such the legislative intent, one cannot accept that the AT formulates an incidence rule ex novo, different from that created by the legislator, intending to tax parts of properties, although economically and functionally independent and, as such, separately registered in the matrix, as the law is clear in subjecting to stamp duty of item 28.1 of the GSTD, the residential urban properties, "whose taxable patrimonial value recorded in the matrix, in accordance with the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000".

For the reasons stated above, having verified the defect of violation of law, by error in the application of law, resulting from the erroneous interpretation of the rules provided in item no. 28.1 of the GSTD and in article 7(2) of the CIMI Code, applicable ex vi of article 67(2) of the Stamp Duty Code, the challenged assessments cannot remain in the legal order.

3.6. Of the request for indemnifying interest and default interest

With respect to the request for payment of indemnifying interest, it is clear that the tax arbitral process was conceived as an alternative means to the process of judicial challenge (cfr. the legislative authorization granted to the Government by article 124(2) (first part) of Law No. 3-B/2010, of 28 April – State Budget Law for 2010).

Thus, although article 2(1)(a) of the RJAT uses the expression "declaration of illegality" as delimiting the jurisdiction of arbitral tribunals functioning within the CAAD, it should be understood that this jurisdiction comprises the powers that in the judicial challenge process are attributed to tax tribunals, such as that of appraising error attributable to the services.

On the other hand, item b) of article 24(1) of the RJAT determines that the arbitral decision on the merits of the claim to which no appeal or challenge may apply binds the tax administration from the end of the period provided for appeal or challenge, with this administration, in the precise terms of the acceptance of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of sentences of tax judicial tribunals, being required to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose", which included "the payment of interest, regardless of its nature, in the terms provided in the General Tax Law and in the Tax Procedure and Process Code.".

Similarly, article 100 of the LGT, applicable to the tax arbitral process by virtue of the provisions of article 29(1)(a) of the RJAT, establishes that "The tax administration is obliged, in case of total or partial acceptance of complaints or administrative appeals, or of judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would exist if the illegality had not been committed, comprising the payment of indemnifying interest, in the terms and conditions provided in law.".

Article 43(1) of the LGT provides that "Indemnifying interest is due when it is determined, in a complaint or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due.".

Error attributable to the services may consist of error as to the factual assumptions, which occurs whenever there is "a divergence between reality and the factual matter used as a presupposition in the practice of the act" or error as to the legal assumptions, when "in the practice of the act there has been erroneous interpretation or application of the legal norms, such as the norms of objective and subjective incidence (…)" and "is demonstrated when they proceed with a complaint or judicial challenge of the same assessment and the error is not attributable to the taxpayer".

In the case at hand, it appears manifest that, with the declaration of the illegality of the acts assessing Stamp Duty, having been demonstrated the erroneous application of the norm of objective incidence contained in item 28.1 of the GSTD, which justifies its annulment, the right of the Claimant to indemnifying interest on the sums unduly paid must be recognized, from the date of their respective payment, as is established in article 61(5) of the CPPT, since such illegality is exclusively attributable to the Tax Administration, which practiced those tax acts without the necessary legal support.

As for default interest, its payment is only provided for in the execution of judgment, in the case in which this implies the restitution of tax already paid, a situation in which default interest is due from the end of the period of its voluntary execution (cfr. article 102(2) of the LGT).

3.7. Questions of impaired appraisal

In the judgment, the judge must pronounce on all questions that he should appraise, abstaining from pronouncing on questions of which he should not have knowledge (final segment of article 125(1) of the CPPT), with the questions on which the tribunal's powers of appraisal fall, being, in accordance with article 608(2) of the CPC, applicable on a subsidiary basis to the tax arbitral process, by reference of article 29(1)(e) of the RJAT, "the questions which the parties have submitted to its appraisal, except those whose decision is prejudiced by the solution given to others (…)".

In light of the solution given to the questions relating to the determination of the TPC relevant for application of the incidence rule contained in item 28.1 of the GSTD, to the payment of indemnifying interest in favor of the Claimant and to the restitution increased by the enforcement of tax, the appraisal of the remaining questions is impaired, in particular those of the unconstitutionality of the said rule, as it is not capable of the interpretation which, in this case, was made by the AT.

  1. DECISION

On the basis of the factual and legal grounds stated above and, in accordance with article 2 of the RJAT, it is decided, ruling entirely in favor of the present request for arbitral pronouncement:

4.1. To declare the illegality of the assessments of Stamp Duty challenged, by error as to the legal assumptions, determining their annulment;

4.2. To condemn the AT to the restitution of the sums unduly paid by the Claimant as Stamp Duty for the year 2014, increased by indemnifying interest, from the date of the undue payment until the date of issue of the respective credit note.

VALUE OF THE PROCEEDINGS: In accordance with the provisions of article 306(1) and (2) of the CPC, 97-A(1)(a) of the CPPT and 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings are assigned the value of € 59,379.30 (fifty-nine thousand, three hundred and seventy-nine euros and thirty cents).

COSTS: Calculated in accordance with article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 2,142.00 (two thousand, one hundred and forty-two euros), to the charge of the Tax and Customs Authority.

Lisbon, 9 November 2015.

The Arbitrator,

/Mariana Vargas/

Text drawn up by computer, in accordance with article 131(5) of the CPC, applicable by reference of article 29(1)(e) of Decree-Law 10/2011, of 20 January.

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

[1] MACHADO, J. Baptista, "Introduction to Law and Legitimating Discourse", Almedina, Coimbra, 1995, p. 183.

[2] SOUSA, Jorge Lopes de, "Code of Tax Procedure and Process – annotated and commented", II Volume, Áreas Editora, 6th Edition, 2011, p. 115.

[3] Idem, ibidem.

[4] CAMPOS, Diogo Leite de, RODRIGUES, Benjamim Silva, SOUSA, Jorge Lopes de, "General Tax Law – Annotated and Commented", Encontro da Escrita, 4th Edition, p. 342.

Frequently Asked Questions

Automatically Created

How does Verba 28.1 of the TGIS apply to properties held in vertical ownership for Stamp Tax purposes?
Verba 28.1 of the TGIS applies to urban properties with residential purpose where the taxable patrimonial value (VPT) equals or exceeds €1,000,000. For vertical ownership properties, the central interpretative issue is whether the tax applies to the total property value or to individual independently usable divisions. The claimant's position, supported by prior arbitral precedents, argues that the legislator's focus is on actual use and purpose rather than formal legal structure, meaning each independently usable residential division should be assessed separately under CIMI Article 7(2)(b), with Stamp Duty only applying to divisions individually exceeding the €1,000,000 threshold.
Is the VPT threshold of €1,000,000 assessed per individual unit or on the total property value in vertical ownership buildings?
The dispute in this case specifically concerns whether the €1,000,000 VPT threshold is assessed per individual unit or on total property value. The Tax Authority assessed Stamp Duty based on the aggregate VPT of entire properties in vertical ownership. However, the claimant argued that Article 7(2)(b) of CIMI requires separate determination of VPT for each division capable of independent use, and therefore the threshold should apply individually to each residential unit. The claimant cited arbitral decision 132/2013-T, which established that incidence occurs only when individual parts, flats, or divisions with independent use possess a VPT exceeding €1,000,000, rejecting the global property value approach as lacking basis in applicable legislation.
What is the difference between vertical and horizontal ownership for Stamp Tax liability under Verba 28.1 TGIS?
Horizontal ownership (propriedade horizontal) refers to properties formally constituted under the legal regime where buildings are divided into autonomous fractions with individual matrix registrations. Vertical ownership (propriedade vertical) describes properties not formally constituted under this regime but containing multiple divisions capable of independent use. For Stamp Tax purposes under Verba 28.1, the claimant argues this formal distinction should not create differential tax treatment. The key principle is that both types should have independently usable residential divisions assessed separately for the €1,000,000 threshold, based on actual use rather than legal formalization. The Tax Authority's interpretation creates unequal treatment, potentially violating constitutional equality principles by taxing identical economic situations differently based solely on formal property structure.
Can a taxpayer challenge Stamp Tax assessments on vertical ownership properties through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on vertical ownership properties through CAAD (Centro de Arbitragem Administrativa) arbitration. This case was filed under Articles 95 of the General Tax Law (LGT), 99(a) of the Tax Procedure and Process Code (CPPT), and Articles 2(1)(a) and 10 of Decree-Law 10/2011 establishing the Legal Framework for Tax Arbitration (RJAT). The claimant sought declaration of illegality and unconstitutionality of the assessments, annulment of the administrative acts, restitution of sums paid, and indemnifying and default interest. CAAD has jurisdiction over disputes concerning Stamp Duty assessments and can rule on both legality and constitutionality issues, including alleged violations of equality and tax legality principles.
Are independently usable divisions in a vertical ownership building subject to separate VPT evaluation under Article 7(2)(b) of CIMI?
Yes, according to the claimant's interpretation supported by Article 7(2)(b) of CIMI, independently usable divisions in vertical ownership buildings are subject to separate VPT evaluation. Article 7(2)(b) CIMI provides that when urban properties comprise parts, flats, or divisions susceptible to independent use, the VPT is determined separately for each such division. The claimant argues this provision applies regardless of whether horizontal ownership is formally constituted, meaning the practical capability for independent use triggers separate valuation. This interpretation is crucial because it means the €1,000,000 Stamp Duty threshold under Item 28.1 TGIS should apply to each division's individual VPT rather than the aggregate property value. The claimant's position is that CIMI rules govern valuation matters for Stamp Duty purposes, as Item 28 references the taxable patrimonial value system established by CIMI.