Process: 460/2017-T

Date: March 6, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 460/2017-T) addresses the application of Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS) to urban properties held in vertical ownership. Company A challenged a €12,174.04 Stamp Tax assessment for 2015 on independently usable units within a Lisbon property registered under vertical ownership. The central dispute concerns whether the €1,000,000 threshold in Verba 28.1 TGIS should apply to each independently usable unit's Taxable Patrimonial Value (TPV) individually, or to the aggregate sum of all units' TPVs. The Claimant argued that the Tax Authority erroneously summed the TPVs of all residential units and applied Stamp Tax when the total exceeded €1,000,000, despite no individual unit reaching this threshold. The company contended this violates ordinary tax law, specifically the Stamp Tax Code provisions that reference Municipal Property Tax (MPT) valuation rules, where each independently usable unit has its own distinct TPV under Articles 12(3) and 119(1) of the MPTC. Additionally, constitutional challenges were raised, alleging violations of tax legality, fiscal equality, and contributory capacity principles. The Claimant emphasized that vertical ownership properties, despite having multiple independently usable units, should not be treated differently from horizontal ownership condominiums for Stamp Tax purposes, as the formal distinction does not reflect different contributory capacity. The case was submitted to CAAD arbitration following rejection of a gracious complaint, with the Claimant also seeking compensatory interest.

Full Decision

ARBITRAL DECISION

REPORT

On 1 August 2017, Company A…, S.A., NIPC…, hereinafter referred to as the Claimant, with registered office in Portugal, requested the constitution of an Arbitral Tribunal and proceeded with a request for arbitral decision, pursuant to paragraph a) of section 1 of Article 2 and paragraph a) of section 1 of Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority (hereinafter referred to as TA) is the Respondent.

The Claimant is represented, in the scope of these proceedings, by its representatives, Dr. B…, Dr. C… and Dr. D…, and the Respondent is represented by jurists, Dr. E… and Dr. F….

By means of the request for constitution of the Arbitral Tribunal and request for arbitral decision, the Claimant seeks that the decision of the Head of the Tax Service of Lisbon…, dated 7 June 2017, be revoked, rejecting the gracious claim filed against the act of assessment of Stamp Tax, relating to the year 2015, in the total amount of € 12,174.04 (twelve thousand, one hundred and seventy-four euros and four cents), affecting the units susceptible to independent use regarding the 1st E, 2nd D, 3rd D, 3rd E, 4th D, 4th E, 5th D, 5th E and S3rd E of the urban property located at Street …, nos. … to … and Street of …, no. … and …, registered in the urban property matrix under article … of the parish of …, municipality of Lisbon, as well as the annulment of such tax act, and the payment of compensatory interest due.

Verifying the formal regularity of the request submitted, pursuant to paragraph a) of section 2 of Article 6 of the LRAT, the undersigned was designated as Arbitrator by the President of the Deontological Council of CAAD.

The Arbitrator accepted the designation made, and the Arbitral Tribunal was constituted on 9 November 2017, at the headquarters of CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, as per the communication of the constitution of the Arbitral Tribunal notified to the parties and which is attached to these proceedings.

After being notified for this purpose, the Respondent presented, on 7 December 2017, its response, in which it presented its defense by objection, requesting the waiver of the meeting provided for in Article 18 of the LRAT, without, however, dispensing with the production of written allegations.

Now, given the absence of need for production of additional evidence, beyond that which is already documentarily incorporated in the proceedings, the process having all the necessary elements for pronouncing the decision, for reasons of economy and procedural speed, of the prohibition of performance of useless acts, the Tribunal, through decision of 5 January 2018, deemed it appropriate, provided the parties did not expressly object, on the one hand, to waive the realization of the meeting provided for in Article 18 of the LRAT and the production of written allegations, on the other, to designate 9 March 2018 as the date for pronouncing the arbitral decision, and, finally, warned the Claimant that it should proceed with payment of the subsequent arbitral fee, pursuant to section 3 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, and communicate such payment to CAAD.

II. The Claimant sustains its request, in summary, as follows:

The Claimant sustains the request for declaration of illegality of the act of assessment of Stamp Tax, relating to the year 2015, affecting the floors or parts susceptible to independent use, allocated to housing, of the property registered in the respective matrix under article …, located at Street…, nos. … to … and Street of…, nos. … and …, parish of …, municipality of Lisbon, which is in vertical ownership, by suffering from the following defects:

Defect of violation of ordinary law – error in the assumptions for application of item 28.1 of TGIS - the Claimant arguing that, from the combination of section 2 of Article 7, section 1 of Article 9 and section 2 of Article 67, all of the Stamp Tax Code (STC), section 3 of Article 12 and section 1 of Article 119 of the Municipal Property Tax Code (MPTC), it results that "the Property does not present its own TaxablePatrimonialValue (TPV), being able only this to be calculated – without any legal-tax relevance – through the sum of the TPVs calculated specifically for each one of the divisions susceptible to independent use.", whereby "[i]n sum for the purposes of MPT, each division susceptible to independent use has an autonomous, identifiable TPV."

Further states the Claimant that "(…) if the relevant rules of the Stamp Tax Code mandate attention to the TPV used for purposes of MPT and the Code of the MPT determines that each division susceptible to independent use possesses its own TPV and that the assessment of this tax is done individually on each of said divisions susceptible to independent use (…) the same criterion will have to be used for the assessment of the Stamp Tax provided in item 28.1 of TGIS."

Indeed, "(…) the act of assessment in question is based on the (incorrect) understanding, demonstrated by the Tax Administration, that the TPV relevant for purposes of imposing the tax will be equal to the sum of the TPVs of the divisions susceptible to independent use allocated to housing, when the result of that operation is equal to or greater than € 1,000,000.00. But, as demonstrated, such understanding enjoys no legal support, because it embodies the application of a method of calculating the TPV of the property contradictory to that which is established in Articles 12, section 3 and 119, section 1 both of the MPTC, subsidiarily applicable.", whereby, according to the Claimant, "[t]here is no doubt that the Stamp Tax provided in item 28.1 of TGIS is assessed on the TPV of each one of the divisions susceptible to independent use that make up the Property, it is important to ascertain whether any of these divisions has a TPV greater than € 1,000,000. Now, from the evidence made above it follows that this does not occur, whereby, unequivocally, one should conclude the illegality of the acts of assessment now contested, by error in the assumptions and violation of Article 1, section 1 of the STC Code, and of item 28.1 of TGIS, and they should be annulled accordingly(…)."

Defect of violation of constitutional law, by violation of the principles of tax legality, fiscal equality, and contributory capacity, enunciated in the Constitution of the Portuguese Republic, inasmuch as the Claimant understands that, with the introduction of item 28.1 of TGIS, "(…) the legislator intends that the incidence of this tax manifests itself in taxpayers who hold urban properties (houses) whose configuration and physical characteristics suggest their use, in their entirety, by the holder of the right, for housing purposes. Now, this will not occur in the situation at issue, because the configuration of property composed of fractions with independent use does not indicate a unitary housing use of it, but rather housing use division by division."

Further stating the Claimant, that "(…) the difference in treatment between properties in full ownership and properties in horizontal ownership collides with the Constitution of the Portuguese Republic, namely with the principle of contributory capacity, in its aspect of fiscal equality (cf. Article 13 of said diploma). (…) not being defensible to consider that horizontal ownership reveals greater contributory capacity in relation to full ownership (or vice versa), one should conclude that the difference existing between the two legal realities is merely formal and does not affect the contributory capacity of their respective owners. (…) In this measure, the interpretation of item 28.1 of TGIS in the sense that it includes urban residential properties constituted in full ownership, with divisions susceptible to independent use considered separately in their respective registration, should be considered unconstitutional, by violation of the constitutional principle of contributory capacity, in its aspect of fiscal equality (…)."

Concluding, to the effect that "[i]n light of everything stated above, it is manifest that the act of assessment of Stamp Tax now contested suffers from error in the factual and legal assumptions, and should be annulled accordingly, because practiced in violation of the applicable legal norms and principles.", understanding, complementarily, the Claimant, that there is error attributable to the services regarding the act of assessment here reviewed, whereby the Claimant should be refunded the value it paid, plus the compensatory interest to which it is entitled, pursuant to section 1 of Article 43 of the General Tax Law.

III. In its Response the Respondent, invoked, in summary, the following:

For its part, the TA comes to allege, in its response:

Regarding the alleged error in the assumptions of the assessments, it states that: "(…) it is well known that the TA has reiterated the understanding that if the building is constituted in full ownership with parts susceptible to independent use (so-called full ownership), it integrates the legal-tax concept of "property", that is, a single unit. Thus, the taxable patrimonial value thereof is determined by the sum of the parts with housing allocation and, if that reveals itself equal to or greater than € 1,000,000.00, then there is subjection to Stamp Tax of item 28 of the General Table attached to the STC."

Indeed, it considers the Respondent that "(…) the criterion for determining the incidence of stamp tax for a property not constituted in a horizontal ownership regime, is the global patrimonial value of the fractions and other divisions intended for housing.", inasmuch as, on the one hand, "[i]n the STC there is no definition of the concepts of urban property, whereby one must apply the provisions of the MPTC, to ascertain eventual subjection to ST (cf. Article 67, section 2 of the STC in the wording given by Law no. 55-A/2012)", on the other, "the concept of property is defined in Article 2, section 1 of the MPTC; its section 4 exempts autonomous fractions of properties constituted in a horizontal ownership regime, which it considers, exceptionally, as properties; by contrast, when a property is constituted in full ownership with parts or divisions susceptible to independent use, it is the property in its entirety, and not each one of those parts, that integrates the concept of "property", for purposes of MPT and ST, by reference to Article 1, section 6 of the STC; this is not prevented by the fact that each floor/division appears separately in the registry entry, and with their respective taxable patrimonial values, for such discrimination only has relevance, for tax purposes, in view of the concept of property matrices contained in Article 12 of the MPTC and in the matters regulated in this Code for the organization of the matrices;", on the other hand, further, "the imposition to organize the matrices in this way is due to the need to reveal the autonomy that, within the same property, belongs to each of its parts, which may be economically independent; this autonomy is only justified because in the same property there may be use for commerce or housing, with or without lease, which is determinative in the rules of tax evaluation under the MPTC, given the different allocation coefficients provided for in Article 41 of that Code.".

Thus continuing, the Respondent to the effect that "[t]o advocate otherwise is, in accordance, to confuse teleologically distinct realities, full ownership, on the one hand, and horizontal ownership, on the other. Such a distinction finds, right away, its foundation in civil law." Indeed, it considers the Respondent that horizontal ownership is "(…) a regime of ownership not over a building in its entirety, as occurs in vertical ownership, but rather over an autonomous fraction, although one may be a co-owner of common parts (…) It happens that this co-ownership is forced, that is, it cannot leave the state of undivided ownership as long as horizontal ownership lasts."

Thus, the regime of horizontal and vertical (full) ownership, according to what the Respondent understands (…), "are facts and distinct legal realities, and as such susceptible of meriting differentiated tax treatment", "[cannot] the interpreter sweep away the distinction provided by the legislator, and consequently, we consider forced the thesis that the legislator legislated in an imperfect manner."

Furthermore, the Respondent understands that "(…) one cannot fail to keep in mind that we are before a rule of incidence, whereby one cannot, through the interpretive route, lead to a result that is not provided for in law. It is, moreover, what follows from the principle of legality and from the principles of typicality and determination in which that unfolds, which confirms that rules of incidence must be pre-determined in their content, with the elements comprising them being formulated in a precise and determined manner. The same is to say that the determination of the content of the tax rule of incidence excludes the use of indeterminate concepts, as well as determinate normative concepts, under penalty of legal certainty being undermined."

Thus inferring, the Respondent that "(…) the now Claimant, for purposes of MPT, and also of stamp tax, by force of the wording of the said item, is not the owner of autonomous fractions, but rather of a single property, the TA considering that this is the understanding that best conforms to the principle of legality inherent in Article 8 of the GTL, to which all its activity is dedicated. In accordance, no error is recognized in the factual or legal assumptions in which the tax act of assessment of the contested tax would have incurred, and consequently, the right of the taxable subject to payment of the compensatory interest provided for in Article 43 of the GTL is not recognized, in the case of error attributable to the services."

Moreover, the Respondent adds that "the TA is bound by the principle of pursuit of the public interest, in respect of the rights and legally protected interests of taxpayers, and must act with all the same adequacy and proportionality. So much because in a Rule of Law, the principle of fiscal equality is a constitutive element of tax law, which conveys the idea that all citizens are bound by compliance with the duty to pay taxes assessed by the same criterion – contributory capacity (…) which is assessed by the legislator given indicators that ascertain his economic strength, and consequently identify his capacity to pay them."

Thus, the Respondent argues that "(…) the tax act in question, in terms of substance, did not violate any legal provision, and should, thus, be maintained, which naturally extends to the decision pronounced in the gracious claim by the Ms. Head of Finances of Lisbon …"

…concluding, regarding the invoked unconstitutionality properly speaking, that "in concrete terms, the violation of the principle of fiscal equality, contributory capacity and proportionality, understood the Constitutional Court not to be verified (…) and thus it is reiterated that such interpretation is not only not illegal, but is not unconstitutional, inasmuch as it does not harm the constitutional principles of the Rule of Law and separation of powers, (…) nor that of legality (…) nor of the principle of indispensability of tax credits inherent in Article 30, section 2 of the GTL which bind the legislator and the TA."

IV. Clarification

The Tribunal is competent and is regularly constituted, pursuant to paragraph a) of section 1 of Article 2 and Articles 5 and 6, all of the LRAT.

The parties have legal personality and capacity, show themselves to be legitimate, are regularly represented and the process does not suffer from nullities.

V. Factual Basis

With relevance to the decision, the following facts are deemed proven:

  1. The Claimant is the owner of the urban property located at Street …, nos. … to … and Street of …, nos. … and …, of the parish of …, municipality and district of Lisbon, registered in the urban property matrix under article …(cf. Doc. no. 5 attached to the initial petition);

  2. The property comprises a total of 9 (nine) floors and 25 (twenty-five) divisions with independent use, of which only 9 (nine) are allocated to housing, whose taxable patrimonial value (TPV), determined under the Municipal Property Tax Code (MPTC), varies between € 126,543.88 and € 139,844.63. (cf. Doc. no. 5 attached to the initial petition);

  3. The property in question is in a regime of vertical or full ownership. (Doc. no. 5 attached to the initial petition);

  4. The sum of the TPVs of the mentioned autonomous fractions allocated to housing amounts to € 1,217,402.53 (one million, two hundred and seventeen thousand, four hundred and two euros and fifty-three cents), with each of them individually having a TPV less than € 1,000,000.00 (one million euros) (Doc. no. 5 attached to the initial petition);

  5. The registry entry no. … identifies separately each one of the autonomous units of independent use, also being discriminated the respective TPV resulting from the general evaluation (cf. Doc. no. 5 attached to the initial petition);

  6. The Claimant was notified of the act of assessment of Stamp Tax relating to the year 2015, carried out under item no. 28.1 of the General Table of the Stamp Tax, on the floors and divisions with independent use allocated to housing, in the global amount of € 12,174.04 (twelve thousand, one hundred and seventy-four euros and four cents) (cf. Docs. no. 2, 3 and 4 attached to the initial petition);

  7. On 20 April 2016, the Claimant proceeded to pay the first installment of the act of assessment of Stamp Tax, in the total amount of € 4,058.06 (four thousand, fifty-eight euros and six cents) (cf. Doc. no. 2 attached to the initial petition);

  8. On 15 July 2016, the Claimant proceeded to pay the second installment of the act of assessment of Stamp Tax, in the total amount of € 4,057.99 (four thousand, fifty-seven euros and ninety-nine cents) (cf. Doc. no. 3 attached to the initial petition);

  9. On 26 August 2016, the Claimant filed a gracious claim against the act of assessment of Stamp Tax relating to the year 2015, reviewed in these proceedings, with the Tax Service of Lisbon … . (cf. Docs. no. 1 and 7 attached to the initial petition);

  10. On 21 November 2016, the Claimant proceeded to pay the third installment of the act of assessment of Stamp Tax, in the total amount of € 4,057.99 (four thousand, fifty-seven euros and ninety-nine cents) (cf. Doc. no. 4 attached to the initial petition);

  11. On 17 October 2016, the Claimant was notified of the referral of the Gracious Claim identified in I. above, to which was assigned the no. …2016.., for the Tax Service of Lisbon-… (cf. Doc. no. 7 attached to the initial petition);

  12. On 25 October 2016, the Tax Service of Lisbon … received the request submitted by the Claimant contesting the referral mentioned in K. above. (cf. Doc. no. 8 attached to the initial petition);

  13. On 11 January 2017, the Tax Service of Lisbon … received a request submitted by the Claimant, in which it requests the expansion of the request formulated in the gracious claim identified in I above, attaching for this purpose the notification it had received to proceed with payment of the 3rd installment of Stamp Tax relating to the year 2015, concerning the property identified in A. above. (cf. Doc. no. 9 attached to the initial petition)

  14. On 9 June 2017, the Claimant was notified, through Office no.…, of 07.06.2017, of the Tax Service of Lisbon …, of the decision to the effect of rejection of the gracious claim identified in I. above. (cf. Doc. no. 1 attached to the initial petition).

  15. On 1 August 2017, the Claimant presented this request for arbitral decision.

VI. Substantiation of the Factual Basis

For the conviction of the Arbitral Tribunal, regarding the facts deemed proven, the documents attached to the proceedings analyzed and weighed in conjunction with the arguments were relevant, from which concordance results regarding the factuality presented by the Claimant in the request for arbitral decision.

VII. Facts Deemed Not Proven

There are no facts deemed not proven, because all facts relevant to the appreciation of the request were deemed proven.

VIII. Legal Grounds

  • Of the contested questions -

In the present case, there are three contested questions of law:

  1. to know whether subjection to stamp tax, pursuant to what is provided in item no. 28 of TGIS, relating to the year 2015, is determined by the TPV that corresponds to each one of the parts of the property with housing allocation, or if, on the contrary, it is determined by the global TPV of the property, which would correspond to the sum of all the TPVs of the floors that compose it - Incidence of item 28.1 of TGIS;

  2. to know whether the provision in item no. 28 of TGIS is unconstitutional by violation of the principle of equality, as well as of the provision in Article 104, section 3, of the CRP, in the interpretation that the TA makes of it;

  3. to know whether the Claimant, should the preceding questions proceed, is entitled to compensatory interest.

Let us see,

I – Of the Incidence of Item 28.1 of TGIS

Law no. 55-A/2012, of 19 October (which we will hereafter refer to as Law no. 55-A/2012 or simply the Law), proceeded to alter, among others, various articles of the Stamp Tax Code, more specifically 12 of its articles.

The fundamental alteration, which conditions all others, consists of Article 4 of Law no. 55-A/2012, which adds to the General Table of the Stamp Tax (TGIS), attached to the Stamp Tax Code (STC), a new item, no. 28, with the following wording:

"28. Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the matrix, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than (euro) 1,000,000 - on the taxable patrimonial value used for the purposes of MPT:

28.1 For property with housing allocation --------------------------------------------- 1%[1]

28.2 For property, when the taxable subjects who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance------------------------------------------------------------------------------------7.5%"

Thus, in accordance with the said item, and insofar as it concerns us here, only subjection to Stamp Tax applies to the ownership, usufruct, or right of superficies of:

"urban properties,

with housing allocation,

and whose taxable patrimonial value contained in the matrix, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than (euro) 1,000,000;" (underlined)

The logic of taxation of wealth and fortune prevails, with greater or lesser intensity, in the framework of this diploma, a conclusion that results from the generalized increase in the tax burden, in the financial logic, exclusively directed at tax situations that would produce immediate revenue.

The taxation of capital returns is increased, the list of manifestations of fortune is expanded, the taxation of returns obtained in Portugal by entities domiciled in tax havens is increased, and finally, to all this is added the taxation of properties for housing, of value greater than € 1,000,000.00.

And if the legislator includes in this diploma properties for housing, setting a value above which they would become subject to taxation by another tax, this could only mean that the legislator considered that whoever was the owner of such property expressed an element indicating additional means of fortune, that could be called upon to participate in the collective effort of supplementary collection of tax revenues.

In truth, when introducing this legislative innovation, the legislator considered as the determining element of contributory capacity urban properties with housing allocation, of high value (luxury), more precisely, of value equal to or greater than € 1,000,000.00, upon which a special rate of stamp tax began to fall, intending to introduce a principle of taxation on wealth manifested in the ownership, usufruct or right of superficies of urban properties of luxury with housing allocation. Therefore, the criterion was the application of the new rate to urban properties with housing allocation, whose TPV is equal to or greater than € 1,000,000.00.

This same conclusion is drawn from the analysis of the discussion of legislative proposal no. 96/XII in the Assembly of the Republic, available for consultation in the Diary of the Assembly of the Republic, I series, no. 9/XII/2, of 11 October 2012.

The substantiation of the measure designated as "special rate on residential urban properties of the highest value" is based on the invocation of the principles of social equity and fiscal justice, calling upon those holding properties of high value intended for housing to contribute in a more intense manner, making the new special rate apply to "houses of value equal to or greater than 1 million euros."

Indeed, the legislator clearly considered that this value, when assigned to housing (house or autonomous fraction) conveyed above-average contributory capacity and, as such, susceptible of determining a special contribution to ensure the just distribution of the tax burden.

Also following these considerations inspiring the legislative innovation under review, one must conclude that the existence of a property in vertical or horizontal ownership cannot, by itself, be an indicator of contributory capacity.

On the contrary, from the law it follows that each and every one should receive the same tax treatment, in obedience to the principles of justice, fiscal equality and material truth.

Indeed, the existence in each property of independent dwellings, in a regime of horizontal or vertical ownership, may be susceptible of triggering the incidence of the new tax, but only if the TPV of each one of the parts or fractions is equal to or greater than the limit defined by law: € 1,000,000.00.

It does not seem sensible that one could fit within the normative provision properties urban properties as a whole, i.e., constituted by independent units, with separate TPV evaluations.

As stated, the introduction of Law no. 55-A/2012, of 19 October, intended to tax wealth in fact.

Now, the property in question belongs to the Claimant, and is composed of 9 (nine) floors and 25 (twenty-five) divisions with independent use, of which only 9 (nine) are allocated to housing, whose taxable patrimonial value (TPV), determined under the Municipal Property Tax Code (MPTC), varies between € 126,543.88 and € 139,844.63.

It is the understanding of the TA that the sum of the TPVs relating to those 9 divisions with independent use that have housing allocation, totaling a global TPV of € 1,217,402.53 (one million, two hundred and seventeen thousand, four hundred and two euros and fifty-three cents), in the year 2015, gives rise to the incidence of stamp tax, which is why it understood it appropriate to proceed with the assessment of Stamp Tax impugned in these proceedings.

Thus, from the point of view of the TA, for a property in vertical ownership (or not constituted in a horizontal ownership regime) the criterion for determining the incidence of stamp tax is the global TPV of the floors and divisions even if with independent use, intended for housing.

Let us see if the TA's thesis is convincing.

Law 55-A/2012, of 29 October entered into force on the day following its publication, that is, on 30 October 2012.

However, it says nothing about the qualification of the concepts at issue, namely, regarding the concept of "property with housing allocation", which concerns us here.

However, Article 67, section 2 of the Stamp Tax Code, added by said Law, provides that "to matters not regulated in this code concerning item 28 of the General Table the MPTC applies subsidiarily."

Thus, we have that the rule of incidence refers to urban properties, the concept of which results from the provision of Article 2 of the MPTC, with the determination of TPV obeying the terms of Articles 38 and following of the same code.

Consulting the MPTC, it is verified that its Article 6 only indicates the different kinds of urban properties, among which it mentions residential ones (see paragraph a) of section 1), clarifying in section 2 of the same article that "residential, commercial, industrial or for services are buildings or constructions licensed for such or, in the absence of a license, which have as their normal destination each one of these purposes."

From this we can conclude that, in the view of the legislator, what matters is not the legal-formal rigor of the concrete situation of the property, but rather its normal use, the purpose to which the property is intended.

Further, we ascertain that, for the legislator, the situation of the property in vertical or horizontal ownership did not matter, as no reference or distinction is made between one and the other. What does matter is the material truth underlying its existence as an urban property and its use.

Indeed, subjection to stamp tax contained in item no. 28.1 of TGIS is determined by the combination of three factors, namely:

we are before an urban property;

housing allocation and

the TPV contained in the matrix equal to or greater than € 1,000,000.00.

Now, in the case of a property with the characteristics described above, subjection to stamp tax will have to be determined, not by the TPV of the property "as a whole", but by the TPV assigned to each of the floors or divisions with independent use, allocated to housing.

A position assumed in various decisions of the Arbitral Tribunal, under the subject "Stamp Tax – Item 28, vertical ownership", which we indicate here, by way of example, such as proceedings no. 428/2014-T, no. 206/2014-T, no. 30/2014-T, no. 181/2013-T, no. 132/2013-T, no. 50/2013-T, no. 248/2013-T of CAAD, no. 849/2014 T, no. 179/2015 T (among others), whose legal reasoning, the present Tribunal adheres to in full, regarding the matter of incidence of item 28.1 of TGIS...

…as well as, in the Decision of the Supreme Administrative Court, handed down in proceedings no. 047/15, of 09.09.2015, whose position we fully support, according to which:

"I - Regarding properties in vertical ownership, for purposes of incidence of Stamp Tax (Item 28.1 of TGIS, in the wording of Law no. 55-A/2012, of 29 October), subjection is determined by the combination of two factors: housing allocation and the TPV contained in the matrix equal to or greater than € 1,000,000.

II - In the case of a property constituted in vertical ownership, the incidence of ST must be determined, not by the TPV resulting from the sum of the TPV of all divisions or floors susceptible to independent use (individualized in the matrix entry), but by the TPV assigned to each one of those floors or divisions intended for housing."

Thus, the understanding of the TA to the effect that the sum of the TPVs of the various fractions or divisions with independent use allocated to housing, resulting in a global TPV equal to or greater than € 1,000,000, legitimizes the incidence of stamp tax, under item 28 of TGIS, in the standard regime, is manifestly illegal!

Thus, inasmuch as there is not, in this manner, a single fraction or division with independent use, allocated to housing, with TPV equal to or greater than € 1,000,000, the TA could never subject the Claimants to stamp tax, under item 28 of TGIS, for the year 2014, which is now impugned, because it is the same illegal.

Regarding the alleged defect of unconstitutionality by violation of the principle of equality, in particular of equality in the matter of taxation of assets, provided for in Articles 13 and section 3 of Article 104, both of the CRP, the knowledge of such questions is precluded by the declaration of illegality of the Stamp Tax assessment in question, by substantive defect that prevents its re-edition or renewal.

As stated in the Commentary to the Code of Procedure in Administrative Courts, Almedina, 2005, by Mário Aroso de Almeida and Carlos Cadilha, in annotation to Article 95 of said diploma, p. 483 (applicable by reference of Article 2 paragraph c) of CPCPT and Article 29, section 1, paragraphs a) and c) of LRAT) "If the court has ruled the main claim as well-founded, it is precluded from exercising jurisdictional power regarding a subsidiary claim or formulated in the alternative; and, in the same terms, if the pronouncement adopted regarding one question consumes or leaves prejudiced other aspects of the case that correlate with it."

In these terms, given the interpretation of material law advocated, the knowledge and appreciation of the other defects imputed to the impugned assessment act is precluded.

Of Compensatory Interest

The Claimant further petitions that the right to compensatory interest be recognized, based on error attributable to the services.

Section 1 of Article 43 of the GTL and Article 61 of the Code of Tax Procedure and Process provide that compensatory interest is due when it is determined in a gracious claim or judicial challenge, that there was error attributable to the services from which resulted the payment of a tax debt in an amount greater than the legally due.

Error attributable to the administration is considered when the error is not attributable to the taxpayer and is based on erroneous factual assumptions that are not the responsibility of the taxpayer.

Now, resulting from the impugned tax act an obligation to pay tax in an amount greater than what would be due, compensatory interest is due pursuant to the legally provided terms, the legislator presuming, in these cases, in which annulment of the assessment is verified, that there occurred in the sphere of the taxpayer a prejudice due to having been deprived of the patrimonial amount that had to be delivered to the State by virtue of an illegal assessment. In consequence, the taxpayer has the right to such compensation, independent of any allegation or proof of the prejudice suffered.

In the present case, it will be unquestionable that, following the establishment of the illegality of the impugned assessment act, there will be reimbursement of the tax by force of the provision of section 1 of Article 43 of the GTL, and of Article 100 of the GTL, necessarily passing through there the restoration of the "situation that would exist if the tax act subject to arbitral decision had not been practiced".

In the same manner, it is understood that it will be beyond doubt that the illegality of the act is attributable to the Tax Authority, which autonomously practiced it illegally.

Regarding the concept of "error", it has been understood that only in cases of annulments based on defects concerning the tax legal relation will there be place for payment of compensatory interest, such right not being recognized in the case of annulments by procedural or formal defects.

Thus, being before a defect of violation of substantive law, which is embodied in error in the legal assumptions, attributable to the Tax Authority, the Claimant has the right to compensatory interest, in accordance with Articles 43, section 1 of the GTL, and 61 of the CPPT, counted from the payment of the tax until the full reimbursement of said amount.

X. DECISION

In accordance with the foregoing, it is decided:

  1. To adjudicate the claim filed by the Claimant in this tax arbitration proceeding as well-founded, and, in consequence:

  2. To declare the illegality of the act of assessment of ST, relating to the year 2015, in the amount of € 12,174.04, affecting the floors or parts susceptible to independent use, allocated to housing, of the property registered in the respective matrix under article …, located at Street…, nos. … to … and Street of …, nos. … and …, parish of …, municipality of Lisbon, which is in vertical ownership, with its subsequent annulment;

  3. To revoke the decision rejecting the gracious claim filed against the act of assessment of ST in question.

  4. To adjudicate as well-founded the claim for condemnation of the Tax and Customs Authority to refund to the Claimant the amount of tax paid, plus compensatory interest pursuant to legal terms, from the date on which such payment was made until the date of full reimbursement thereof.

Value of the Proceeding

The value of the proceeding is fixed at € 12,174.04 (twelve thousand, one hundred and seventy-four euros and four cents) pursuant to Article 97-A, section 1, a), of the CPPT, applicable by force of paragraphs a) and b) of section 1 of Article 29 of the LRAT and of section 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

Costs charged to the Respondent in accordance with Article 22, section 2 of the LRAT, of Article 4 of the RCPAT, and of Table I attached to the latter, which are fixed in the amount of € 918.00.

Let it be notified.

Lisbon, 6 March 2018

The Arbitrator

(Jorge Carita)

[1] This wording was altered by Law no. 83-C/2013, of 31 December, without, however, having great relevance for the case at issue, in the following manner:

"28.1 For residential property or for construction land whose construction, authorized or provided, is for housing, pursuant to the provision of the Municipal Property Tax Code------------------1%"

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the General Stamp Tax Table (TGIS) and how does it apply to urban properties in Portugal?
Verba 28.1 of the General Stamp Tax Table (TGIS) imposes an annual Stamp Tax on urban properties allocated to housing with a Taxable Patrimonial Value (TPV) equal to or exceeding €1,000,000. This tax provision was introduced to target high-value residential real estate. The applicable TPV is generally the value used for Municipal Property Tax (IMI) purposes. The tax rate is progressive based on the property's value. A key interpretative issue, as seen in CAAD Process 460/2017-T, concerns whether this threshold applies to the aggregate value of all independently usable units in a vertically owned property, or to each unit separately, particularly when the property comprises multiple units each below €1,000,000 but collectively exceeding this amount.
How does the concept of vertical property (propriedade vertical) affect Stamp Tax liability on independently usable units?
Vertical property (propriedade vertical) refers to ownership where a single property contains multiple independently usable units but is not constituted as horizontal ownership (condominium). In the context of Stamp Tax under Verba 28.1 TGIS, this distinction is crucial. The taxpayer in Process 460/2017-T argued that each independently usable unit in vertical ownership has its own distinct Taxable Patrimonial Value under Municipal Property Tax rules (MPTC Articles 12(3) and 119(1)), and therefore Stamp Tax should be assessed on each unit individually. If no single unit exceeds €1,000,000, no Stamp Tax would be due. Conversely, the Tax Authority's position was that the aggregate TPV of all residential units should be considered, triggering Stamp Tax liability when the total exceeds the threshold, even if individual units fall below it.
Can taxpayers challenge Stamp Tax assessments on urban property through CAAD tax arbitration?
Yes, taxpayers can challenge Stamp Tax assessments through the Centro de Arbitragem Administrativa (CAAD), Portugal's administrative arbitration center for tax disputes. Process 460/2017-T demonstrates this procedure. After the Tax Authority rejected the company's gracious complaint (reclamação graciosa), the taxpayer exercised its right to request arbitration under Decree-Law 10/2011 (RJAT - Legal Regime of Arbitration in Tax Matters). CAAD arbitration provides an alternative to judicial courts for resolving tax disputes, offering potentially faster resolution. Taxpayers can challenge both the legality of tax assessments and request annulment of unlawful tax acts. The arbitral tribunal's decisions are binding and equivalent to court judgments.
What are the grounds for filing a gracious complaint (reclamação graciosa) against a Stamp Tax assessment in Portugal?
In Portugal, a gracious complaint (reclamação graciosa) against a Stamp Tax assessment can be filed on several grounds, including: (1) error in the legal assumptions or factual basis for the assessment; (2) violation of substantive tax law provisions; (3) incorrect calculation or quantification of the tax due; (4) misapplication of tax rates or exemptions; and (5) procedural irregularities in the assessment process. In Process 460/2017-T, the taxpayer filed a gracious complaint alleging error in applying Verba 28.1 TGIS, arguing the Tax Authority incorrectly aggregated TPVs of independently usable units instead of assessing each separately. Constitutional violations may also be raised. The gracious complaint must be filed within a specific timeframe and is typically a prerequisite before pursuing arbitration or judicial review.
Are compensatory interest (juros indemnizatórios) available when a Stamp Tax assessment is annulled by an arbitral tribunal?
Yes, compensatory interest (juros indemnizatórios) are available when a Stamp Tax assessment is annulled by an arbitral tribunal or court. Under Portuguese tax law (Article 43 of the General Tax Law - LGT), taxpayers are entitled to compensatory interest when tax payments are later determined to be undue or excessive due to unlawful acts by the Tax Authority. The interest compensates for the financial loss suffered by the taxpayer who was deprived of funds that should not have been collected. In Process 460/2017-T, the Claimant specifically requested payment of compensatory interest as part of the relief sought. The interest rate and calculation period are determined according to legal provisions, typically running from the date of payment until reimbursement.