Process: 474/2015-T

Date: November 25, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (474/2015-T) addresses the controversial application of Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) to high-value urban properties held under full ownership regimes. The claimant, a Portuguese company, challenged €232,836.54 in Stamp Tax assessments for 2014 on two luxury residential properties in Faro district, each comprising multiple independent units under vertical ownership. The core legal dispute centers on whether the tax authority can aggregate the individual Patrimonial Tax Values (VPT) of separate divisions within a single property to reach the €1 million threshold triggering the special Stamp Tax rate introduced by Law 55-A/2012. The first property (Development B, Lot 1) had a combined VPT of €13,294,230.77, generating €132,942.31 in tax, while the second (Lot 2) valued at €9,989,423.72 produced €99,894.24 in assessments. The claimant argued that applying item 28.1 TGIS to the aggregate value of independent fractions within a full ownership structure constitutes an illegal interpretation of the tax code, as each autonomous unit should be evaluated separately rather than cumulatively. The Tax Authority defended its position by citing Article 6(2) of Law 55-A/2012 and item 28 TGIS, which targets urban properties evaluated under CIMI regulations with values equal to or exceeding €1 million. The arbitral tribunal was constituted as a collective panel of three arbitrators following the claimant's request under the Tax Arbitration Legal Regime (RJAT). The cumulation of claims was accepted given the identity of tax nature, factual circumstances, and legal grounds. The claimant sought full annulment of all assessments plus compensatory interest under Article 43 LGT for amounts already paid, establishing important precedent for interpreting Stamp Tax obligations on complex property ownership structures in Portugal's luxury real estate sector.

Full Decision

ARBITRAL AWARD

CAAD: Tax Arbitration

Case No.: 474/2015-T

Subject Matter: Stamp Duty, item 28 GSTD, full ownership, compensatory interest

The arbitrators Dr. José Pedro Carvalho (Arbitrator-President), Prof. Dr. Maria do Rosário Anjos and Dr. Nuno Pombo, appointed by the Deontological Council of the Administrative Arbitration Center to form the Collective Arbitral Tribunal, constituted on 6 October 2015, hereby render the following award:

I – REPORT

A) The Parties and the Constitution of the Arbitral Tribunal

  1. A…, SA, Legal Entity …, with registered address at Avenue …, No. …, …, Lisbon, hereinafter designated as "Claimant", requested the constitution of a Collective Arbitral Tribunal, under the terms of Article 2, No. 1, subsection a) and Article 10, Nos. 1 and 2 of Decree-Law No. 10/2011, of 20 January, hereinafter designated as "RJAT" and Regulation No. 112-A/2011, of 22 March, for the challenge and declaration of illegality of Stamp Duty (SD) assessments, issued in application of item 28.1 of the General Table of Stamp Duty (GSTD) relating to the year 2014, in the total amount of €232,836.54, seeking their annulment, with reference to the urban properties identified below:

  2. Of the total amount of €232,836.54, to be paid in three installments, the first two had already been paid by the date of submission of the request to constitute an arbitral tribunal, in the amounts of €88,628.42, with reference to the urban property with registry no. … and €66,596.22, with reference to the urban property with registry no. …, totaling €155,224.64. These assessments are duly identified and attached to the file, as well as the respective payment receipts for the installments due in April and July 2015, as per document No. 1 which is deemed fully reproduced.

  3. The request to constitute the Arbitral Tribunal was submitted by the Claimant on 24-07-2015, was accepted by the President of CAAD and notified to the Tax and Customs Authority. The Claimant opted not to designate an arbitrator, whereby, under the terms of No. 1, Article 6 of the RJAT, the arbitrators identified above were appointed by the Deontological Council of the Administrative Arbitration Center on 21-09-2015 to form the Collective Arbitral Tribunal.

  4. Thus, in accordance with the provisions of subsection c), No. 1, Article 11, of the RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Collective Arbitral Tribunal was constituted on 06-10-2015. On 07-10-2015 an arbitral order was issued to the Tax and Customs Authority (ATA) to present a reply within the legal deadline, in the terms and for the purposes of Nos. 1 and 2 of Article 17 of the RJAT.

  5. On 03-11-2015 the Respondent attached to the file its reply and the respective Administrative Process (AP), which are deemed fully reproduced.

  6. On 06-11-2015, the Claimant pronounced itself favorably on the waiver of the meeting provided for in Article 18 of the RJAT, as well as the submission of pleadings, as requested by the ATA in its reply attached to the file. On the same date an arbitral order was issued, in the terms of Articles 16, subsection c), 19 and 29, No. 2 of the RJAT, waiving the holding of the aforementioned meeting, the submission of pleadings and setting a deadline for rendering the Award within thirty days. The Claimant was furthermore notified to make payment of the subsequent arbitration fee up to 10 days prior to the deadline set for rendering the Award.

B) THE REQUEST FORMULATED BY THE CLAIMANT:

The Claimant formulates the present request for arbitral pronouncement, with cumulation of claims, seeking the illegality of the SD assessments, determined under item 28.1 of the GSTD, as stated in Annex I to the arbitral request, which relate to two distinct properties, both owned by the herein Claimant, under a regime of full (or vertical) ownership, namely:

a) Urban property located in the Municipality of ..., district of Faro, registered in the urban property register with registration U-…, with parish code …, described in the Property Registry Office under No. …, designated as Development B… – Lot … …, ..., with total Patrimonial Tax Value (PTV) of €13,294,230.77;

And,

b) Urban property located in the Municipality of ..., district of Faro, registered in the urban property register with registration U-…, with parish code …, described in the Property Registry Office under No. …, designated as Development B… – Lot … …, ..., with total PTV of €9,989,423.72.

On each of these properties the ATA assessed SD, with reference to the year 2014, under item 28.1 of the GSTD, in that the total PTV of each property, calculated on the basis of the sum of the PTVs attributed to each independent part or division, has a value exceeding €1,000,000.00. In accordance with this understanding, the SD due in 2014 for each of the properties described above is €132,942.31 and €99,894.24, respectively.

  1. All assessments issued, relating to the 1st and 2nd installments of SD, in the global amount of €155,224.64, were paid by the Claimant, which are duly identified and attached to the file, as well as the payment receipts for the installments due by the date of submission of the present arbitral request, as appears from document No. 1, attached to the arbitral request, which is deemed fully reproduced.

  2. In summary, to support its request the Claimant alleges that it is illegal to assess SD on the sum of the PTV of the divisions capable of independent use that comprise each of the properties, under a regime of full or vertical ownership, identified in the present file.

It concludes by petitioning for the annulment of all tax assessments challenged, both of the installments already assessed and paid and of the assessments corresponding to the last installment, in the total amount of €232,836.54, corresponding to the value of stamp duty assessed with reference to the year 2014, with all legal consequences, namely, under Article 43 of the General Tax Law (LGT), the processing of the refund plus compensatory interest relating to the amounts corresponding to the installments already paid.

C) On the Cumulation of Claims

The assessments in question relate to the two properties identified above, which although distinct, are characterized by being owned by the herein Claimant and being subject to a regime of vertical ownership, that is, both are composed of various floors and fractions or divisions capable of independent use.

The basis supporting the challenged assessments is founded on items 28 and 28.1 of the GSTD, with which the Claimant does not agree.

The prerequisites for the requested cumulation of claims appear thus to be met, under the terms provided for in Article 104 of the Code of Tax Procedure and Process (CPPT), as there is "identity of the nature of the taxes, the factual and legal grounds invoked and the competent tribunal for the decision".

Thus, the cumulation of claims is accepted as requested by the Claimant.

D – THE RESPONSE OF THE RESPONDENT

The Respondent ATA, duly notified for such purpose, timely presented its reply in which, by way of challenge, it alleged, in summary, the following:

With reference to the year 2014, in compliance with and under the terms of Article 6, No. 2 of Law No. 55-A/2012, of 29/10, which added item No. 28 to the GSTD, as amended by Law No. 83-C/2013 of 31/12, and whose respective rule of incidence refers to urban properties, evaluated under the Code of Municipal Property Tax (CIMI), with PTV equal to or exceeding €1,000,000.00 and, under its No. 28.1, with residential destination. Accordingly, the ATA proceeded to assess the tax which is the subject of the present request for arbitral pronouncement.

Article 44, No. 5, of the Code of Stamp Duty (CSD), as amended by Law No. 55-A/2012, of 29/10, provides that, where assessment is required, the tax referred to in item 28 of the GSTD is paid in the deadlines, terms and conditions defined in Article 120 of the CIMI.

Now, what is at issue here is an assessment that results from the direct application of the legal norm, which translates into objective elements, without any subjective or discretionary assessment.

The concept of property is defined in Article 2, No. 1 of the CIMI, and it is provided in No. 4 thereof that, under the regime of horizontal ownership, each autonomous fraction is deemed to constitute a property.

It follows from the analysis of the normative provision that a "property under full ownership with floors or divisions capable of independent use" is, unequivocally, distinct from an immovable under the regime of horizontal ownership, composed of autonomous fractions, that is, of several properties.

It concludes by seeking the legality of the SD assessments challenged and the dismissal of the arbitral request.

II - PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is regularly constituted. It is materially competent, under the terms of Article 2, No. 1, subsection a) of the RJAT.

The Parties possess legal personality and capacity, are legitimate and are legally represented (cf. Articles 4 and 10 No. 2 of the RJAT and Article 1 of Regulation No. 112/2011, of 22 March).

The proceeding does not suffer from defects that would render it invalid.

Taking into account the administrative tax process, the documentary evidence attached to the file, it is necessary to establish the factual matter relevant to the understanding of the decision, which is established as follows.

III – Factual Matters

A) Established Facts

As relevant factual matter, this tribunal deems the following facts to be established:

a) The Claimant was the owner, on the date of the taxable event at issue in the present proceeding, of two urban properties, under a regime of full (or vertical) ownership, namely:

i. Urban property located in the Municipality of ..., district of Faro, registered in the urban property register with registration U-…, with parish code …, described in the Property Registry Office under No. …, designated as Development B… – Lot … …, ..., with total PTV of €13,294,230.77;

ii. Urban property located in the Municipality of ..., district of Faro, registered in the urban property register with registration U-…, with parish code …, described in the Property Registry Office under No. …, designated as Development B… – Lot … …, ..., with total PTV of €9,989,423.72.

b) On each of these properties the ATA assessed SD, with reference to the year 2014, under item 28.1 of the GSTD, in that the total PTV of each property, calculated on the basis of the sum of the PTVs attributed to each independent part or division, has a value exceeding €1,000,000.00.

c) The SD determined under the terms set out above, with reference to the year 2014, for each of the properties described above, is €132,942.31 and €99,894.24, respectively.

d) The properties in question are composed of various floors with divisions capable of independent use, intended for housing and comprised, on the date of the taxable events at issue in the present proceeding, the following composition:

i. The property designated as Development B… – Lot … …, was composed of 3 floors and 42 floors or divisions capable of independent use, with residential destination, whose PTV was determined separately, under Article 7, No. 2, subsection b) of the CIMI.

ii. Each of the floors or independent divisions of this property had, on the date of the taxable events at issue in the present proceeding, an attributed PTV, determined under the provisions of the CIMI, comprised between €253,780.00 and €389,130.00, with the sum of their respective PTV amounting to the total value of €13,294,230.77;

iii. As for the property designated as Development B… – Lot … …, it was composed of 3 floors and 44 floors or divisions capable of independent use, with residential destination, whose PTV was determined separately, under Article 7, No. 2, subsection b) of the CIMI.

iv. Each of the floors or independent divisions of this property had, on the date of the taxable events at issue in the present proceeding, an attributed PTV, determined under the provisions of the CIMI, comprised between €216,650.00 and €221,850.00, with the sum of their respective PTV amounting to the total value of €9,989,423.72;

e) The ATA, for the year 2014, assessed SD by reference to item 28.1 of the GSTD, for each of the properties described above, on the sum of the patrimonial value of the floors/parts with residential destination;

f) In accordance with this, SD was assessed with reference to the year 2014 in the following amounts:

i. On the property designated as Development B…, Lot …-…, SD was assessed in the amount of €132,942.31, to be paid in 3 installments;

ii. On the property designated as Development B… - Lot … …, SD was assessed in the amount of €99,894.24, to be paid in 3 installments;

g) The challenged assessments relating to the two properties described in the present file total the amount of €232,836.54.

h) On the date of submission of the present arbitral request, the Claimant had voluntarily paid the SD assessments (1st and 2nd installments) which are attached to the file, in the amount of €155,224.64, as per document No. 1 (assessments and payment receipts), which is deemed fully reproduced;

i) For purposes of Municipal Property Tax each part or division capable of independent use has an individual PTV attributed, as appears from the respective property cards attached to the file, as documents Nos. 2 and 3, respectively for each property, which are deemed fully reproduced.

B) NON-ESTABLISHED FACTS

As relevant to the decision, there are no facts that should be considered as non-established.

C) BASIS FOR ESTABLISHED FACTS

The facts described above were established based on the documentary evidence that the parties attached to the present proceeding.

With respect to factual matters, the Tribunal need not pronounce on everything alleged by the parties; rather, it is incumbent upon it to select the facts that matter for the decision and to distinguish established from non-established matters [cf. Article 123, No. 2, of the CPPT and Article 607, No. 3 of the Code of Civil Procedure (CCP), applicable ex vi Article 29, No. 1, subsections a) and e), of the RJAT]. Thus, the facts relevant to the determination of the case are chosen and selected according to their legal relevance, which is established in consideration of the various plausible solutions to the question(s) of Law [cf. prior Article 511, No. 1, of the CCP, corresponding to current Article 596, applicable ex vi Article 29, No. 1, subsection e), of the RJAT].

Thus, taking into account the positions assumed by the parties, the documentary evidence and the AP attached to the file, the facts listed above were deemed established, as relevant to the decision, which were moreover consensually recognized and accepted by the parties.

IV – THE LAW: Basis of the Merit Decision

  1. Having established, in the manner set out above, the factual matters, it is necessary to address the legal question raised by the Claimant, which consists of assessing the terms of the configuration of the subjective scope of SD provided for in item 28 of the GSTD, in the specific case of properties under a regime of full (or vertical) ownership, composed of various floors with divisions or parts capable of independent use.

It is necessary to decide.

  1. At issue in the file, in the first place, is the question of whether the owner(s) of a property under full (or vertical) ownership, composed of divisions capable of independent use, whose PTV was determined separately under Article 7, No. 2, subsection b) of the CIMI, is/are subject to the incidence of SD, by force of the provision of item 28.1 of the GSTD, on the sum of the PTV of those divisions, when none of the said divisions possesses a PTV exceeding €1,000,000.00, but the sum of their respective PTV exceeds this amount.

From the argumentative framework presented by the parties, it is concluded that for the ATA, the criterion for determining the incidence of SD, provided for in item 28.1 of the GSTD, of properties under full (or vertical) ownership, with floors and divisions with independent use with residential destination, corresponds to the sum of their respective PTVs attributed to the parts or divisions. It was this understanding that led to the SD assessments here challenged and which the Claimant contests, believing that such judgment is unconstitutional and illegal, which motivated the submission of the present request for constitution of an Arbitral Tribunal.

  1. This question has already been the subject of recurring consideration in arbitral proceedings, and the case law is consistent in the direction of a negative answer, as can be seen, by way of example, in decisions rendered in cases Nos. 48/2013-T, 49/2013-T, 50/2013-T, 53/2013-T, 132/2013-T, 181/2013, 183/2013-T, 248/2013-T and 280/2013-T, 30/2014-T, among others.

In the same sense, the Supreme Administrative Court (SAC) recently pronounced itself, in an Award in which His Excellency Judge Counselor Francisco Rothes was Rapporteur, in which it was decided:

"I - With regard to properties under vertical ownership, for purposes of incidence of Stamp Duty (Item 28.1 of the GSTD, as amended by Law No. 55-A/2012, of 29 October), the subjection is determined by the combination of two factors: residential destination and PTV appearing in the register equal to or exceeding €1,000,000.

II - Where it is a property constituted under vertical ownership, the incidence of SD should be determined, not by the PTV resulting from the sum of the PTV of all divisions or floors capable of independent use (individualized in the property register), but by the PTV attributed to each of those floors or divisions intended for housing." [1]

Notwithstanding the foregoing, the Respondent ATA has maintained the understanding set out in the present file, seeking an interpretation based on formal concepts, notably with respect to the concept of property for purposes of incidence of SD. Now, on the fundamental question at hand, it may be said that the first limit of interpretation is the letter of the law, but not the only one. The interpretive task requires something more, that is, from the text of the norm one must discover the underlying ratio legis, "a task of interconnection and valuation that escapes the literal domain" [2], in other words "the jurist must always keep before his eyes the purpose of the law, that is, the practical result it is intended to achieve".[3]

In accordance herewith, the question centers on the interpretation of the rule of incidence, as it is expressed in the legal provision of items 28 and 28.1 of the GSTD, referring to "ownership, usufruct or surface right of urban properties, with residential destination (28.1) whose patrimonial tax value appearing in the register, under the terms of the CIMI, shall be equal to or exceeding 1,000,000.00 euros – on the patrimonial tax value used for the purposes of Municipal Property Tax".

Now, it appears that such legal provision does not accommodate the understanding adopted by the ATA, persistent and recurrent, according to which as to properties "with residential destination" under vertical ownership, with floors or divisions capable of independent use, the PTV on which SD tax should bear should be the total PTV, corresponding to the sum of the PTVs attributed individually to each fraction, part or independent division.

Such understanding is, from the outset, contradicted by the very letter of the law, when it unequivocally refers to the application of the principles in force under Municipal Property Tax, which means that the incidence for purposes of SD – items 28 and 28.1 of the GSTD – should bear on each floor or division capable of independent use (similarly to what happens with properties under horizontal ownership), just as occurs under Municipal Property Tax.

That is, for purposes of Municipal Property Tax, each part or division capable of independent use is, as we know, taxed individually, according to the individual PTV attributed for this purpose. The reference to the CIMI, which the legislator introduced, expressly and unequivocally, in the letter of the law (items 28 and 28.1 of the GSTD) can only have one meaning, which offers no doubt: it is that very PTV (individual, of each part or independent division) which is the reference for purposes of incidence of SD enshrined in items 28 and 28.1 of the GSTD.

  1. For convenience, and with due apology, the reasoning contained in Arbitral Decision No. 280/2013-T is transcribed here, being particularly concise and precise:

"The legal question to be resolved in the first place is whether, in accordance with the provision of item 28.1 of the GSTD, one should or should not consider the sum of the PTV of each of the parts or divisions capable of independent use, given that none of them has a value equal to or exceeding €1,000,000.00;

Taking into account that the CSD refers to the CIMI for the regulation of the concept of property and matters not regulated as to item 28 of the GSTD (No. 6 of Article 1 and No. 2 of Article 67 both of the CSD), it is in the CIMI that we must observe the concepts that will allow us to resolve the question; (emphasis ours)

The generalist concept of property is contained in Article 2 of the CIMI. In Article 3 of the same statute the legislator, using criteria of destination and location, established the concept of rural properties, coming then, in a classification by negation, in its Article 4, to establish that urban properties will be all those that should not be classified as rural;

In No. 2 of Article 5 of the same Code the legislator establishes the concept of mixed properties which will be those in which there exist distinct rural and urban economic realities and there is no subordination of one to the other;

Article 6 of the said CIMI divides urban properties into: residential, commercial, industrial or for services, land for construction and others;

In the present case we are in the presence of an urban property with parts or divisions capable of independent use with residential destination and others with commercial destination, it is a property with parts classifiable under the residential division of subsection a) of No. 1 of Article 6 and with parts classifiable under subsection b) of the same No. and article, but in no way will it be a mixed property in the concept established in the already cited Article 5 of the CIMI;

Each of the parts or divisions capable of independent use that compose the immovable in question fulfills the concept of property established in Article 2 of the CIMI, they are physically and economically independent and are part of the patrimony of a legal entity;

Moreover, the TA in eliminating the PTV of the parts or divisions with destination other than residential, for purposes of taxation in SD, did nothing more than use the criterion defined in No. 4 of Article 2 of the CIMI for properties under the regime of horizontal ownership;

In other words, the TA, to effect this elimination, considered that the parts or divisions capable of independent use were true autonomous parts of a property under vertical ownership fulfilling the concept of property;

And did nothing more than observe what is provided in No. 3 of Article 12 of the CIMI: 'each floor or part of a property capable of independent use is considered separately in the property registration, which also discriminates its respective patrimonial value'.

Likewise, the TA in making taxation in Municipal Property Tax did so by separately taxing the PTV of each of the parts or divisions capable of independent use;

The TA used the same criterion in taxation in SD, in making its calculation on the PTV of each of the parts or divisions with independent use with residential destination, only that in the end it considered the global PTV, finding it to be exceeding €1,000,000.00 and summed the amounts of SD calculated individually;

But this procedure has no legal support, given that none of the parts or divisions with independent use with residential destination, each of them fulfilling the concept of property enunciated in Article 2 of the CIMI, has a PTV equal to or exceeding €1,000,000.00, the requirement necessary for there to be taxation in SD;

To effect taxation in SD considering the global PTV of the property, even if the PTV of the parts or divisions not destined for housing is eliminated, as the respondent seeks, finds no support in the CIMI, as per the reference in No. 2 of Article 67 of the CSD;

Nor should it be said that there is a different valuation and taxation of an immovable under full ownership with parts or divisions capable of independent use, compared to an immovable under horizontal ownership. In truth, it does not exist in Municipal Property Tax and could not exist in SD, given that, as has already been said, the applicable legislation is the same;

From this perspective and considering that none of the parts or divisions capable of independent use with destination or residential destination has a PTV equal to or exceeding €1,000,000.00, it is necessarily concluded that the acts of assessment of SD are illegal for failure to observe the conditions defined in item 28 of the GSTD."

What is stated above is, of itself, sufficiently clear to demonstrate that the thesis defended by the ATA cannot succeed. A proper reading of the scope of the rule of incidence provided in items 28 and 28.1 of the GSTD, in light of what No. 7 of Article 23 of the CSD allows to conclude regarding the determination of the taxable matter and subsequent operation of assessment of the tax that: "Where the tax is owed for the situations provided 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."

Now, No. 3 of Article 11 of the LGT further provides: "if doubt persists regarding the meaning of the rules of incidence to be applied, the economic substance of the taxable facts should be taken into account".

In the case at hand, the correct interpretation of the legal norm contained in items 28 and 28.1 of the GSTD should take into account the "economic substance of the taxable facts" in order to properly implement the "necessary adaptations of the rules contained in the CIMI" for the proper assessment of the legal matter in question. Without forgetting the respect for the "unity of the legal system", which is imposed, from the outset, by the coherence of values or axiology of the legal order". This is, without doubt, a determining factor for a correct interpretation of the legal norm. Now, the legislator expressed its thinking coherently on this matter by introducing a comprehensive reference to the principles contained in the CIMI.

Given this, the delimitation of the scope of the rule of incidence of this new tax should follow the orientation of the letter and spirit of the law. In the first place, therefore, account must be taken of what is expressly provided in items 28 and 28.1 of the GSTD, with the "necessary adaptations of the rules contained in the CIMI", as results from No. 7 of Article 23 of the CSD.

It is thus important to bear in mind that the subjection to SD of properties with residential destination resulted from the addition of item 28 to the GSTD, effected by Article 4 of Law 55-A/2012, of 29/10, which typified the following taxable events:

"28 – Ownership, usufruct or surface right of urban properties whose patrimonial tax value appearing in the register, under the terms of the Code of Municipal Property Tax (CIMI), shall be equal to or exceeding €1,000,000.00 – on the patrimonial tax value for purposes of Municipal Property Tax:

28-1 – For properties with residential destination – 1%

28.2 – For properties, when the taxable persons are not natural persons and are resident in a country, territory or region subject to a clearly more favorable tax regime, appearing on a list approved by decree of the Minister of Finance – 7.5%."

Law 55-A/2012 says nothing about the qualification of the concepts in question, notably regarding the concept of "property with residential destination." But Article 67, No. 2 of the CSD, added by the said Law, provides that "to matters not regulated in the present code relating to item 28 of the General Table, the CIMI applies subsidiarily."

The rule of incidence thus refers to urban properties, whose concept is what results from Article 2 of the CIMI, with the determination of the PTV obeying the terms of Article 38 and following of the same code. Consulting the CIMI, it is found that its Article 6 merely indicates the different types of urban properties, among which it mentions residential ones (see subsection 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 a license, that have each of these purposes as their normal destination."

From the normative provisions referred to, we can conclude that, from the legislator's point of view, what matters is not the legal-formal rigor of the specific situation of the property (it is indifferent whether it is under vertical or horizontal ownership) but rather its normal use, the purpose to which the property is effectively destined.

We furthermore conclude that for the legislator the situation of the property under vertical or horizontal ownership was not relevant, as no reference or distinction is made between them. An identical conclusion is drawn from the reference the legislator introduced in matters of SD to the CIMI. Now, this tax establishes as criterion for properties under vertical ownership the attribution of a PTV to each of the independent parts or divisions. What is relevant, therefore, is the material truth underlying its existence as an urban property and its use, that is, "with residential destination".

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

From 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 deemed to constitute a property." Adding further that No. 3 of Article 12 of the CIMI states that "Each floor or part of a property capable of independent use is considered separately in the property register which also determines its respective patrimonial tax value". (emphasis ours)

The criterion of "opportunity" adopted by the ATA does not appear to accord with the law, nor with the principle of fiscal legality, whereby the challenged assessments are tainted by a defect of violation of law, by manifest error as to the factual and legal prerequisites.

Thus, the interpretation defended by the ATA violates the principle of fiscal legality, and moreover, its application to the specific case would also violate the principles of equality, justice and proportionality, all enshrined in the Constitution of the Portuguese Republic. Its practical result would lead, for example, to the taxation of a property under vertical ownership by force of the sum of the individual values of its independent parts or divisions (as occurs in the case at hand) and to the non-taxation of fractions of properties constituted under the regime of horizontal ownership, even if each fraction had a PTV of €999,999.00. It further happens that, by the ATA's criterion, many of the urban properties existing under vertical ownership, despite being older, could easily reach the reference value for incidence of SD, while properties of recent and sometimes luxurious construction, under the regime of horizontal ownership, but whose PTV per fraction does not equal or exceed the value of €1,000,000.00, is not subject to the tax. Now, it offends sensibility and the fundamental ethical minimum underlying the interpretation and application of legal norms that would lead to such a solution. Finally, such interpretation (as the ATA claims) would also translate into a clear offense to the principle of interpretation in conformity with the Constitution, bearing in mind the principles of equality and fiscal equity, legality, proportionality and justice, enshrined in Articles 13, 103, 104, No. 3, of the CRP, as well as in Article 5, Nos. 1 and 2, of the LGT.

The fiscal legislator could not treat equal situations differently, nor did it wish to nor express it in the letter of the law. But if doubts existed, recourse to the ratio legis and the principles of interpretation set out above would always lead us in the opposite direction to what has been defended by the Respondent. If the properties at issue in the present file were under the regime of horizontal ownership, none of its residential fractions would be subject to the incidence of the tax intended to tax luxury properties or dwellings.[4]

Moreover, as has already been said, the legislator's thinking expressed in the rule of incidence, by referring to the application of the CIMI, was clear and unequivocal, following the principle of prevalence of material truth over legal-formal reality and of uniformity of the legal system.

  1. To everything that has been stated, the following will be added: even if, hypothetically, it were permissible to consider that in cases of properties under full (or vertical) ownership, composed of divisions capable of independent use, SD could be required on the entirety of the property if the value fixed in item 28.1 of the GSTD were reached, such value would have to be fixed autonomously, through its own valuation, and not through the sum of the values in which each of the parts capable of independent use was, autonomously, valued. Effectively, and as is evident, the "market value" of the whole will not necessarily – and will not, as a rule – be equal to the sum of the parts, it being well known to be easier and more lucrative (which may even constitute part of the economic foundation of the horizontal ownership institute) the sale "in parts" than the sale of the whole as a unit, beginning with the broadening of the market which the substantially lower price of the parts in relation to the whole brings.

  2. Moreover, and moreover, it will be this increment of economic value resulting from the division that will justify an independent valuation of each autonomous part of the property under full ownership, so as to ensure that there is no less fiscal revenue, under Municipal Property Tax and Property Transfer Tax, due to the fact that the division of the property does not have legal correspondence in the form of horizontal ownership. In other words, the partition of the property always entails an increase in the value of the whole, as the "market value" of the whole will be, (at least) as a rule, lower than the "market value" of the parts, separately.

  3. Therefore, and at most, should the ATA have intended, legitimately, to apply item 28.1 of the GSTD to a property under full (or vertical) ownership, composed of divisions capable of independent use, it would always have been obliged to a valuation of it as a whole (which would be a credible approximation to its "market value" in "bulk") and not as the sum of the parts (in "retail"), beginning with the fact that these are not capable of being, in a valid manner, placed on the "market" separately.

In the case of the present file the properties in question are under vertical ownership and contain floors and divisions with independent use, intended for housing, as was proven above. Given that none of the floors intended for housing has patrimonial tax value equal to or exceeding €1,000,000.00, as results from the documents attached to the file, it is concluded that the legal prerequisite for incidence of SD provided in item 28.1 of the GSTD has not been met.

  1. Thus, the ATA having not presented, and no reason being discovered on its own motion to depart substantively from the arbitral case law cited, as well as from the Supreme Administrative Court case law mentioned above, with the additions formulated above, the above-cited case law is adopted without further consideration, rendering judgment in favor of the arbitral request formulated in the present proceeding.

V - Compensatory Interest

  1. The Claimant cumulates with the request for annulment of the tax acts which are the subject of the present file, the request for condemnation of the ATA to pay compensatory interest.

In light of the favorability of the annulment request, the installments which, relating to the tax acts annulled, are found to have been paid by the Claimant, must be refunded, if necessary in execution of judgment. In the case at hand, it is manifest that the illegality of the assessment acts, the amount of which the Claimant paid, is attributable to the ATA, which, on its own initiative, carried them out without legal support.

Consequently, the Claimant has the right to compensatory interest, under the terms of Articles 43, No. 1, of the LGT and 61 of the CPPT. Compensatory interest is due from the date of the payments made and calculated on the basis of the respective amount, until their full refund to the Claimant, at the legal rate, under the terms of Articles 43, Nos. 1 and 4, and 35, No. 10, of the LGT, 61 of the CPPT and 559 of the Civil Code and Regulation No. 291/2003, of 8 April (without prejudice to any subsequent amendments to the legal rate).

  1. It further happens that, in accordance with the provision of subsection b) of Article 24 of the RJAT, the arbitral decision on the merit of the claim which is not subject to appeal or challenge binds the tax administration from the end of the deadline provided for appeal or challenge, with the latter being required, in the exact terms of the favorability of the arbitral decision in favor of the taxpayer and up to the end of the deadline provided for spontaneous execution of decisions of tax tribunals, to "re-establish the situation that would exist if the tax act which is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for such purpose", which is in consonance with the provision in Article 100 of the LGT [applicable by force of subsection a) of No. 1 of Article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial favorability of a claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full re-establishment of the legality of the act or situation subject of the dispute, including payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although Article 2, No. 1, subsections a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in the CAAD, making no reference to condemning decisions, it should be understood that the competences of such tribunals include the powers which, in proceedings for judicial challenge, are attributed to tax tribunals, this being the interpretation which accords with the sense of the legislative authorization on which the Government based itself to approve the RJAT and in which it is proclaimed, as a first guideline, that "the tax arbitration proceeding should constitute an alternative procedural means to the process of judicial challenge and to the action for recognition of a right or legitimate interest in tax matters".

  1. The process of judicial challenge, despite being essentially a process of annulment of tax acts, admits the condemnation of the tax administration to pay compensatory interest, as is inferred from Article 43, No. 1, of the LGT, in which it is established that "compensatory interest is due when it is determined, in gracious claim or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due" and Article 61, No. 4 of the CPPT (as amended by Law No. 55-A/2010, of 31 December, which corresponds to No. 2 in the initial wording), which provides that "if the decision recognizing the right to compensatory interest is judicial, the deadline for payment is counted from the beginning of the deadline for its spontaneous execution".

  2. Thus, No. 5 of Article 24 of the RJAT, in stating that "payment of interest is due, regardless of its nature, under the terms provided in the general tax law and in the Code of Tax Procedure and Process" should be understood as permitting recognition of the right to compensatory interest in the arbitration proceeding. In the case at hand, it is manifest that, following the declaration of illegality and consequent annulment of the challenged assessment acts, there is occasion for tax refund, by force of the aforementioned Articles 24, No. 1, subsection b), of the RJAT and 100 of the LGT, as this is essential to "re-establish the situation that would exist if the tax act which is the subject of the arbitral decision had not been carried out", in the part corresponding to the correction that was considered illegal.

Thus, the ATA should give execution to the present award, under the terms of Article 24, No. 1, of the RJAT, determining the amount to be refunded to the Claimant and calculating the respective compensatory interest, at the legal rate supplementary to civil debts, under the terms of Articles 35, No. 10, and 43, Nos. 1 and 5, of the LGT, 61 of the CPPT, 559 of the Civil Code and Regulation No. 291/2003, of 8 April (or statute or statutes that succeed it).

Compensatory interest is due from the dates of the payments made until the date of processing of the credit note, in which they are included (Article 61, No. 5, of the CPPT).

VI - DECISION

In these terms, the Collective Arbitral Tribunal herein renders judgment:

a) To render judgment in favor of the arbitral request formulated and, in consequence, to annul the tax acts which are the subject of the present file and to condemn the ATA to refund to the Claimant the amounts of tax which have been paid, plus compensatory interest, to be counted from the date on which payment of each of the installments in question was made;

b) To condemn the ATA to the costs of the proceeding, in the amount of €4,284.00.

VALUE OF THE CASE

The value of the case is fixed at €232,836.54, under the terms of Article 97-A, No. 1, a), of the CPPT, applicable by force of subsections a) and b) of No. 1 of Article 29 of the RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

COSTS

The value of the arbitration fee is fixed at €4,284.00, under the terms of Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, as the request was entirely successful, under the terms of Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the said Regulation.

Notify hereof.

Lisbon, 25 November 2015

The Collective Arbitral Tribunal,

Dr. José Pedro Carvalho (Arbitrator President)

(Prof. Dr. Maria do Rosário Anjos) - Rapporteur

(Dr. Nuno Pombo)

[1] See SAC Award, of 09-09-2015, rendered in case No. 047/15, available at www.dgsi.pt)

[2] In this sense, see BAPTISTA MACHADO (1983) Introduction to Law and to Legitimating Discourse, Almedina Coimbra, pages 181 et seq.

[3] In this sense, see FRANCESCO FERRARA, Interpretation and Application of Laws – translated by Manuel A. Domingues de Andrade (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, page 137 et seq. Or still, in the same sense, see Manuel A. Domingues de Andrade, in Essay on the Theory of Interpretation of Laws. Collection Stvdivm, Philosophical, Legal and Social Themes (1978) 3rd edition, Arménio Amado – Editor Successor, Coimbra, page 23 et seq.

[4] This is likewise concluded from the analysis of the discussion of the bill 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 justification for the measure designated as "special tax on high-value residential urban properties" is based on the invocation of the principles of social equity and fiscal justice, calling upon to contribute in a more intense manner the holders of properties of high value intended for housing, making the new special tax bear on "homes of value equal to or exceeding 1 million euros."

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto do Selo) obligation under clause 28.1 of the TGIS for high-value urban properties in Portugal?
Under clause 28.1 of the TGIS, introduced by Law 55-A/2012 and amended by Law 83-C/2013, urban properties with residential destination that have a Patrimonial Tax Value (VPT) equal to or exceeding €1,000,000 are subject to an annual Stamp Tax. The tax is assessed on properties evaluated under the Municipal Property Tax Code (CIMI) and must be paid in installments according to the deadlines established in Article 120 of CIMI. This special tax regime was created to impose additional taxation on high-value real estate assets, with the tax calculation based on the property's official valuation for property tax purposes.
How does full property ownership (propriedade total) affect Stamp Tax liability on real estate valued over €1 million?
Full property ownership (propriedade total or vertical ownership) creates interpretative challenges for Stamp Tax liability under item 28.1 TGIS when a single building contains multiple independent units. The central controversy is whether the €1 million threshold should be calculated by aggregating the individual VPTs of all autonomous fractions within the property or by evaluating each division separately. Tax authorities have adopted the position that the total combined value of all independent units comprising the property determines liability, meaning properties held under full ownership with aggregate values exceeding €1 million trigger the tax even if individual units fall below the threshold. Taxpayers contest this interpretation, arguing each autonomous division should be assessed independently for Stamp Tax purposes.
Can taxpayers claim compensatory interest (juros indemnizatórios) when challenging unlawful Stamp Tax assessments at CAAD?
Yes, taxpayers can claim compensatory interest (juros indemnizatórios) when successfully challenging unlawful Stamp Tax assessments at CAAD. Under Article 43 of the General Tax Law (LGT), when tax amounts are paid and subsequently determined to have been illegally assessed, the tax administration must refund the principal amount plus compensatory interest calculated from the payment date until the refund date. In arbitration requests filed at CAAD, claimants routinely petition for annulment of contested assessments 'with all legal consequences,' explicitly including the processing of refunds with compensatory interest for installments already paid. This statutory right ensures taxpayers are compensated for the financial cost of having funds improperly retained by the tax authority during the dispute resolution period.
What is the procedure for filing a tax arbitration request at CAAD to dispute Stamp Tax liquidations?
To file a tax arbitration request at CAAD to dispute Stamp Tax liquidations, taxpayers must submit a formal request under Articles 2(1)(a) and 10 of the Tax Arbitration Legal Regime (RJAT - Decree-Law 10/2011). The request must identify the contested assessments, specify the amounts challenged, attach supporting documentation including assessment notices and payment receipts, and state the legal grounds for illegality. Taxpayers can choose to appoint an arbitrator or allow the CAAD Deontological Council to designate the arbitral panel. Upon acceptance by the CAAD President, the Tax Authority is notified and must submit a reply with the administrative file. The tribunal is formally constituted, and parties may waive the oral hearing and submit written pleadings. Claimants must pay arbitration fees according to the established fee schedule based on the amount in dispute.
How did the CAAD Arbitral Tribunal rule on the legality of 2014 Stamp Tax assessments under verba 28 TGIS?
While the complete arbitral decision is not included in the provided excerpt, the case report establishes that the CAAD Collective Arbitral Tribunal was properly constituted to evaluate the legality of 2014 Stamp Tax assessments under item 28 TGIS. The tribunal accepted cumulation of claims for both properties given the identity of tax nature, factual circumstances, and legal grounds under Article 104 CPPT. The central legal question before the arbitrators was whether the Tax Authority's methodology of aggregating the VPTs of independent fractions within properties held under full ownership to determine the €1 million threshold constituted a lawful application of item 28.1 TGIS, or whether this interpretation violated proper tax assessment principles for properties with autonomous divisions capable of independent use.