Process: 461/2014-T

Date: November 28, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 461/2014-T addresses a critical issue regarding stamp tax (Imposto de Selo) assessment under item 28.1 of the General Stamp Tax Table (TGIS) on properties held in full ownership with multiple independent divisions. The applicant, A SA, challenged 154 stamp duty assessments totaling €55,126.17 for the 2013 tax year, relating to ten urban properties across different locations. The core dispute concerns how the taxable property value (VPT) should be calculated for properties that contain multiple independent divisions but are not constituted under a vertical ownership (condominium) regime. The Tax Authority calculated the VPT by summing the individual values of all independent divisions within each property, resulting in totals exceeding €1,000,000 per property, thereby triggering stamp tax liability under Verba 28.1. The applicant argued this methodology is illegal and unconstitutional, contending that under Article 12(3) of CIMI, each independent division is registered separately with its own VPT, and no legal provision authorizes summing these values for full ownership properties. The applicant further argued that the CIMI provisions regarding separate valuation of divisions in vertical ownership properties should not automatically apply to full ownership scenarios. The CAAD Arbitral Tribunal accepted the cumulation of all 154 claims in a single arbitration proceeding, finding that the requirements of Article 3(1) of RJAT and Article 104 of CPPT were met due to identity of tax, taxpayer, factual circumstances, and applicable legal rules. This decision has significant implications for property owners with multi-unit buildings held in full ownership, potentially affecting the stamp tax burden on properties with aggregate values exceeding the €1,000,000 threshold when divisions are valued independently below this amount.

Full Decision

APPLICANT: A

RESPONDENT: Tax and Customs Authority

Arbitral Decision[1]

I REPORT

A) The Parties and the Constitution of the Arbitral Tribunal

  1. A SA, legal entity no. ..., with registered office at …, in ..., hereinafter referred to as "Applicant", filed a request for the constitution of a singular Arbitral Tribunal, pursuant to the provisions of Articles 95 of the General Tax Law, 99, para. a) of the Code of Tax Procedure and Process, Article 10 and paragraph a), of no. 1, of Article 2, of the Legal Framework for Tax Arbitration, approved by Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT" and of Articles 1 and 2 of Ordinance no. 112 – A/2011, of 22 March, to consider the claim opposing the Tax and Customs Authority, hereinafter referred to as "Respondent" or "TA", in view of the declaration of illegality and unconstitutionality, with the consequent annulment, of 154 acts of assessment of stamp duty, item 28 of the General Table of Stamp Duty (TGIS), in the total amount of €55,126.17, relating to the year 2013 and to the urban properties duly identified in documents nos. 1 to 154 attached to the case files annexed to the arbitral request, which are hereby deemed to be entirely reproduced.

  2. The request for constitution of the Arbitral Tribunal, submitted on 2 July 2014, was accepted by His Excellency the President of CAAD and automatically notified to the Tax and Customs Authority. The Applicant chose not to designate an arbitrator, whereby, pursuant to the provisions of no. 1, Article 6 of the RJAT, the undersigned was designated by the Ethics Council of the Centre for Administrative Arbitration as arbitrator of the singular Arbitral Tribunal. The appointment was accepted and the parties, notified of the acceptance, on 20 August 2014, did not refuse the designation, in accordance with the provisions of paragraphs a) and b), no. 1, Article 11 of the RJAT, in conjunction with the provisions of Articles 6 and 7 of the Ethics Code.

Thus, in accordance with the provision in paragraph c), no. 1, Article 11, of Decree-Law no. 10/2011, of 20 January, with the wording introduced by Article 228, of Law no. 66-B/2012, of 31 December, the singular Arbitral Tribunal was constituted on 4 September 2014. On the same date the Respondent "TA" was notified to submit a reply within the legal period, in accordance with the provisions of nos. 1 and 2, Article 17 of the RJAT. On 29 September the TA submitted its Reply and, simultaneously, a request requesting the waiver of the meeting provided for in Article 18 of the RJAT, given that there were no exceptions nor evidence to be produced in the case, the matter being exclusively of law, thus allowing advance to final decision.

On 2 October 2014 an arbitral order was issued admitting the attachment to the case file of the request and ordering the notification of the Taxpayer to make representations. Within the determined period the Applicant made representations in favor of the waiver of the meeting, whereby an arbitral order was issued on 17 October 2014 waiving the holding of the meeting of Article 18 of the RJAT and setting a date for issuing the final decision by 30 November 2014.

B) Procedural Requirements

  1. The Arbitral Tribunal is regularly constituted and is materially competent, in accordance with Article 2, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January.

The Parties have legal personality and capacity, are legitimate and are legally represented (See Articles 4 and 10, no. 2, of DL no. 10/2011 and Article 1 of Ordinance no. 112/2011, of 22 March).

As regards the cumulation of claims, seeking the joint consideration of the illegality of the 154 stamp duty assessments, relating to the year 2013, although they constitute autonomous acts, verifying the requirements demanded by the provision of no. 1, Article 3 of the RJAT and Article 104 of the CPPT, the cumulation is to be admitted. Thus, in the same arbitral request the cumulation of claims for declaration of illegality of all tax acts of assessment of stamp duty is accepted given the identity of the tax, although they relate to different properties, since the Applicant entity is the same and the consideration of the tax acts in question depends on the consideration of the same factual circumstances and the application of the same rules of law.

The process is not affected by nullities that would invalidate it and no exceptions were raised that would prevent judgment on the merits of the case, whereby the Tribunal is in a position to issue the arbitral decision.

C) THE CLAIM FORMULATED BY THE APPLICANT

  1. The Applicant formulates the present request for arbitral pronouncement contending for the illegality and unconstitutionality of the acts of assessment of stamp duty challenged and their consequent annulment, relating to the year 2013, in the total amount of €55,126.17, with reference to the urban properties, described in the urban property matrix of the Tax Service of ..., … District (...), Parish of ..., under art. ..., of the Tax Service of ..., … District (...) Parish of ..., under article ..., of the Tax Service of ..., ... District (...), Parish of ..., under Article ..., of the Tax Service of ..., … District (...) Parish of ..., under article …, of the Tax Service of ..., … District (...), Parish of ..., under article …, of the Tax Service of ..., … District (...) Parish of …, under article …, of the Tax Service of ..., … District (...) Parish of …, under article ..., of the Tax Service of ..., … District (...) Parish of …, under article ..., of the Tax Service of ..., … District, (...) Parish of ..., under article ..., of the Tax Service of ... … (...), Union of parishes of ... and ..., under article ..., as results from the property notebooks attached by the Applicant as documents nos. 155 to 164 annexed to the arbitral request, which are hereby deemed to be entirely reproduced.

It bases its claim on the illegality of the tax assessments, alleging in summary the following:

a) The Applicant has full ownership of the properties above described, located respectively:

  1. Street … no. 31 to 31 C, ...;

  2. Street … (and in … no. 23 to 27), nos. 49 to 59 in ...;

  3. Street …, no. 10 and 10 A, ...;

  4. Street …, nos. 4 and 4 A, ...;

  5. Street …, nos. 5 to 5D, ...;

  6. Street …, nos. 3 to 38 ...;

  7. Street … nos. 193 to 193 C, and …, nos. 123 to 123B, ...;

  8. Street …, nos. 106 to 106 B, ...;

  9. Avenue …, turning to the … nos. 50 to 50 F, ...;

  10. Avenue …, nos. 313 to 337, ....

b) All these properties are composed of several floors, with divisions or fractions capable of independent use, but are not constituted under a regime of vertical ownership. The tax property value (VPT) assigned in accordance with the provisions of the CIMI for each of the independent divisions does not exceed the value of €1,000,000.00. However, according to the criterion used by the TA, underlying the stamp duty assessments challenged, the VPT of each of the properties above described is that corresponding to the sum of the individual values assigned to each of the independent divisions, which has as a result the determination of a global VPT for each of the properties exceeding €1,000,000.00.

  1. The legal basis of the request for arbitral pronouncement rests, summarily, on the following:

a) The VPT of the independent divisions that comprise properties under vertical ownership must be determined in accordance with the provisions of Article 7, no. 2, paragraph b) of the CIMI, that is, separately. In relation to a property in full ownership, each floor or division capable of independent use is considered, in accordance with no. 3, Article 12 of the CIMI, separately in the property registration, which also specifies the respective VPT, there being no legal provision that corresponds to the tax property value of the property in full ownership, with several floors and independent divisions, to the sum of its parts.

b) The Applicant contends that the aforementioned acts of assessment of stamp duty are illegal and unconstitutional and the provision contained in item 28 of the TGIS with the interpretative sense attributed to it by the TA, that is, measuring its incidence by the global VPT of the property, summing the values assigned to its independent divisions, is illegal and unconstitutional due to violation of the principles of fiscal legality, fiscal equality as well as the prevalence of material truth over legal-formal reality.

c) It also invokes the arbitral jurisprudence contained in arbitral decisions nos. 50/2013-T; 132/2013-T; 181 and 183/2013-T

  1. It concludes by petitioning the declaration of illegality and consequent annulment of the acts of assessment challenged, as well as the reimbursement of the amount of €55,126.17, concerning the tax unduly paid by the Applicant and the payment of compensatory and default interest.

D) – THE REPLY OF THE RESPONDENT

  1. The Respondent contends in its reply, in summary, that the Applicant is not right.

The TA contends that for the purposes of Stamp Duty (SD) the property in its entirety is relevant, since the divisions capable of independent use are not considered as property, but only autonomous fractions under the regime of horizontal ownership, in accordance with no. 4 of art. 2 of the CIMI.

The entry into force of the regime of horizontal ownership (Civil Code of 1966), and its express reference in the delimitation of the concept of "property" provided for in art. 2, no. 4 of the CIMI determine the relevance of such figure, in tax matters. What expressly results from the law is that the legislator wished to tax with item 28.1 in discussion the properties as a single legal-tax reality. The constitution of horizontal ownership determines the division/split of full ownership and the independence or autonomy of each of the fractions that constitute it, and a property in full ownership constitutes, for all effects, a single legal-tax reality.

It contends, in summary, that there is no violation of the principle of equality nor any illegality that would support the arbitral claim, whereby the defects of lack of incidence and unconstitutionality should be judged unfounded, maintaining in the legal system the assessments challenged, as they constitute a correct application of the law to the facts. It also concludes for the unfoundedness of the request for compensatory interest.

II. ISSUES TO BE DECIDED

  1. Given the positions of the Parties assumed in the arguments presented to the Tribunal, the essential issue to be decided is whether, with reference to properties in full or vertical ownership (not constituted under a regime of horizontal ownership) comprised of various floors and divisions with independent use, with residential use, the relevant VPT is determined for the purposes of defining the incidence of stamp duty, in accordance with item 28. The practical question thus posed is whether the relevant VPT as a criterion for the incidence of the tax is that corresponding to the sum of the tax property values assigned to the different parts or floors (global VPT) or, rather, the VPT assigned to each of the parts or residential floors.

III. FACTUAL BASIS

A) Proven Facts

  1. As a matter of fact relevant to the decision to be issued, the Tribunal establishes as certain the following facts:

9.1. The Applicant A is the owner of the urban properties, described as per certificates attached to the case file as documents nos. 154 and 164, which are hereby deemed to be entirely reproduced;

9.2. These are urban properties, in vertical ownership, composed of various floors and with independent divisions, with residential use.

9.3. The urban properties in question in the case have the following location, description and composition:

a) Property situated on Street …, no. 31 to 31C, with the property register number U-..., of the Tax Service of ... (… District), composed of basement, sub-basement, ground floor and five stories, for residential use, with the 1st floor consisting of divisions with independent use designated with letters B to E and the remainder with letters A to E per floor; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €63,590.00 (lowest value) and €99,590.00;

b) Property situated on Street … (Street …, no. 23 to 27), nos. 49 to 59, with the property register number U-...º, of the Tax Service of ... (… District), composed of basement, ground floor, shops and six stories, for residential use, comprised of divisions with independent use, per floor, with the designation of "right" and "left"; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €23,160.00 (lowest value) and €149,560.00;

c) Property situated on Street …, nos. 10 and 10A, with the property register number U-...º, of the Tax Service of ... (… District), composed of ground floor and five stories, for residential use, comprised of divisions with independent use, per floor, with the designation of "right" and "left"; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €77,880.00 (lowest value) and €85,390.00;

d) Property situated on Street …, nos. 4 and 4A, with the property register number U-…º, of the Tax Service of ... (… District), composed of ground floor and four stories, for residential use, comprised of divisions with independent use, per floor, with the designation of "right" and "left"; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €111,440.00 (lowest value) and €114,510.00;

e) Property situated on Street …, 5 to 5D, with the property register number U-…º, of the Tax Service of ... (… District), composed of sub-basement, basement, ground floor and seven stories, for residential use (1st to 8th floor), comprised of divisions with independent use, per floor, with the designation of "right" and "left"; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €97,830.00 (lowest value) and €173,960.00;

f) Property situated on Street …, with the property register number U-…º, of the Tax Service of ... (… District), composed of basement, ground floor and six stories, for residential use, comprised of divisions with independent use, per floor, with the designation of letters "A" to "D"; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, of €65,660.00;

g) Property situated on Street …, with the property register number U-...º, of the Tax Service of ... (… District), composed of nine stories, for residential use, comprised of divisions with independent use, separated in "Right", "Front" and "Left"; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €65,010.00 and €173,960.00;

h) Property situated on Street …., with the property register number U-...º, of the Tax Service of ... (… District), composed of five stories, for residential use, comprised of divisions with independent use, designated by left and right; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €91,370.00 and €171,720.00;

i) Property situated on Avenue … (…), with the property register number U-...º, of the Tax Service of ... (… District), composed of seven stories, comprised of divisions with independent use, designated by left and right; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €147,050.00 and €293,450.00;

j) Property situated on Avenue …, no. …, ..., with the property register number U-...º, of the Tax Service of ... …, composed of fourteen stories, comprised of divisions with independent use, designated by left and right; each of the independent divisions, for residential use has a VPT assigned, determined in accordance with the CIMI, comprised between €47,410.00 and €81,950.00;

9.4. The property described in a), in vertical ownership, comprises a total of eight floors with independent divisions, its total VPT amounts to a value of €2,403,530.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 1 to 24 annexed to the PI, in a total amount of €6,130.80. - See Doc. 155, attached to the case by the Applicant and which is hereby reproduced.

9.5. The property described in b), in vertical ownership, comprises a total of six floors with independent divisions, its total VPT amounts to a value of €1,960,080.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 25 to 39 annexed to the PI, in a total amount of €6,133.42. - See Doc. 156, attached to the case by the Applicant and which is hereby reproduced.

9.6. The property described in c), in vertical ownership, comprises a total of five floors with independent divisions, its total VPT amounts to a value of €1,018,170.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 40 to 51 annexed to the PI, in a total amount of €3,393.98. – See Doc. 157, attached to the case by the Applicant and which is hereby reproduced.

9.7. The property described in d), in vertical ownership, comprises a total of six floors with independent divisions, with the ground floor and 1st to 4th floors, distributed in "Right" and "Left", affected for residential use; its total VPT amounts to a value of €1,212,410.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 52 to 61 annexed to the PI, in a total amount of €3,393.98. – See Doc. 158, attached to the case by the Applicant and which is hereby reproduced.

9.8. The property described in e), in vertical ownership, comprises a total of eleven floors with independent divisions, its total VPT amounts to a value of €3,454,270.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 62 to 77 annexed to the PI, in a total amount of €8,461.78. – See Doc. 159, attached to the case by the Applicant and which is hereby reproduced.

9.9. The property described in f), in vertical ownership, comprises a total of eight floors with independent divisions, its total VPT amounts to a value of €1,640,230.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 78 to 94 annexed to the PI, in a total amount of €3,720.96 – See Doc. 160, attached to the case by the Applicant and which is hereby reproduced.

9.10. The property described in g), in vertical ownership, comprises a total of nine floors with independent divisions, its total VPT amounts to a value of €2,279,440.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 95 to 113 annexed to the PI, in a total amount of €6,571.04 – See Doc. 161, attached to the case by the Applicant and which is hereby reproduced.

9.11. The property described in h), in vertical ownership, comprises a total of five floors with independent divisions, its total VPT amounts to a value of €1,262,380.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 114 to 123 annexed to the PI, in a total amount of €4,009.10 – See Doc. 162, attached to the case by the Applicant and which is hereby reproduced.

9.12. The property described in i), in vertical ownership, comprises a total of five floors with independent divisions, its total VPT amounts to a value of €3,055,280.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 124 to 133 annexed to the PI, in a total amount of €7,973.98 – See Doc. 163, attached to the case by the Applicant and which is hereby reproduced.

9.13. The property described in j), in vertical ownership, comprises a total of fourteen floors with independent divisions, its total VPT amounts to a value of €5,056,190.00, but none of its parts or floors has a value exceeding €1,000,000.00; on the total VPT of this property stamp duty assessments were issued as contained in the case file as documents nos. 134 to 154 annexed to the PI, in a total amount of €4,934.55 – See Doc. 164, attached to the case by the Applicant and which is hereby reproduced.

9.14 The properties above described, although constituted by various floors and divisions with independent use, are not constituted under a regime of horizontal ownership.

9.15 The Applicant proceeded to payment of all values of Stamp Duty contained in the assessments challenged, as shown in the supporting documents attached to the case with nos. 165 to 322.

B) FACTUAL BASIS OF THE PROVEN FACTS

  1. The conviction regarding the facts established as proven was based on documentary evidence attached to the case by the Applicant (docs. nos. 1 to 322 attached to the arbitral request), to which is added the mutual acceptance of the parties thereto.

No other facts of relevance to the arbitral decision were proven.

IV – LEGAL BASIS

  1. Having established the factual matter, it is important to address the legal issue indicated above, corresponding, in summary, to the issues of illegality and unconstitutionality raised by the Applicant in the present arbitral request.

From the allegations presented by the procedural parties it is concluded that for the TA, the criterion for determining the incidence of stamp duty, provided for in item 28.1 of the TGIS, of properties in vertical ownership with floors and divisions with independent use with residential use, corresponds to the sum of the respective VPT assigned to the parts or divisions, in accordance with the provisions of the CIMI. It was this understanding that led to the tax assessments challenged here.

For the Applicant, such understanding is illegal, since the subjection to stamp duty contained in item no. 28 of the TGIS is determined by the conjunction of two factual requirements: residential use and VPT shown in the property matrix equal to or exceeding €1,000,000.00. Being a property in vertical ownership, with the characteristics of those described in the present case, the subjection to stamp duty is determined, not by the total VPT of the property, but by the VPT assigned to each of those floors or divisions.

It is necessary to decide.

  1. The essential issue to be decided is whether, with reference to properties not constituted under a regime of horizontal ownership, comprised of various floors and divisions with independent use, with residential use, which VPT is relevant for the purposes of the incidence of stamp duty.

The answer to this question requires the analysis of the applicable legal framework and the reference principles so as to determine which interpretation is in accordance with the Law and the Constitution, with the caution required to assess a tax incidence requirement, by force of the principle of fiscal legality resulting from Article 103, no. 2 of the Constitution.

  1. On this matter, in particular, the CAAD has already pronounced itself in various decisions in which the fundamental issue is the same, dealing with the scope of the provision of the rule of incidence of items 28 and 28-1 of the TGIS. Some of the arbitral decisions already issued on the matter are invoked by the Respondent in its arbitral request.

On the fundamental question at issue it shall be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretative task requires something more, that is, starting from the text of the rule it is necessary to discover the underlying legislative intent, "a task of interconnection and assessment that escapes the literal domain". – (In this sense see Arbitral Decision no. 30/2014-T, of 20/06/2014 and Arbitral Decision no. 50/2013-T of 29/10/2013; also in the same sense, see Arbitral Decisions issued in proceedings nos. 132/2013, 181/2013 and 183/2013, among others)

Accordingly, the question is whether the rule of incidence, as expressed in the legal provision of items 28 and 28.1 of the TGIS, referring to "ownership, usufruct or surface right of urban properties, with residential use (28.1) whose tax property value shown in the property matrix, in accordance with the CIMI be equal to or exceeding 1,000,000.00 euros – on the tax property value used for the purposes of the Municipal Property Tax", allows or not the understanding that as regards properties "with residential use" in vertical ownership, with floors or divisions capable of independent use, held by an entity, the VPT on which the stamp duty rate should be assessed, should be the individual VPT of each floor or division capable of independent use (similar to what happens with properties under a regime of horizontal ownership) or, differently, if it should be considered as such the sum of all the VPT of all its parts.

In other words, as was already considered in the arbitral decisions above referred to (AD no. 50/2013-T and 30/2014-T), what is at issue is the adoption of an appropriate reading of the scope of the provision of the rule of incidence of items 28 and 28.1 of the TGIS, in light of what no. 7 of Article 23 of the Stamp Duty Code refers to regarding the determination of the taxable matter and subsequent operation of tax assessment: "In the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI."

  1. Article 11, no. 3 of the General Tax Law provides: "if doubt persists regarding the meaning of the rules of incidence to be applied, account should be taken of the economic substance of the tax facts".

In the case at hand, account should be taken of the "economic substance of the tax facts" to properly implement the "necessary adaptations of the rules contained in the CIMI", for the appropriate consideration of the legal matter under discussion.

Given this, the delimitation of the scope of the rule of incidence of this new tax should follow the guidance of the letter and spirit of the law. In a first instance, account should therefore be taken of the express provision in items 28 and 28-1 of the TGIS, with the "necessary adaptations of the rules contained in the CIMI", as results from the provision in no. 7, Article 23, of the Stamp Duty Code.

  1. It is therefore important to take into account that the subjection to stamp duty of properties with residential use resulted from the addition of item 28 to the TGIS, made by Article 4 of Law 55-A/2012, of 29/10, which typified the following tax facts:

"28 – Ownership, usufruct or surface right of urban properties whose tax property value shown in the property matrix, in accordance with the Code of the Municipal Property Tax (CIMI), be equal to or exceeding € 1,000,000.00 – on the tax property value for the purposes of the Municipal Property Tax:

28-1 – For property with residential use – 1%

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

This law came into force on the day following its publication, that is, on 30 October 2012. From the transitional provisions contained in Article 6 thereof, it results that the tax fact is considered to occur on 31 October 2012 and that the tax property value to be used in the assessment of the tax corresponds to that resulting from the rules of the Code of the Municipal Property Tax by reference to the year 2011.

Law 55-A/2012 says nothing regarding the qualification of the concepts in question, namely, regarding the concept of "property with residential use."

Article 67, no. 2 of the Stamp Duty Code, added by the aforementioned Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table the CIMI applies subsidiarily."

  1. The rule of incidence therefore refers to urban properties, whose concept is that resulting from Article 2 of the CIMI, with the determination of VPT being governed by Article 38 et seq. of the same code. Consulting the CIMI it is verified that its Article 6 merely indicates the different types of urban properties, among which it mentions residential ones (see paragraph a) of no. 1), clarifying in no. 2 of the same article that "residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of license, that have each of these purposes as their normal destination."

From the provisions referred to 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 for which the property is effectively intended. We further conclude that for the legislator the situation of the property in vertical or horizontal ownership was not relevant, since no reference or distinction is made between one and the other. An identical conclusion is drawn from the referral that the legislator introduced in the matter of stamp duty to the CIMI. Now, this tax establishes as a criterion for properties in vertical ownership the assignment of a VPT to each of the parts or independent divisions. What is relevant is therefore the material truth underlying its existence as an urban property and its use, that is, "with residential use."

  1. The question to be resolved continues to be that regarding the determination of the relevant value for the incidence of stamp duty on properties in vertical ownership, as happens in the present case, which the TA considers by the value of the sum of the VPT of all parts or divisions and, in this way, easily exceed the reference value, that is, one million euros.

Well, this criterion of opportunity adopted by the TA does not appear to be acceptable, nor in accordance with the principle of fiscal legality.

Using the criterion that the law itself introduced in Article 67, no. 2 of the Stamp Duty Code, "to matters not regulated in the present code relating to item 28 of the General Table the CIMI applies subsidiarily."

And, considering the provision in no. 4 of Article 2 of the CIMI, it results that: "For the purposes of this tax, each autonomous fraction, under the regime of horizontal ownership, is considered as constituting a property."

Adding further no. 3 of Article 12 of the CIMI that: "Each floor or part of a property capable of independent use is considered separately in the property registration which also determines the respective tax property value".

Thus, considering that the registration in the property matrix of properties in vertical ownership, constituted by different parts, floors or divisions with independent use, in accordance with the CIMI, complies with the same registration rules as properties constituted under a regime of horizontal ownership, with the respective Municipal Property Tax as well as the new stamp duty, being assessed individually in relation to each of the parts, it is clear that the legal criterion for defining the incidence of the new tax should be the same.

Whereby, if the legal criterion under the Municipal Property Tax requires the issue of individualized assessments for the autonomous parts of properties in vertical ownership, in the same manner as it establishes for properties under a regime of horizontal ownership, it clearly established the criterion, which must be unique and unequivocal, for the definition of the rule of incidence of the new stamp duty contained in item 28 of the TGIS.

It is the legislator itself that in the letter of the law tells us that this is the criterion when it makes an unequivocal referral to the CIMI for the purposes of application of the aforesaid item 28 of the stamp duty.

The TA cannot, therefore, consider as the reference value for the incidence of the new tax the total value of the property (total VPT), when the legislator itself established a different rule under the Municipal Property Tax, and this is the code applicable to matters not regulated regarding item 28 of the TGIS.

Having said this, it is clear that the new stamp duty would only be incurred if any of the parts, floors or divisions with independent use had a VPT exceeding € 1,000,000.00, which is not the case in the present case with regard to any of the parts or independent divisions of any of the properties indicated in the present arbitral request. This same fact was unequivocally proven by the documentary evidence produced in the case, summarized in section III, item 9 – proven facts – of the present arbitral decision.

  1. The criterion used by the TA, by considering the value of the sum of the VPT assigned to the parts, floors or divisions with independent use, on the ground that the property is not constituted under a regime of horizontal ownership, finds no legal support and is contrary to the criterion that applies under the Municipal Property Tax and, by referral, under stamp duty, whereby it appears to be illegal.

To the foregoing is added the argument drawn from the law itself expressly establishing, in the final part of item 28 of the TGIS, that the stamp duty to be assessed on urban properties of value equal to or exceeding €1,000,000.00 – "on the tax property value used for the purposes of the Municipal Property Tax." (emphasis ours)

Thus, the interpretation defended by the TA violates the principle of legality and the interpretation underlying it contradicts the principles of fiscal equality, as well as, the prevalence of material truth over legal-formal reality.

The question of the conformity of the provision of the rule of incidence, in light of the constitutional text, would only arise if the interpreter reached the conclusion that a particular and unequivocal reading of the law, applied to a specific case, violated one or several constitutional principles. However, in the case at hand what is in question is an interpretation of the TA that led it to an application of the law without support in the applicable legal and constitutional provisions, suffering from an error regarding the underlying factual and legal requirements for its correct application. In other words, the rules in question do not lead to the solution that the TA professes for their application. If we were to accept as correct such a position, then yes, we would have an application of the law that would clearly violate the constitutional principles invoked by the Applicant.

  1. In summary, the uniform criterion, the only one compatible with the letter of the law and the underlying legislative intent for the introduction of the taxation of "luxury homes" defined as those whose VPT is equal to or exceeding €1,000,000.00, in the case of properties in vertical ownership with fractions or independent divisions, is to consider the value of each of the fractions or divisions, as happens for the purposes of the Municipal Property Tax. In the event that any of those parts has a VPT exceeding €1,000,000.00 the legal requirement for incidence is met, if the value is less than that, there can be no incidence of the tax.

To contend, as the TA does, to use as a reference criterion, specifically for the purpose of application of item 28 of the TGIS, the global VPT, corresponding to the sum of all the VPT of the various parts or independent divisions, is illegal, since it has no support in the applicable legal provisions nor in the legislative intent that led the legislator to the introduction of the new tax. Moreover, the understanding advocated by the TA contradicts the indication expressly introduced by the legislator in this matter, by referring to Article 67, no. of the Stamp Duty Code. What constitutes a violation of law due to an error regarding the factual and legal requirements of application of the rule.

  1. In the case of the present proceedings all the properties in question are in vertical ownership and contain floors and divisions with independent use of which a large part are intended for residential use, as proven above. Given that none of the floors intended for residential use has a tax property value equal to or exceeding €1,000,000.00, as results from the documents attached to the case, it is concluded that the legal requirement for the incidence of stamp duty provided for in Item 28 of the TGIS is not met.

Finally, it is important to ascertain what the underlying legislative intent is of the rule of item 28 of the TGIS, introduced by Law no. 55-A/2012 of 29 October, and in compliance with the provision of Article 9 of the Civil Code, according to which the interpretation of the legal norm should not be confined to the letter of the law, but rather reconstruct from the texts and other elements of interpretation the legislative thought, taking into account the unity of the legal system, the circumstances in which it was drawn up and the specific conditions of the time in which it is applied.

The legislator in introducing this legislative innovation considered as the determining element of contributory capacity the urban properties, with residential use, of high value (luxury), more precisely, of value equal to or exceeding €1,000,000.00, on which it proceeded to assess a special rate of stamp duty, intending to introduce a principle of taxation on wealth manifested in the ownership, usufruct or surface right of luxury urban properties with residential use. For this reason, the criterion was the application of the new rate to urban properties with residential use, whose VPT be equal to or exceeding €1,000,000.00.

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

The basis of the measure designated as "special rate on the highest-value urban residential properties" rests on the invocation of the principles of social equity and fiscal justice, calling on the holders of high-value properties intended for residence to contribute in a more intense manner, assessing the new special rate on "homes of value equal to or exceeding 1 million euros."

Clearly the legislator understood that this value, when attributed to a residence (house, autonomous fraction or floor with independent use) translates a contributory capacity above average and, as such, capable of determining a special contribution to ensure fair allocation of the fiscal burden.

  1. Also following these considerations inspiring the legislative innovation under examination, it must be concluded that the mere existence of a property in vertical or horizontal ownership cannot be, in itself, an indicator of contributory capacity. On the contrary, from the law it follows that one and the other should receive the same tax treatment in obedience to the principles of justice, fiscal equality and material truth. Whereas the existence in each property of independent residences, under a regime of horizontal or vertical ownership, may be capable of triggering the incidence of the new tax if the VPT of each of the parts or fraction be equal to or exceeding the limit defined by law: € 1,000,000.00.

In this way it is illegal and unconstitutional to consider as the reference value either that corresponding to the sum of the VPT assigned to each part or division. First, because that would be a clear violation of the principle of equality and proportionality in fiscal matters. The tax legislator cannot treat equal situations differently. Now, if the properties were constituted under a regime of horizontal ownership, none of its residential fractions would be subject to the incidence of the new tax. Suffice it to consider that, by the TA's criterion, many of the existing urban properties in vertical ownership, despite being older, easily could reach the reference value for the incidence of stamp duty. On the other hand, recently built properties and, sometimes, luxurious ones, under a regime of horizontal ownership, but as long as each fraction does not equal or exceed the value of €1,000,000.00 is not subject to the new tax. In light of Article 104, no. 3 of the Constitution such a situation appears, truly, disproportionate and intolerable, due to a clear violation of equality and fiscal equity.

Thus, it is concluded that the TA cannot distinguish where the legislator itself understood not to do so, under penalty of violating the coherence of the tax system, as well as the principle of fiscal legality provided for in Article 103, no. 2 of the Constitution, and also the principles of justice, equality and fiscal proportionality.

For this very reason Article 12, no. 3, of the CIMI states that "each floor or part of a property capable of independent use is considered separately in the property registration which also specifies the respective tax property value."

From the provision of this rule it results (similar to what was provided for in Article 232, rule 1, of the Code of Property Tax and Tax on Agricultural Industry) that what is relevant for the purposes of registration in the property matrix is the autonomy that, within the same property, can be attributed to each of its parts, economically and functionally independent. What does not appear consistent with the decision of the TA to tax the residential parts of a property in vertical ownership, based on the global VPT of the property, introducing a criterion totally contrary to that provided for in the law, that is, in the Stamp Duty Code and the CIMI, by express referral of the legislator in this matter.

Moreover, the constitution of horizontal ownership entails a mere legal alteration of the property, which for tax purposes does not even require a new assessment of the property. And, indeed, for tax purposes, the manner of constitution of the property in a regime of full or horizontal ownership was not considered in the introduction of the new tax, just as it was not in the CIMI itself, certainly because the legislator was well aware of the injustice that would result from such discrimination. The material truth resulting from the value attributed to each of the parts or independent divisions, expressed in the VPT that is attributed to each of them for the purposes of the Municipal Property Tax and the effective use of the property for residence, is what is required as the determining criterion of contributory capacity and not the mere legal-formal reality of the property.

V – Regarding the request for compensatory interest

  1. Paragraph b), no. 1, Article 24 of the RJAT provides that the arbitral decision on the merits of the claim from which no appeal or challenge is available binds the tax administration from the expiration of the period provided for the appeal or challenge, and this administration - in the exact terms of the substantiation of the arbitral decision in favor of the taxpayer and until the expiration of the period provided for the execution of sentences of tax courts - must restore the situation that would have existed if the tax act object of the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose.

This provision is in line with the provision of Article 100 of the General Tax Law, applicable to the case by force of the provision of paragraph a), no. 1, Article 29 of the RJAT, in which it is established that "the tax administration is obliged, in case of total or partial substantiation of claims or administrative appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided for in the law."

  1. Article 43, no. 1, of the General Tax Law further provides that "compensatory interest is due when it is determined, in a favorable administrative decision or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due."

From the analysis of the evidentiary elements contained in the present case it is possible to infer that the TA had full and complete knowledge of the relevant factual elements for proceeding to the correct assessment of the tax.

With the notification of the arbitral request submitted and the means of proof attached to the request the TA had the possibility to revoke the acts halting their effects, which did not happen. Not having done so and maintaining the assessments tainted with error regarding the requirements, and for this very reason illegal, it is obliged to provide compensation.

Thus, given the provision of Article 61 of the Code of Tax Procedure and Process and considering that the requirements for the right to compensatory interest are met, that is, verified the existence of error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due, as provided for in no. 1 of Article 43 of the General Tax Law, the Applicant is entitled to compensatory interest at the legal rate, calculated on the amount of €55,126.17, counting from the date on which payment was made until its full reimbursement, as a means of achieving the restoration of the situation that would have existed if the illegality had not been committed.

  1. There do not appear to be other relevant issues raised by the parties.

VI - DECISION

In light of the foregoing, this Arbitral Tribunal decides:

A) - To judge as substantiated the claim for declaration of illegality of the Stamp Duty assessments challenged in the present case, as they suffer from the defect of violation of law, due to error regarding the factual and legal requirements, and consequently annulling the corresponding tax acts;

B) - To judge as substantiated the claim for condemnation of the Tax Administration to reimbursement of the amount unduly paid, in the amount of €55,126.17, plus compensatory interest at the legal rate, counted from the day of payment made until the full reimbursement of the mentioned amount, condemning the Tax and Customs Authority to make these payments.

Case Value: In accordance with the provisions of Articles 306, nos. 1 and 2 of the Code of Civil Procedure, Article 97 - A, no. 1, paragraph a), of the Code of Tax Procedure and Process and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of €55,126.17.

Costs: Pursuant to the provision in no. 4, Article 22 of the RJAT and in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €2,142.00, to be borne by the Respondent Tax and Customs Authority.

Let it be registered and notified.

Lisbon, 28 November 2014

The Singular Arbitrator,

(Maria do Rosário Anjos)

[1] This decision is drafted in accordance with traditional Portuguese spelling.

Frequently Asked Questions

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How does Verba 28.1 of the TGIS apply to properties held in full ownership with independent divisions?
Verba 28.1 of the TGIS applies to properties held in full ownership with independent divisions based on the taxable property value (VPT) determination methodology. The central issue is whether the VPT should be calculated by summing all individual division values or by treating each division separately. According to Article 12(3) of CIMI, each floor or division capable of independent use is registered separately in the property registration with its own VPT. However, the Tax Authority has interpreted this to mean that for stamp tax purposes under Verba 28.1, the aggregate value of all divisions constitutes the property's VPT. When this sum exceeds €1,000,000, stamp tax liability is triggered. Taxpayers argue this methodology lacks legal basis for full ownership properties, as opposed to vertical ownership regimes where Article 7(2)(b) of CIMI explicitly addresses separate valuation. The correct application remains contentious and depends on whether full ownership properties with independent divisions should be treated as single taxable units or multiple separate units for stamp tax assessment purposes.
Can multiple stamp tax liquidations on urban properties with independent divisions be challenged through tax arbitration?
Yes, multiple stamp tax liquidations on urban properties with independent divisions can be challenged through a single tax arbitration proceeding at CAAD. Article 3(1) of the Legal Framework for Tax Arbitration (RJAT) and Article 104 of the Tax Procedure and Process Code (CPPT) permit the cumulation of claims when specific requirements are met. In Process 461/2014-T, the Arbitral Tribunal accepted the joint consideration of 154 separate stamp duty assessments because they involved: (1) the same tax (Imposto de Selo under Verba 28.1); (2) the same taxpayer; (3) the same tax year (2013); (4) identical factual circumstances (properties in full ownership with independent divisions); and (5) the same legal questions requiring application of identical legal rules. Although each assessment constituted an autonomous administrative act relating to different properties, the cumulation was procedurally efficient and avoided contradictory decisions. This approach allows taxpayers to challenge systematic assessment practices affecting multiple properties in a single arbitration request, reducing costs and ensuring consistent legal interpretation across related cases.
What are the grounds for annulment of Imposto do Selo assessments under Verba 28 of the Tabela Geral?
The grounds for annulment of Imposto de Selo assessments under Verba 28 of the Tabela Geral include illegality and unconstitutionality challenges to the valuation methodology and tax incidence. In Process 461/2014-T, the applicant alleged that the Tax Authority's practice of summing individual VPT values of independent divisions within full ownership properties to determine stamp tax liability was illegal because no legal provision in CIMI authorizes this aggregation method for properties not constituted under vertical ownership. The applicant argued that Article 12(3) of CIMI establishes separate registration and valuation for each independent division, and this separation should be respected for tax purposes. Additionally, grounds for annulment may include: incorrect application of the €1,000,000 threshold; failure to distinguish between full ownership and vertical ownership regimes; violation of the principle of tax legality (principle of typicality) by extending tax incidence beyond statutory limits; and potential unconstitutionality if the assessment methodology violates constitutional principles of equality, property rights, or legal certainty. Successful annulment requires demonstrating that the assessment violated substantive or procedural legal requirements.
How is the taxable value determined for stamp tax on properties with independent divisions under Portuguese law?
Under Portuguese law, the taxable value for stamp tax on properties with independent divisions is determined according to the CIMI (Código do IMI) valuation rules, but the methodology differs based on ownership structure. For properties under vertical ownership (condominium regime), Article 7(2)(b) of CIMI provides that each autonomous fraction is valued separately. For properties in full ownership with independent divisions, Article 12(3) of CIMI states that each floor or division capable of independent use is considered separately in property registration and assigned its own VPT. However, controversy arises regarding whether these separate VPT values should be summed for stamp tax purposes under Verba 28.1 of TGIS. The Tax Authority's position has been to aggregate all division values to determine if the €1,000,000 threshold triggering stamp tax liability is exceeded. Taxpayers contend this aggregation lacks legal basis and that each division should be treated as a separate taxable unit, particularly when the property is not formally constituted under vertical ownership. The VPT is generally determined through property evaluation procedures under CIMI, considering factors such as location, construction quality, age, and market conditions, with separate calculations for each registrable unit.
What is the procedure for filing a collective arbitration request at CAAD against multiple stamp tax liquidations?
The procedure for filing a collective arbitration request at CAAD against multiple stamp tax liquidations involves several steps under the RJAT (Legal Framework for Tax Arbitration). First, verify that cumulation requirements under Article 3(1) of RJAT and Article 104 of CPPT are met: identity or connection of taxpayers, same type of tax, related factual circumstances, and application of the same legal rules. Second, prepare the arbitration request identifying all contested acts (in Process 461/2014-T, this included 154 separate assessments), the total amount in dispute, and complete identification of affected properties with supporting documentation. Third, submit the request to CAAD with required annexes including copies of all contested liquidation notices, property registrations, and relevant documentation proving ownership and property characteristics. Fourth, the taxpayer may designate an arbitrator or allow automatic designation by CAAD's Ethics Council. Fifth, pay the required arbitration fee calculated on the cumulative amount in dispute. The request must clearly articulate the legal and factual grounds applicable to all contested acts, demonstrating why joint consideration is appropriate. Upon acceptance, CAAD notifies the Tax Authority to file a reply, and the tribunal proceeds according to RJAT procedural rules, potentially waiving the hearing if parties agree and the matter involves purely legal questions without evidence disputes.